The global flow of metals and minerals is being significantly impacted by geopolitical tensions and a growing deglobalization trend, according to one expert, who says commodity trading is becoming less efficient and more costly.
“When I zoom out, what we’re starting to see and what’s really important for our clients is that every day, we’re inching closer to wartime economy,” Daniel Ghali, senior commodity strategist at TD Securities, told BNN Bloomberg in an interview Tuesday afternoon.
“Critical minerals strategy for the west is a national security strategy that is facing an increasing sense of urgency since China issues export controls on rare earth elements, and that strategy is now fuelling competition to secure resource access.”
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Amid China’s ongoing trade war with the U.S., Beijing announced in April that it was suspending a wide range of critical mineral and magnet exports – materials that are a crucial part of global automotive, aerospace and semiconductor supply chains.
The move raised alarms in economies across the world, from India to the U.S., and was a stark reminder of China’s dominance in the critical minerals industry.
With their trading relationships in flux, the world’s two largest economies are racing to secure their own minerals and metals, squeezing physical markets, Ghali said.
“We’ve seen significant signs of stockpiling behaviour, both in the U.S. as traders are incentivized to rush metal in ahead of a tariffs announcement, and within China with stock piling that has strategic hues,” he explained.
“Both of these systems are draining global inventory balances, and for many of these metals, those inventory balances have already drained below levels that are critical for the market structure. Metals markets in many instances are in a really precarious position.”
The metal that’s been top of mind for most commodity traders in recent weeks and months is copper, which has a range of uses from electrical wiring to construction materials and electric vehicle components, including batteries.
U.S. President Donald Trump, in an effort to boost domestic copper production, announced last week that imports of the metal will face a 50 per cent tariff beginning Aug. 1. Copper prices surged to record highs on the news.
“Ultimately, this is the end stage of the deglobalization narrative. Trade becomes less efficient, it becomes more costly, and raw material prices have to reflect that,” Ghali said.
“The conclusion that we’re coming to is that a world in which the trade of raw materials is fragmented, and perhaps a function of geopolitical allegiance more so than market efficiency, is a world where raw material prices have to be higher and perhaps significantly so.”