As we enter the beginning of a new year, it is necessary to assess which elements of our market analysis and expectations remain valid for 2026, and which themes and fundamentals are genuinely actionable. Much of the objection to the strength seen across both industrial and precious metals in 2025 was that it was not borne of a robust economic backdrop. A similar argument has often been levelled at equity markets more broadly, where growth has remained narrowly concentrated, outside of the persistent narrative surrounding data centre expansion and its growing pull on power grids. The narrow leadership of the S&P, heavily skewed toward technology, underlines this fragility.
This raises an uncomfortable but necessary question. Should for example silver and copper now be viewed with the same suspicion that surrounded cocoa at the start of 2025, where strong performance ultimately gave way to sharp retracement. Buying into enduring trends and structural themes does not insulate portfolios from market conditions. In this respect, the mindset of a trader necessarily differs from that of an investor.
Being long a basket of industrial and precious metals, alongside select mining-sector takeover targets, does not constitute insulation against volatility. What it may offer, however, is a brighter pocket of performance in rising markets and a more resilient allocation during reversals.
The largest risk on the horizon is the continued erosion of international trust and partnership, the foundations upon which global supply chains, pricing mechanisms, and capital allocation have historically rested. It is within the context of fragmentation and uncertainty that metals continue to attract capital. This note seeks to frame how we believe the market model now operates, and why it remains investible despite, and in some respects because of, these conditions.
In a world where trust is fragmenting faster than capacity can be rebuilt, price behaviour is increasingly shaped by security considerations rather than growth.
Strategic reordering and market mechanics
The current market environment is best understood as the consequence of a strategic reordering rather than a cyclical adjustment. Industrial policy, trade measures, and geopolitical positioning have consolidated into a framework centred on resource security, defensibility, and control of supply chains, rather than global efficiency.
It is self-evident, but worth stating, that the United States has assumed the role of proactive catalyst in this phase of reordering, a position previously occupied by Russia following its use of asymmetric and special operations. China, by contrast, has continued to pursue a slower and more deliberate strategic evolution. Ironically, it is this long-term Chinese approach that has helped precipitate the urgency and assertiveness of recent U.S. policy.
Taken in aggregate, the Inflation Reduction Act, the CHIPS and Science Act, and the accompanying tariff regimes mark the most significant U.S. industrial and infrastructural renewal since the post-WWII period. Tariffs within this framework serve a dual purpose: the immediate control of strategic inventory, and the longer-dated incentivisation of domestic capacity and independence. These objectives operate on different timelines. Inventory control is achieved quickly; industrial independence is not.
The tension that has characterised recent market behaviour stems from urgency rather than intent. Policy timelines moved ahead of physical reality, assuming a speed of industrial adaptation that began to look hard to sustain. Building processing and refining capacity in metals and energy is capital-intensive and slow, constrained by permitting, power availability, labour, logistics, and financing. Tariffs, by contrast, reprice flows immediately, first accelerating imports ahead of implementation where time allows, and then constraining imports before domestic or allied substitution is viable.
Tariff-related constraints were becoming clearer, yet the strategy itself did not have time to be fully borne out before an additional layer of complexity was introduced. Recent developments surrounding Venezuela and the potential reconfiguration of resource flows have altered policy calculations materially, restoring a sense of optionality that was previously absent. The rehabilitation of Venezuelan oil supply, alongside a wider array of natural resources embedded within its geology, remains long-dated and uncertain, but its significance lies in reducing the urgency that had characterised earlier policy.
Any softening of tariff policy should therefore be understood as recalibration rather than reversal. The underlying objective of inventory control and supply security remains intact. Where adjustments occur, they are likely to be asymmetric, more permissive on aligned inflows over time, but resistant to mechanisms that allow strategic material to flow back out once drawn inside the U.S. system. Such recalibration may take several forms, but in each case reflects an opportunity to moderate urgency rather than a change in strategic direction. It could emerge through judicial review, where elements of existing measures are deemed procedurally flawed rather than strategically misguided, or as a consequence of improved supply-side optionality, including the prospect of politically aligned resource flows, which eases near-term pressure without resolving longer-dated constraints around refining and processing capacity. Finally, adjustments may be implemented through formal review mechanisms, including findings under Section 232 investigations, where national security considerations are reassessed in light of evolving supply chain realities rather than abandoned outright.
An additional and increasingly important dimension of this transition is the growing primacy of refining and processing capacity relative to raw resource ownership. Control over supply chains is no longer determined solely at the point of extraction – one must also consider where material is transformed into usable input. This is precisely why producer nations such as Indonesia and the Democratic Republic of Congo have sought to move up the value chain, using export controls and policy incentives to capture refining and processing domestically.
For consumer economies, this shift reinforces rather than diminishes the strategic importance of domestic or allied refining capacity. Access to ore does not guarantee access to refined material if processing sits within jurisdictions pursuing their own industrial or geopolitical objectives. In this context, the durability of tariff regimes is better understood as a function of refining readiness rather than resource availability alone. Until sufficient processing capacity exists within North America or reliably aligned jurisdictions, premature relaxation of trade barriers would risk exporting value creation and reintroducing dependency at the most critical stage of the supply chain.
Early in his current term, President Trump made explicit references to Greenland and suggested a fundamental reframing of Canada’s strategic relationship with the United States. These remarks, which at the time were often dismissed as rhetorical or symbolic, can be read through the same lens as subsequent policy actions – they were expressions of concern that resource-rich territories outside U.S. sovereign control are increasingly less defensible in a world of hardened spheres of influence. What previously appeared as regional trade moats are better understood as operational boundaries. Once inventory is drawn inside them, it becomes progressively less responsive to global price signals.
As regional spheres of influence harden, the location of inventory becomes an increasingly decisive variable. Exchange mechanisms do not cease to function, but their ability to clear supply and demand through price becomes progressively more regional in nature. Futures curves, spreads, and inventory signals that once mapped more cleanly onto global physical conditions are now becoming influenced as much by policy constraints, eligibility rules, and financing considerations as by underlying consumption.
A growing share of global supply therefore sits outside the inventory pools accessible to any single exchange. Metal may exist physically, but if it is held in non-deliverable grades, in non-approved locations, or under sanction and policy constraint, it does not interact meaningfully with price discovery in that market. The result is a persistent disconnect between visible inventory and effective availability within specific regions.
This dynamic is already evident across multiple markets. LME inventories, when translated into time rather than tonnage, typically represent between two days and one week of global consumption. Nickel is the exception on headline figures, equating to roughly one month of demand, though deliverable specifications and end-use suitability rarely align perfectly. By contrast, CME warehouses hold approximately 500 thousand short tonnes of copper, representing close to ninety days of U.S. domestic consumption. Terminal markets remain essential price references, but they no longer provide comfort around the mobility of supply as inventory becomes increasingly regionalised.
While existing policy measures have already proven sufficient to tighten terminal markets materially, this has occurred without the tailwind of a sustained economic expansion. How this constrained, inventory-controlled system would behave under rising demand remains an open and underappreciated risk.
Consolidation and capital response: M&A
A further consequence of this environment is a renewed rationale for merger and acquisition activity across the mining and processing complex. In a fragmented system where access to resources, refining capacity, and inventory location are increasingly strategic, scale alone is insufficient. Control, integration, and jurisdictional alignment become the primary objectives.
For producers, acquiring downstream processing capability offers a means of securing margin, reducing exposure to policy risk, and ensuring access to end markets. For consumers and industrial players, acquiring upstream or midstream assets provides security of supply that market-based sourcing can no longer reliably guarantee. In both cases, M&A becomes a substitute for degraded market liquidity and impaired arbitrage.
Importantly, this activity is more defensive in nature rather than driven by optimism around demand cycles. Assets that offer jurisdictional certainty, refining optionality, or proximity to protected markets command strategic premiums, even where near-term cash flows appear unremarkable. Consolidation in this context should be viewed less as a bet on growth and more as a response to fragmentation, uncertainty, and the erosion of trust embedded in global pricing mechanisms.
High prices are not always equal to high margins
One of the defining features of the current environment is the divergence between headline prices and economic outcomes. Prices across commodities remain elevated, yet margins for producers, processors, and traders are compressed. Markets appear strong on the screen while participants on the ground feel increasingly constrained.
This divergence exists because prices are being driven less by demand growth or marginal scarcity and more by tariffs, logistics friction, financing costs, and policy uncertainty. These forces inflate nominal prices while simultaneously raising the cost base required to operate within the system.
Higher energy costs, interest rate sensitivity, and increased balance-sheet usage have raised the hurdle rate for holding and moving material. Financing inventory is more expensive, transforming it across jurisdictions is riskier, and committing capital without policy clarity is harder to justify. Compliance mechanisms such as carbon border adjustments add further cost at the point of circulation without transparently lifting headline prices.
The result is that prices rise while economic returns can become challenged. Capital is absorbed by friction rather than expansion, reinforcing defensive behaviour even in ostensibly supportive price environments. Stock is held reluctantly, optionality is prioritised over scale, and risk appetite shifts away from volume toward structure.
Markets respond quickly to disruption but slowly to resolution. Policy headlines move prices immediately, while the arrival of new capacity or alternative supply is discounted over years. The system therefore spends extended periods pricing constraint without ever pricing relief.
The consequence is rising prices alongside increasingly defensive behaviour; a clear illustration of price divorced from profit in markets struggling with the erosion of trust.
This article is intended for general information purposes only and reflects the market environment at the time of writing. It does not constitute investment advice, a personal recommendation, or an offer to engage in any trading activity. The content does not take into account individual objectives or circumstances and should not be relied upon as the basis for any investment decision. Past performance is not a reliable indicator of future results.
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