Material Matters: Commodities And Tariffs, Chinese Steel, Critical Minerals

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A glance through the latest expert views and predictions about commodities and Trump tariff impact; Chinese steel efficiency; and zircon/titanium.

By Greg Peel

Following the failure of the Trump administration to secure “90 deals in 90 days” post the pause in Liberation Day tariffs, Trump has pivoted once more, dropping the July 9 pause expiry date in favour of an extension to August 1 as letters are mailed out to relevant countries, some with human populations, advising of new tariff levels and a new opportunity to negotiate.

To that end, letters to date have most notably set 25% tariffs on the major economies (and US allies) of Japan and South Korea, along with 25% on Malaysia, 30% on South Africa, 32% on Indonesia, 36% on Thailand and a range of tariffs on smaller economies from Bosnia to Kazakhstan, Myanmar to Tunisia.

Vietnam has come off best in this round with only 20%, but with a 40% tariff on “trans-shipments” of Chinese goods channelled through Vietnam.

Updates on tariffs on the likes of the EU, Canada, Mexico and, importantly, Australia, remain pending.

Still no tariffs on Russia.

Prior to what was still assumed to be a July 9 deadline, locally-based commodity analysts had been updating their outlooks. The pivot nonetheless makes little difference to those views.

Metals, Minerals and Tariffs

Industrial metal prices and miners’ shares have largely recovered following trade war de-escalation, UBS notes, easing fears of a recessionary demand collapse. However, lingering uncertainty post Liberation Day is expected to lead to some near-term softening in demand despite solid secular fundamental drivers such as electrification and Chinese stimulus.

UBS remains constructive on a 12-month view on commodities with supportive supply-side dynamics and secular demand drivers including for copper and aluminium. UBS also remains positive on gold. The analysts see limited downside for coal and nickel with prices to consolidate, but supply/demand fundamentals do not point to tight markets near-term.

UBS remains cautious on the outlook for lithium and iron ore.

From a stock perspective, UBS is Neutral-rated diversified miners BHP Group ((BHP)), Rio Tinto ((RIO)), South32 ((S32)), Fortescue ((FMG)) and Mineral Resources ((MIN)).

While recent softness in share prices might signal emerging value, the analysts see risk/ reward remaining muted in iron ore, expecting Rio’s Simandou start-up to pressure prices lower towards US$90/t in 2026. On copper, UBS is cautious near-term on potential US investigation of copper import tariffs (in line with specific tariffs in place on aluminium and steel) to weigh on LME pricing in the short term.

On aluminium, the analysts remain cautiously optimistic but highlight trade negotiation, Russia geopolitics and Indonesian supply risks. UBS prefers BHP over Rio due to emergent geopolitical risk in Mongolia (Oyu Tolgoi) and Guinea (Simandou, delays likely), questions surrounding the company’s lithium strategy, and the recent CEO changeover.

In gold, Newmont Corp ((NEM)) is UBS’ current preferred pick, and following the extended period of deal indigestion (Newcrest) and production underperformance, should trade on a superior free cash flow yield (8%) in 2026.

Meanwhile, Northern Star Resources ((NST)) has been downgraded to Neutral (slowing growth trajectory, Hemi delayed 12 months) and Evolution Mining ((EVN)) to Sell (mostly due to year-to-date outperformance, plus increasing capex estimates and trimmed production).

This has presented opportunities lower down the market cap spectrum, UBS singling out Perseus Mining ((PRU)) and Genesis Minerals ((GMD)).

With ASX copper exposure about to shrink even further since MAC Copper was snapped up, Sandfire Resources’ ((SFR)) portfolio of producing assets with large resource bases remain highly attractive in UBS’ view. The analysts are strong believers in the structurally-positive copper thematic.

UBS continues to see the lithium market as oversupplied and remains cautious, especially as EU demand is delayed (with carbon emissions penalties deferred) and US demand at risk with EV’s de-prioritised. The analysts expect an extended period of low prices ahead of further supply cuts and remain broadly underweight the sector.

Amongst its coverage, UBS prefers the longer-dated developer Patriot Battery Metals ((PMT)) but maintains Sell ratings on IGO Ltd ((IGO)), Liontown Resources ((LTR)) and Pilbara Minerals ((PLS)).

While UBS is still cautious on uranium’s near-term fundamentals with supply growth outstripping demand, policy support continues to improve, and recent Sprott Physical Uranium Trust buying has served to improve sentiment/momentum for the sector. UBS is Buy-rated on Paladin Energy ((PDN)) which it prefers in the space, while recently downgrading Boss Energy ((BOE)) to a Sell following strong performance.

Finally, UBS remains positive on the long-term demand thematic for rare earths though acknowledge the nuance of China-influenced NdPr pricing and overall geopolitical risk in the thematic.

Lynas Rare Earths ((LYC)) remains Buy-rated given plenty of catalysts ahead.

LNG and Tariffs

Ahead of what was to be the July 9 tariff pause expiry, ANZ Bank commodity analysts expected energy to be a key element in negotiations, but suggested “the US may bite off more than it can chew”.

Since removing export restrictions in 2015, the US has become the world’s biggest oil producer and one of the top three exporters of LNG. For its energy-deprived trading partners, such as Europe and Asia, imports of more US energy could be a way to reduce trade surpluses in exchange for lower tariffs, ANZ suggests.

Europe seems the logical buyer of more US LNG, with demand surging as it looks to replace lost Russian gas, while Asia is the world’s largest LNG-consuming region and considers energy security as a major issue. However, China could be a sticking point, ANZ believes. Domestic demand has been tepid of late and the last US-China deal involving LNG didn’t go to plan.

The problem for the US, ANZ perceives, is that a 50% rise in US LNG purchases by Europe, Japan, South Korea and India, and a doubling of Chinese imports, would take up almost all the country’s LNG export capacity. And this relies on US LNG export projects coming online as expected, and there are risks of project delays amid rising costs and a tight US gas market.

Such an outcome would certainly increase the depth and liquidity of the global LNG market, but, ANZ warns, it would also lead to higher global gas prices.

Chinese Steel Consolidation

The 6th Meeting of China’s Central Finance and Economics Commission was held on July 1 with President Xi in attendance.

Citi’s key takeaways include: (1) government discourages disorderly competition and encourages the acceleration of phasing-out of inefficient capacity; (2) the supply-side discipline might extend from single industry to multi-industries or the whole national market; and (3) steel is definitely within the scope of supply reform, given its over-supply dynamics and low-margin status quo.

Iron ore futures lifted on the expectation that China would push to eliminate competition with lower steel output to mean improved mill profitability, but sadly, Citi notes, history does not support this view. Lower Chinese steel production has, ultimately, sent iron ore prices lower.

Citi recalls Chinese steel production rates in May of 2021 were 100mt and fell to a reported 69mt in November of 2021, down -22% year on year. In May 2021, steel rebar was near break-even with iron ore at around US$220/t. Iron ore prices remained high through to the end of July meaning rebar margins remained low until August/September, at which point iron ore retreated to US$86/t in mid-September.

Could it be different this time? Citi doesn’t think so but can be sure that improved China mill margins would favour higher grade Fe over lower grade.

Critical Minerals

When listing critical minerals, mineral sands do not leap to mind, but Macquarie begs to differ.

While demand for ceramic glaze (on tiles) represents some 50% of zircon demand, zirconia’s use in solid-state batteries offers demand upside in the late 2020s, Macquarie suggests, while growth is also notable in refractories and the nuclear sector.

Titanium feedstock demand, tied to economic trends (titanium oxide makes whitegoods white), benefits from aviation growth, with titanium comprising circa 10-15% of aircraft weight in some models.

Macquarie believes the mineral sands market will maintain a relatively high level of free market competition, with a low risk of market dominance by a single producer or country. Africa is the second-largest zircon producing region after Australia, and Macquarie notes the rapid growth in volumes from Mozambique has been a concern for many investors, as it is seen as a potential disruptor to the zircon market balance.

Macquarie highlights there are only two (Chinese) major producers in the region.

Iluka Resources ((ILU)) remains the broker’s top pick, supplying some 20% of global zircon and 10% of high-grade titanium feedstocks. Macquarie retains an Outperform rating.

Macquarie reports Image Resources ((IMA)), a WA-based Heavy Mineral Concentrate (HMC) producer, shipped its first concentrate in April, with ramp-up expected in 2025, while Sovereign Metals ((SVM)) offers tier-one rutile and graphite assets, supported by strategic investors providing funding and technical expertise for project studies and pilot mining.

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