The Decisive | Season 6 Ep.1 - Risk On: The Macro Environment for Moving Metals Prices

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Kristen Hallam:

You're listening to the Decisive Podcast. Insights and analysis to empower confident decision making. Hello and welcome to season six of the Decisive Podcast. I'm your host Kristen Hallam. This episode features Jason Kaplan, senior economist on the pricing and purchasing team at S&P Global Market Intelligence and is taken from a March 12 client webinar. Jason provides us with macroeconomic context, noting that growth may stay steady but depressed as the pricing landscape becomes more unstable due to risk and policy shocks, especially tariffs and geopolitics. Jason walks us through why this environment doesn't look like a simple inflation up, inflation down story. Instead, we're seeing regional divergence, margin compression and commodity-specific supply constraints that can overwhelm weak demand. A core theme is that tariffs take time to show up in realized prices, but that lag is ending.

Jason explains that earlier tariff rounds were often absorbed or sidestepped through supply chain workarounds. But now US input costs are rising more visibly and some firms report they can't fully pass those costs on. Using insights tied to S&P Global's Purchasing Managers Indexes, Jason highlights a widening gap, especially in the US, between input price pressure and pricing power, a setup that can squeeze profitability even when headline growth doesn't collapse. From there, Jason connects the macro picture to metals, where procurement teams often feel volatility first. He outlines why copper has moved into a structurally higher regime supported by tight supply and demand linked to AI data centers, grid build out and defense, with supply problems persisting into 2029-2030. He also explains why aluminum is a different situation, not a raw material shortage, but a midstream smelting capacity constraint tied to energy economics. Let's listen now to what he has to say.

 

Jason Kaplan:

We see the proliferation of risks hitting many of the commodities we follow. After we publish that, then we see this Iranian conflict start. So what it really highlights is that we’re very much a risk-on environment. Now we'll be looking at the Iranian conflict just marginally as we go through, but that hasn't been the focus of our forecast this quarter. The topic will be macroeconomic. I'll be covering that and then looking at some of the direct impacts on nonferrous metals. In terms of macroeconomic overview, our view, and certainly and as I say this was before the Iranian conflict, was that we saw that things were actually very similar to what we had before with a lot of uncertainty and quite steady growth going forward. But as I say this is a risk-on environment which is feeding into many of our commodities.

When we go back and think about what our predictions were, these were the predictions from the end of 2025 and seeing how we're doing in terms of what is transpiring over 2026, I think many of them hold and perhaps are becoming more established. We are seeing manufacturing, construction, they are continuing. And we have been somewhat surprised by the strength of how well economic growth has stood up and has improved slightly more than we had thought it was going to be. But really, apart from defense and AI, much of the economic growth has been almost flat. As part of some of these policy shifts we're seeing and things like tariffs and regionalization, we are seeing different markets move somewhat differently. And this is a new development or a strengthening of development we had historically but had largely gone away as globalization had happened and most of the world moving in step. And one of the key drivers that is tariffs. And I'll come into that in a moment.

But now a year or so since the latest bout of tariffs has started, we can now show how tariffs are affecting both prices and demand in specific sectors. And I will say that unfortunately, if we're in the U.S., we have seen a long lag before these tariffs have started feeding enterprises. But now we can clearly see that has started. So our view is actually a lot of the pain which US manufacturers potentially will feel hasn't yet appeared. So all in all, we believe on many of the same drivers that we saw last year with relatively little change. So I just wanted to look at, as I say, tariffs. Given that we have had a year since they were bolstered or started coming in more strongly, we can actually see if that impact has featured either in prices or in supply, this case aluminum.

When they were, in the first time section 232 was used, we did see prices rise very quickly to what the tariff rate was and then fall down as things like the USMCA allowed companies to avoid the tariffs by perhaps going downstream or using Mexico and Canada as their supply base. Since the new regime has developed or added to them and the tariff rate on aluminum has risen to 50%, it has been a lag. It wasn't as quite as reflexive all the way up to 50%. But we are now at that level. I will say the last month can be a bit polluted. So we discount that slightly until we confirm those numbers. The other thing to note is how effective it has been on imports. In September 2025, we saw tariffs of 50% bought in on copper-intensive products.

And that included things like cable and wire, theoretically materials that are needed for AI in the building out of data centers. But the impact on imports has been extreme. We saw a little bit of rise before they came in and then a virtual collapse of it. Now these are the US numbers, the Canadian numbers are a little more optimistic in saying that they exported more than this number is showing, but it's not much. So what we are seeing is an almost instant response to tariffs coming in really to the level of tariffs. Although there has been a lag up to now. I think this view is even clearer when we look at how prices move downstream. So in this case we're looking at a sort of a supply chain view from metal down to fabrications and the machinery at the end of it in mainland China, United States and Germany. Now in the first case, first section 232, we saw relatively little change in the progress in the United States.

The prices were higher than they were historically, but most of the pain was felt in China. Now this was a time when the US dollar was getting stronger, was appreciating and also global growth was really quite good internationally. So we feel that the Chinese manufacturers at the time were more able to eat that tariff effect and many other tariffs were much lower then, and therefore didn't really flow into the United States and also didn't flow into elsewhere in the world like in Germany. When we came to Covid, the effect has been universal. We saw that happening. This was really a supply issue, the inability to move material around the world, raise prices virtually universally everywhere, all through the supply chain. And that was very well aligned. Now when we're in the second section, it's interesting to see how this is developing.

We see no impact in China. We are not seeing Chinese manufacturers, producers absorbing that tariff. What we do see in the United States is prices increasing. I will point out Germany, this is mainly more to do with the cost of energy. As you can see, it has flowed really from 2022 when Russia invaded Ukraine. So our belief is that, and this is really stemmed back to our belief that a lot of the difficulty, a lot of the price increases that tariffs would bring haven't yet featured in the United States. But that is where they're going to feature and they're not going to be featuring in places like China going forward.

So overall, and this is our summary is we do see economic growth continuing, but we do see significantly more volatility and risk they haven't intensified. Gold is often used as a sort of a risk mitigation metal where copper or doctored copper is a good indication of how the industrial demand is going. And as you can see, we're at levels we've never ever had before. So the movement of the gold, the desire to reduce risk, is more advanced than historically we've had, except at various similar crises in the past. So we believe that flight to safety will continue. We believe growth will not really recover. Therefore we believe the price environment should be relatively stable going forward.

Except for some of these lists we're seeing at the moment. It is important to mention that we produced our forecast which we started really at the start of February and takes about a month. We submitted it a couple of days before the Iranian conflict began as such our forecast at the moment doesn't contain the impacts of the ongoing conflict. We have a lot of uncertainty of how that conflict is developing or what the implications will be. But the numbers we have published today do not include it. Now our macro team, so the S&P Global macro team are developing their numbers. They're trying to understand what the implications will be and once they've done that, we will be releasing a new forecast based on the new macroeconomic forecast. Now historically we have been very reticent to introduce any new forecast, but given the magnitude and the implications for the tariff it’s something we cannot avoid this time.

The other thing that happened during the forecast and that was half known and half unknown was that the IEEPA attacks were crossed. Now we're pretty sure that was going to happen and that some other mechanism will be used instead of it, as it is going to be section 122. And so our forecasts have this embedded. It wasn't explicitly mentioned in many of the forecasts, but their impact is going to be almost nonexistent if it transpires as we expect. So we've already seen today that a new wave of section 301 tariff investigations were started. We have about 150 days until section 122 finish and by then we expect these more durable tariff regimes to be in place. But impact, there are some differences, but in fact the impact on prices is going to be. So going back to what we're seeing happening, one of the things we do as a company is purchasing money indexes.

We ask purchasing managers what are they seeing. And one of the questions we ask is how are your input prices changing and how are your output prices changing? So how are you able to pass on those costs to your customers? Are they accepting them? Both the Eurozone and mainland China, it's about 50, 50/50. So basically half of people s1aying prices are relatively stable, but also that also on the outside price we're able to pass on those prices. Where the main difference is in the US this is where they are saying they are seeing input prices rising so their costs are going up, but the ability to pass on those costs is less than that. Japan also is in a similar boat, but that related not to things like tariffs but their currency and also the relationship with some of their nearby neighbors. So this is the manufacturing, this is producing products. We see a similar sort of view on purposes. These are more global and it's more universal in that companies are seeing prices on the inputs increasing and not being able to pass on those prices, except for mainland China where it's almost neutral.

Overall. When we look at our material price index for the weighted average of 10 major current commodity groups, it's essentially zero. It's marginally negative, but it's essentially zero. But what we are seeing is in US PPIs and to a lesser extent European PPIs significantly above that. And that's really causing things like pocket compression or as companies are able to pass on these higher input costs. And I will say this before the Iranian conflict, these numbers will be degraded more down size going forward, but we're not seeing a sort of a massive step back or contraction economic growth. But it's certainly not as strong as we we had it really at the start of 2025, but actually marginally better than it was at the end of 2020. That was a canter through the macroeconomic data.

As I say, as soon as we're ready and as soon as we know what we think is going to be the impact of the Iranian conflict, then we'll be publishing the numbers and we'll be introducing that into our forecast. Now going forward, how is this going to feed into nonferrous metals or how those factors going to go factoring into nonferrous metals quite significantly. So I'm going to start with copper, then aluminum and then we'll cover the other green base metals quite sharply because copper and aluminum are the two sort of interesting ones at the moment. Or the most interesting. The first thing is copper prices are on a canter upward. We saw that recently coming into the year and there's a number of factors which are all magnifying each other. And this is why although we see a low growth environment in many commodities, the risk premiums are really quite significant. Coming into the year, what was already a tight environment really disappointed because of the problems caused by the Grasberg mine accident. Were then exacerbated by the return of some purchasing in January and the enhancement of speculators seeing this as an opportunity incoming.

We haven't had prices go up to $13,000 per metric ton before, but that's where we got to and that's really where they are somewhat holding at the moment. Now anecdotally or historically, we would have seen some shifting to other commodities like aluminum. But as we'll talk about in a moment, aluminum isn't a safe metal to move into. And so what we're seeing is a lot of companies refusing to take the chance of moving to another commodity for fear that's going to be as bad or difficult as copper without all the advantages of copper. So we don't see prices coming down quickly. There is some positive news coming in the sense that speculation is paying off, profits are being taken, positions are being closed and we are seeing additional material coming on to sort of help balance that supply-demand balance. But it's not going to be a quick retraction. And the level of prices going forward is elevated from what we had before.

So the days of below $10,000 per metric ton being long gone. And by 2029, 2030, we all still have an underlying supply problem that isn't being resolved and will cause further price rises going forward. When I talk about the positive, the high price is clearly making a case why miners should try to produce as much copper as possible. And so they are starting to turn in surpluses. Now the drop off in well defined consumption in the last quarter is a worry in the sense that if demand has dropped fairly significant in one quarter, it might indicate that there are consumption problems that we aren't picking up yet. By the way, not foresaking that, the surplus production has fed into inventories and then a number of weeks which are held, inventories are at some of the highest levels we've had for quite a while. Should indicate that prices will ease a little bit and then with the help of, as I say, reduced speculation and reduced risk, we should have them coming down, but certainly not the levels we've had them at.

Moving on to aluminum, this is a two-part problem. One part of the most or the whole world and then another one for buyers in the United States. Yeah, prices are again somewhat elevated. This is caused by supply not from bauxite or aluminum which is actually in plentiful supply at the moment, but in the midstream. We're seeing a lack of capacity in the smelting. No new smelters being added, really because of the cost of energy and where that energy is coming from and that sort of will support prices especially as I say if we've got things like financial speculation and risk lifting it. As I say these prices are going to be raised when we start factoring in lack of production from the Gulf due to the conflict there. But at the moment they don't have that in there.

Additionally in the United States you have to deal with the mid-risk premium as most of the material comes from Canada and is subject to 50% tariff at the moment. That is featuring in the mid-risk premium. Now it is also a little bit in Europe. Europe is starting to see the feature in prices there and also the supply tightness a little bit. But 91% additional cost because of tariffs because of some logistics and risk. I looked today it's actually about 93%. This is a big burden that manufacturers in the US are having to pay because of the tariff and the isolation that brings. Looking at other commodities and I'll do these somewhat quicker. Nickel was looking very stable and as I said we had a lot of capacity coming on in Indonesia.

New technologies, new processing which meant that there was an oversupply of material keeping the prices very level about $13,000 per metric ton. The moment they moved from that anywhere we saw new capacity coming on in Indonesia. They were both the biggest and the string producers and that kept the prices very stable. However, when you have one dominant producer, as you do have in the case of Indonesia, when it changes its use and you start getting things like reduced permitting or the belief that the material will not be as freely available, then we saw prices jump and we did see them jump quite significantly recently when there's some comments that permits were going to be reduced. Yes, this is potentially a problem with really many of the commodities where you have a single large producer. We do see them coming off. We do see as I say, reduced speculation and there isn't actually a short of material. It is the risk that the material will tighten that causing prices to go up. But going forward we see prices coming down but perhaps staying above the 13,000 to reflect that there are problems with having a single major source of supply.

And then finally I’ll cover tin and zinc, we have a very sharp increase in 2026 in both these metals coming off. In the case of tin, this is because we can see new mining capacity coming online. This will add capacity. This will reduce the supply deficit that has boosted prices very significantly over 2025. Electronic applications are strong. They are demand a lot of tin. As soon as the supply improves that will relieve the pressure and we will have prices going down to a more normal level. Zinc has similar problems, but here supply may be weak, but also the demand is weak.

With a somewhat subdued construction market. Zinc is mainly used in galvanized steel. As the construction market is improving, when we have some of the problems in the zinc supply chain improving, then that will relieve the pressure and we actually do see zinc as being one of the weakest metals going forward. If I wanted to summarize all the base metals, zinc is coming down, tin is going to come down when more capacity arrives. But of the other four base metals, I didn't cover lead, we see them all tracking upwards of what copper is going to see the biggest increase really because of the lack of supply and the very strong demand from things like data centers and gridification. And then finally to summarize, steady but depressed fundamentals. Demand is not falling off, but it's also not going anywhere.

If you're copper and you're looking at AI, if you're building data centers or anything to do with defense, then that is where all the growth is going to come from. And that is the thing that's going to support prices going forward. Notice the regional difference in some of the metals, specifically aluminum when you come to the US and that is because of tariffs, where globally many of the metals are somewhat supported by regionalization. And I haven't really covered it, but the conflict in Iran is going to cause a universal increase in price. But specifically aluminum, where the Gulf is a major producer.

 

Kristen Hallam:

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