Industrial metals start to shine, reports ETF Securities

Mar 18th, 2016 | By | Category: Commodities

Industrial metals have rallied in the past four months as firmer fundamentals drive further positive momentum, according to a report released by commodity based ETP provider ETF Securities.

Industrial metal ETPs begin to shine, reports ETF Securities

Industrial metals such as aluminium, copper, lead, nickel, steel, tin, and zinc, have all produced double digit returns over the past few months.

ETF Securities data shows that industrial metals have seen double digit growth in the last four months. The report, which quotes data from Bloomberg as of 8 March 2016, showed that aluminium rose 11% in the last 15 weeks; copper rose 16% over the last 7 weeks; lead rose 19% in the previous 15 weeks; zinc rose 24% over the past 8 weeks; nickel rose 24% in the previous 4 weeks; and tin rose 31% in the last 7 weeks.

Industrial metals refer to a group of commodities used in a wide variety of applications, including numerous construction and manufacturing businesses. The most commonly-cited examples include aluminium, copper, lead, nickel, steel, tin, and zinc. Due to their relative abundance (especially compared to precious metals) as well as their extensive use in home construction and various manufacturing processes, these commodities tend to exhibit strong correlations to world-wide economic activity and price changes may therefore provide signals to any changes to the pulse of the global economy.

However, the strong performance is somewhat diminished considering the low base from which they started their rise; industrial metal prices on average more than halved over the last five years, driven mainly by falling demand from China.

Nitesh Shah, Director – Commodity Strategist at ETF Securities, commented: “Sentiment toward industrial metals has been improving in recent weeks, judging by futures market net speculative positioning. Speculative positioning in COMEX copper futures, which has the longest history of data, has been net short since 2011. However, there is still a significant amount of recovery left for copper positioning to normalise. The momentum is now more positive and we believe improving sentiment will continue to drive copper prices higher.”

On the supply side, ETF Securities notes that cuts in capital expenditures by mining companies have been the most aggressive on record (data goes back to 1996). Capital expenditure cuts mean that depletions in currently producing mines will not be replaced by new supply and may contribute to market tightness with a lag, further supporting commodity prices.

“We believe that as long as the global economic recovery continues apace (even factoring in the lower target level of Chinese economic activity), industrial metals demand will absorb expected supply and the recent market recognition of the firmer fundamentals will drive further positive momentum for the asset class,” said Shah.

ETF Securities offer the ETFS Industrial Metals ETC (AIGI), which trades in US dollars on the London Stock Exchange. The exchange-traded commodity offers futures-based exposure to a diversified basket of industrial metal commodities such as copper (44.1%), aluminium (26.8%), zinc (16.2%) and nickel (12.9%) – weightings as of 1 March 2016. The same exposure is offered with currency hedging relative to the euro (Ticker: EIMT) as well as relative to the British pound (Ticker: PIMT). Total expense ratios of 0.49% applies to each fund.

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