Following months of spread widening between the “industrial metal & mining” and the “precious metal mining” industries [exceeding 130% at one point], the gap has been tightening over the previous months.

With monetary policy , consumer trends, and the geopolitical environment all in play, could further spread contractions be in sight?

Over the past few years, the surge in industrial metal prices (nickel, graphite, lithium, copper, aluminum, etc.) was largely driven by the rise in EV sales.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

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As the limitations of electric vehicles (EVs) become more apparent to consumers—such as issues with charging time, driving range, cost, and rapid depreciation—the preference for hybrids is gradually increasing.

This shift has caused a slowdown in EV sales momentum, which has, in turn, marginally contributed to the tightening of the spread between the “industrial metals & mining” and “precious metals & mining” industries.

The broader macroeconomic outlook also plays a role. As the Federal Reserve prepares to initiate a rate-cut cycle, precious metals are increasingly seen as a more attractive alternative to lower-yielding bonds.

Additional factors influencing this trend include deteriorating geopolitical conditions (such as conflicts in the Middle East and Ukraine), alarming national debt levels, and sustained demand from both Chinese retailers and the Federal Reserve.

Fig 3: Operating Margin [1YR Rolling]

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Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

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Fundamentals further underscore this divergence. While sales growth for the “industrial metal & mining” industry has slowed for four consecutive quarters, ending Q1 2024, it is on the rise for precious metals.

However, one might speculate that the higher debt levels of companies in the “industrial metals & mining” industry could boost margins in the upcoming rate declining environment, potentially outpacing the relative sales growth impact on the “precious metals & mining” industry. As EV industry sales growth gradually recovers, further spread widening may occur.

Fig 5: Net Income Margin [1YR Rolling]

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Fig 6: Performance [1YR]

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Fig 7: Dividend Yield

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Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA