Tracking Performance of Base Metals

Base metal prices took a big hit from the financial crisis but many of the metals are now seeing their shine return. Since late 2008, copper has experienced the strongest rebound (up 137 percent through mid-September) followed by nickel and lead.

The outperformance is simply a factor of supply and demand. Stimulus from China, the U.S. and other countries helped demand outstrip supply as mines have struggled to raise output.

China has been the key driver of higher copper prices during the upswing, but could provide a headwind for the next several months. The country consumes nearly half of global supply but is currently destocking its copper supply which weakens overall demand for copper in the marketplace. This is one reason we’ve seen copper prices rise only 7.5 percent, lagging behind tin and nickel prices.

However, it’s likely to be only a temporary lag. Copper’s industrial flexibility makes copper one of the most important metals as the global economy continues.

The market hasn’t been as kind to aluminum in the past but the metal was up 42 percent from very depressed levels through mid-September. Macquarie says the aluminum market has been in a surplus and the industry is carrying historically high levels of inventory.

Those high inventory levels looked to be gobbled up by a combination of physical and investment demand. According to Deutsche Bank, roughly 75 percent of the aluminum inventory that sits on the London Metals Exchange is spoken for through financial/investment demand. With short-term interest rates around the globe predicted to remain near zero for an extended period of time, interest in the metal as an investment should remain robust.

Physical demand for aluminum is expected to grow by 40 percent this year, with 40 percent of that coming from China. If the Chinese government is successful in transforming the country into a consumer-led economy, aluminum could be a big beneficiary because of its use in automobiles, electricity and other consumer goods.

About Frank Holmes 264 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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