Metals bulls must navigate murky territory
Oil isn’t the only raw material enjoying a rally. Copper has jumped 11% since the start of the year to trade close to twoyear highs. Zinc, aluminium, tin and lead have also hit multimonth highs of late, says Stephanie Stacey in the Financial Times. An index tracking six industrial metals on the London Metal Exchange has gained 8% so far this year, beating the 6.3% return for the MSCI index of global stocks.
The rally has been powered by “signs of a revival in demand from Chinese manufacturers”. After a disappointing 2023, the Middle Kingdom’s factories are once again cranking up production. The country’s latest purchasing managers’ index signalled an expansion in factory activity in March for the first time since September. There are also concerns about tighter supply – Morgan Stanley analysts expect mined copper output to fall 0.7% this year.
Raw materials have had a tough two years, says Étienne Goetz in Les Echos. Nonferrous industrial metals have dropped 29% since their June 2022 peak. Yet with interest-rate cuts coming into view, the outlook is improving, especially for copper, gold and oil.
Still, Goldman Sachs analysts caution that not all raw materials are in for a bull market: the “electric metals” – nickel, cobalt and lithium – are still struggling as demand for electric vehicles disappoints. EV sales rose 35% last year globally, but that still undershot even more bullish market expectations, says The Economist. Tesla’s shares are down a third so far this year.
Today’s metal traders need to weigh unknowns about everything from the demand for new cars to the complex geopolitics of battery metals, and also the risk that new sodium-ion batteries might slash demand for nickel and lithium. Commodity trading “has never been simple”; “it is now nightmarish”.