Industrial metals including copper and zinc have outperformed global stocks this year as signs of a revival in demand from Chinese manufacturers add to concerns over tighter global supply.
An index tracking the performance of six industrial metals on the London Metal Exchange has climbed 8 per cent since the start of 2024, outpacing a 6.3 per cent rise for MSCI’s index of worldwide stocks.
The index, which also includes lead, aluminium, tin and nickel, has risen sharply this month as investors grow more confident that an extended period of high global interest rates, intended to curb inflation, will not choke off economic growth. At the same time, analysts have raised concerns that production snags from miners will constrain supplies.
“Hopes for a global recovery in demand this year are supporting higher prices for industrial metals,” said Ewa Manthey, a commodities strategist at ING.
Traders have also welcomed the first signs of returning demand from China, whose economic performance has sputtered since it came out of its tough-line coronavirus policies in December 2022. The latest Chinese purchasing managers’ index, published at the end of March, signalled an expansion in factory activity in March for the first time since September.
Copper has risen nearly 10 per cent since the start of 2024 and hit a 15-month high of $9,523 per metric tonne on Tuesday.
The metal, which has a wide range of uses including in construction, power lines and electric vehicles, is widely seen as a key barometer of global economic health.
The gains have come as analysts fret over the impact of tighter supplies from miners. In March, Chinese copper smelters, which process more than half of the world’s supplies of the red metal, agreed to embark on rare joint production cuts in order to cope with the shortage of raw materials, although no final deal has yet been reached.
Morgan Stanley now expects mined copper output to fall 0.7 per cent this year. Macquarie, meanwhile, predicted this week that refined production growth for zinc would drop 0.4 per cent.
Prices for zinc on the LME gained 0.8 per cent to trade at $2,756 per metric tonne on Thursday, the highest level since April 2023. Tin, aluminium and lead have all also hit multi-month highs this week.
Analysts say the renewed optimism for metals is largely down to China but, according to Ole Hansen, head of commodity strategy at Saxo Bank, it is equally supported by the “robustness of data we’ve seen elsewhere”.
“It also feels like we’re past the worst in the construction sector in the US and Europe,” he said.
The Institute for Supply Management said earlier this month that its index tracking factory activity in the US had entered expansion territory in March for the first time since September 2022.
Bank of America on Monday raised its price forecasts for industrial metals in anticipation of tightening supply and an acceleration in demand, particularly for copper.
The broker forecasts prices for copper and aluminium will rise to an average of $12,000 per tonne and $3,250 per tonne respectively by 2026.
“The much-discussed lack of mine projects is becoming an increasing issue for copper,” said Michael Widmer, BofA commodity strategist, while “investment in green technologies and a rebound of the global economy” should lift prices further.
Some investors have also turned to commodities to protect against lingering inflation, which has yet to fall to many central banks’ targets.
Figures published on Wednesday showed that US headline inflation had edged up to an annual rate of 3.5 per cent in March, from 3.4 per cent in February, surpassing expectations and marking the second consecutive monthly increase as the Federal Reserve weighs how long to hold interest rates at 23-year highs.
Pictet Asset Management has bought more commodities in recent months in expectation that improved demand may spark price rises, while offering a buffer to stubborn consumer price growth.
“This is all coming as we see inflation expectations globally start to increase, so investors are looking at commodities — especially industrial commodities — as an inflation hedge,” said Shaniel Ramjee, the fund manager’s co-head of multi-asset strategies.
Pictet preferred “direct exposure to commodities [over miners] as the first movers”, said Ramjee.
Barclays, meanwhile, recommends an overweight position in European mining stocks, which will benefit from rising metals prices and fresh “signs of life” in China. The sector lagged behind the broader market for much of this year but has outperformed since the beginning of April.
“Even though we have some lingering concerns on China, we think the sector is pricing too much negativity,” said Emmanuel Cau, head of European equity strategy at Barclays. “There’s catch-up potential for miners.”
