Commodity Markets Are Preparing for Something

Jeff Snider · Atlas Financial

Iron and steel do not confirm a global boom, given China's collapsing property and fixed-asset investment.

Iron and steel are less exposed to the AI narrative and more tied to traditional construction, property development and heavy industry, and China is central to all three. Chinese property activity remains weak and fixed asset investment has collapsed, including contraction in manufacturing and non-property industries. Housing, steel demand and broader construction have not produced the confirmation a commodity super cycle should generate. A genuine expansion would show clear breadth across the complex, and the rest of the industrial complex looks much less convinced than copper.

“And China remains central to all three of those. Chinese property activity continues to be weak.”at 13:28

Jeff Snider · Atlas Financial

Copper's fall despite bullish supply signals that AI-linked demand expectations are being revised lower.

Copper's record run was driven by an AI and electrification demand story, but it is now correcting even though the supply factors behind the rally are still there or worsening: huge US inventories are trapped, Chinese stocks are tight and China's import premiums are at records, and smelter margins are poor with output being cut. Price weakening despite these bullish supply conditions means something on the demand side has changed. The most likely candidate is lower confidence in AI capital spending, continued Chinese weakness, squeezed fabricator margins, and tighter global dollar liquidity. Snider's view is that demand expectations have moved too far, too quickly, and are now being revised. If copper keeps falling while the squeeze persists, it would signal that the AI boom is not strong enough to overcome Chinese weakness and tightening liquidity.

“When price weakens despite bullish supply conditions, demand deserves our full attention.”at 19:15

Jeff Snider · Atlas Financial

Expected US copper tariffs pulled a record stockpile into America, distorting global copper flows.

Traders expected the Trump administration might impose tariffs on refined copper imports, possibly 15% from 2027 and 30% in 2028, so they moved metal into the US ahead of the duties. COMEX inventories rose for 46 consecutive trading days to a record of over 675,000 metric tons. US imports of refined copper cathodes in the first half were about 885,000 tons, more than twice the same period in 2024, and July imports alone exceeded 200,000 tons. Including exchange stocks, port storage and private holdings, the total US stockpile may exceed 1,000,000 tons, potentially years of consumption. The metal was relocated, not consumed by data centers or grid equipment. This created an immense surplus inside the US and an increasingly severe shortage outside it, so the world was not running out of copper but had it in the wrong place.

“The metal wasn't consumed by data centers, it wasn't turned into transformers or power lines, it was moved from one warehouse to another because tariff expectations”at 3:52

Jeff Snider · Atlas Financial

China's rising upstream prices squeeze factory margins rather than signalling a healthy inflationary boom.

China's producer price inflation accelerated to 5.7% year over year in October, the highest since 2022. Production material prices rose 7.4%, mining prices surged almost 28%, and raw material prices rose more than 11%. Consumer inflation, however, slowed to 0.7% and core inflation fell to 0.8%, its weakest in nine months, with consumer prices flat in October and food prices down nearly 3% from a year earlier. Fabricators are being squeezed and have moved to hand-to-mouth buying, waiting for confirmed orders before buying copper. That is the behavior of companies worried about margins, cash flow and customers' ability to pay, not of firms expecting strong demand. Upstream costs are soaring while downstream pricing power is fading, so margins compress and firms cut inventories, output and investment.

“Their margins are being compressed as a result. That's not a new inflationary boom, it's a squeeze.”at 8:29

Jeff Snider · Atlas Financial

AI has not yet produced economy-wide gains in employment, wages, household income or industrial output.

Snider sees little evidence that AI has created an economy-wide acceleration in employment, wages, household income or even industrial production. Strong trade figures are largely nominal increases as firms compete for the same limited material, which pushes prices higher. For many companies AI remains an added expense rather than a major new revenue source. The spending is concentrated in a small group of large technology firms. A true AI productivity boom would let revenue per employee rise, with profits and wages growing together and household income supporting consumption.

“There's little evidence that AI has created an economy wide acceleration in employment, wages, household income, or even industrial production.”at 10:06

Jeff Snider · Atlas Financial

Data center buildout is the biggest near-term metals demand source but a major risk if AI adoption disappoints.

Data centers need vast amounts of copper, power connections, transformers, backup systems, cooling and grid expansion, and AI capex is already lifting measured investment. But building a data center adds to GDP mainly in the short run, while returns can take years and may never arrive. The investment boom depends on future revenue large enough to justify today's commitments, and so far AI is a small group of leading tech firms' business and an added expense for many companies. If adoption is slower than expected, competition compresses margins, or financing tightens, planned spending gets reduced, projects are delayed, equipment orders are cancelled and power demand forecasts are revised lower. Because so much commodity optimism is tied to AI, even a modest reassessment could have an outsized impact.

“Not only is it the largest source of marginal demand in the short run, it's also the biggest source of danger beyond the short run. It's bullish and bearish at the same time.”at 10:42

Jeff Snider · Atlas Financial

Silver's slide back toward an 80 gold-silver ratio fails to confirm a global reflation or manufacturing boom.

Silver is both a monetary metal and an industrial input used in electronics, solar, vehicles and electrical applications, so when it outperforms gold it can signal confidence in manufacturing and global growth. A supply dislocation helped silver surge last year and pushed the gold-to-silver ratio much lower. Since then silver has struggled and the ratio has moved back toward 80, with silver surrendering much of its earlier advantage. Snider says this is not a decisive recession signal, but it is another failure to confirm the strongest version of the reflation story. Silver's outperformance should reflect strengthening electronics and manufacturing demand, not momentum buyers chasing a supply squeeze.

“It's not a decisive recession signal or anything like that, but it is another failure to confirm the strongest version of the reflation story.”at 13:09

Jeff Snider · Atlas Financial

Dollar strength reflects risk aversion and liquidity demand, which pressures commodities rather than signalling a productivity boom.

The standard view is that a stronger dollar hurts commodities because they are priced in dollars, but Snider argues the more important point is what drives both. Risk aversion increases demand for dollar liquidity, investors cut cyclical exposure, and funding becomes more expensive or less available, so borrowers outside the US need dollars to service obligations. That same deterioration means weaker global growth and lower demand for energy, metals and industrial inputs, so the dollar rises while commodities fall. This is not the clean dollar strength that comes from an American productivity boom spreading prosperity abroad. If that were happening, the dollar would be falling. The current dollar strength is hostile to commodities.

“The same conditions pushing the dollar higher are also pressuring commodities. Risk aversion increases demand for dollar liquidity.”at 16:43

Jeff Snider · Atlas Financial

The Australian dollar's slump reflects swings from AI optimism to AI fear, not interest rate divergence.

Australia is a major commodity exporter, and its currency often acts as a rough barometer of global growth expectations, particularly for Chinese demand and investor risk appetite. The common explanation is diverging interest rate expectations, but Snider argues the weakness is really about the shift from AI optimism to AI fear and what that means for the commodity part of the system. The Australian dollar's fall to a nine-month low therefore fits his view that the dollar strength and commodity weakness share one root cause, deteriorating growth expectations.

“Everybody says it's being driven by diverging interest rate expectations, but it's really about the swings from AI optimism toward AI fear and what that will do upstream in the commodity part of the system.”at 17:17

Jeff Snider · Atlas Financial

The yen's slide toward 160 per dollar reflects problems that will eventually hit Japan's real economy and commodity demand.

Snider argues that a rapidly falling yen is not a benign currency move. It reflects a set of underlying problems that will eventually affect the real economy and therefore demand for commodities. He links the yen's fall near 160 per dollar, which has revived the threat of Tokyo intervention, to the same risk-off and liquidity pressures that are lifting the dollar and weighing on commodities.

“A rapidly falling yen reflects a whole bunch of problems that would eventually impact the real economy, therefore demand for commodities.”at 17:31