The Upcoming 21st Century Stagflationary Depression, Part 9.2
Part 9.2: Commodities; Industrial and Base Metals/Mining
Hard commodities are critical to the economy and are used in variety of applications in construction, manufacturing, industry, and technology. These are also commonly referred to base or non-ferrous metals excluding precious metals which we’ll cover in Part 10. These types of metals include copper, lead, aluminum, nickel, and zinc. We’ll look at those in this report as well as a few individual stocks and ETFs to see what trends may appear.
Aluminum
Lets begin our analysis with Aluminum which is used in a vast variety of products including cans, foils, kitchen utensils, window frames, beer kegs and airplane parts. Aluminum futures price recently finished a 5 wave intermediate structure and is now correcting in Primary 2. Hard to tell whether P2 is done or a larger intermediate (B) wave is in store. The channel I’ve drawn needs to prove itself but standard Fibonacci extensions for Primary 3 would place the futures price higher this coming decade.
Alcoa, AA
Since TradingView didn’t have a lot of price history on the Aluminum futures price, lets also look at Alcoa Corporation which is the world's eighth-largest producer of aluminum and conducts operations in 10 countries. Alcoa is a major producer of primary aluminum, fabricated aluminum, and alumina combined, through its active and growing participation in all major aspects of the industry. Price data going back all the way to the 1960s shows AA completing is first Cycle in 2008 and correcting for 12 years. It made five waves up from the March 2020 low and is now consolidating in a intermediate wave (2). Like the metal it produces, higher prices can be expected looking out long term.
Iron
Iron is the fourth most abundant element, by mass, in the Earth’s crust. Although Iron rusts easily, it is one of the most important of all base metals. 90% of all metal that is refined today is iron which is mostly used to manufacture steel for construction (reinforced concrete, girders etc) and in manufacturing. I like lifting it at the gym too. I view Iron as completing five waves up in Primary 1 and is now correcting in Primary 2 with an ABC zig-zag. Its not my intention to pump this up but I will say if this analysis is correct much higher prices are ahead for this important industrial metal since Wave 3s can typically be the longest and strongest waves of all.
Steel
We can’t look at Iron without looking at Steel. Here we will review the U.S. Midwest Domestic Hot-Rolled Coil Steel Index. There really isn’t high certainty in this count given the thin price data and overlapping structure. Price action looks clearly corrective since the recent top in what I’m viewing as an Intermediate (4). If the channel holds then (5) would bring the price much higher moving forward. If (4) breaks lower than the price level reached during wave (2) then we’ll need to re-assess this count.
ArcelorMittal, MT
ArcelorMittal is Luxembourgian multinational steel manufacturing corporation and is the second largest steel producer in the world, with an annual crude steel production of 88 million metric tonnes as of 2022. It has clearly broken out of a large 12 year downtrend / Primary wave 2 and made 5 waves up from the March 2020 low. The share price bounced off the 38.2% Fibonacci support level but one must allow for further consolidation in Intermediate (2) of Primary 3. This confirms a bullish thesis for rising steel prices longer term.
Nickel
Nickel was in the headlines earlier this year when a short squeeze on the London Metals exchange sent prices soaring to more than $100,000 per tonne.1 Trading was halted and prices eventually came back to Earth. TradingView lacked data going further than 2015. Looking further back, the high in 2008 was approximately $50k/tonne for the blow-off top of Intermediate wave (5) of Primary wave 1. I'm counting the March 2022 short squeeze as the top of wave (3) of Primary 3 which is still in progress. There is quite a bit of energy that needs to be worked off here so Intermediate (4) could take time and we have yet to see a meaningful (B) wave. Wave (5) of Primary 3 still looms in the future. Given how explosive wave (3) was I wouldn't be surprised if it were truncated.
Zinc
Zinc is another important industrial metal and has a wide range of applications from metal products to rubber and medicines. About 75% of Zinc used is consumed as a metal coating to protect iron and steel from corrosion (galvanized metal), as alloying metal to make bronze and brass, as zinc-based die casting alloy, and as rolled zinc. The remaining 25% is consumed as zinc compounds mainly by the rubber, chemical, paint, and agricultural industries.2 Looking at the price data, Zinc has been in a clear uptrend and still needs to finish Intermediate wave (5) in the expanding diagonal.
Copper
Copper is one of the most important metals to industry and the economy. It is an excellent conductor of electricity and is mainly used in electric generators, household/car electrical wiring, and the wires in appliances, computers, lights, motors, telephone cables, radios, TVs, and the list goes on and on! Its wave count is very overlapping and is in an ascending diagonal that began nearly two decades ago. I assumed the price run-up from the 1961 low of $0.26/lb to the $1.53/lb high in 1989 was its first Cycle. Currently Copper is nearing completion of Primary Wave 3 but will likely have a period of consolidation thereafter. This would make sense as the consumer cuts back on purchasing electronics and appliances, and construction slows as the real estate and construction sectors suffers. Copper is unlikely to collapse though in the inflationary environment as Primary 5 lay in waiting after Primary 4 completes. Look there’s Arnold again! He’s back!!
Freeport-McMoRan, FCX
Freeport-McMoRan is the second largest producer of Copper in the world producing 1,407 ktonnes of copper in 2021. Its share price broke out of a 12 year downtrend in July 2020 and is in the process of completing five waves in the Intermediate degree within Primary wave 3. Like copper, after Primary wave 3 completes there will some expected consolidation but longer term the structure appears quite bullish both near and longer term.
BHP Group Limited, BHP
Formerly known as BHP Billiton, BHP is the world’s largest mining company by market capitalization extracting aluminum, coal, copper, manganese, iron ore, uranium, nickel, diamonds, silver and titaniferous minerals, as well as oil and natural gas around the world. A hard commodities analysis would be incomplete without it. It completed its first Cycle high in 2008 and entered an eight year correction. By my count it is likely in the heart of its first Intermediate Cycle within Cycle III. Cycle III itself will likely last decades.
Summary and Observations
Like soft agricultural commodities and energy, base metal commodities are clearly in a long term uptrend. Many are also consolidating after breaking out from longer term downtrends. Despite problems that will be seen in the economy related to weakness in the banking, real estate, and consumer discretionary/technology sectors, commodities are now in longer term uptrends (judging by Elliott Wave structures and Fibonacci extensions). Producer input costs will rise this decade causing inflation to remain stubbornly high which adds even more evidence that the economy is in for a Stagflationary Depression. Before we leave this report, I have one last chart to show that was shared with me by one my followers on Twitter a few weeks ago (shout out to @UKTR15). Please note the log scale. After consolidation for over a decade, commodities have entered a brand new Supercycle
Scorecard:
For those keeping score, after intermediate consolidations are complete most all soft and hard commodities are set to rise:
Next time we will review an asset class I know most of you are looking forward to. It is perhaps the most emotional of all asset classes and are also commodities themselves. They were once used as money (and perhaps will be again one day?). Yes we will take a close look at precious metals and the companies that mine them. It will be interesting to see what may happen to precious metals prices as confidence may certainly wear thin during the upcoming Stagflationary Depression.
Until then..
Cheers and #EndTheFed
-Hypersonic78
https://www.usgs.gov/centers/national-minerals-information-center/zinc-statistics-and-information