Copper prices at all-time high, will other base metals follow suit?

There are growing signs that aluminium would follow the momentum of copper. A firm China trade data and a rebound in industrial activities buoyed the demand outlook of the commodity.

May 13, 2021 / 10:10 AM IST

Copper prices doubled in the last year boosted by rapidly tightening in physical markets amid hopes that it will have a vital role in the world's shift to green energy. Signs of the global economy recovering from the negative impact of COVID-19 also raised investor confidence in the metal.

Prices plunged to a four-year low in the initial phase of the COVID-19 breakout in Wuhan last year, but measures to boost the economy by various central banks propped up prices to record highs recently. In LME, prices jumped to a high of $10,600 a tonne last week by gaining more than 120 percent from its previous year low. A similar trend was witnessed in the Shanghai, COMEX and MCX futures as well.

Many investors are betting on the future demand for copper as the world is largely focusing on reducing carbon emissions. This reddish industrial metal is largely used in electric vehicles and its demand is estimated to be four times higher than conventional vehicles. A vast amount of copper is also required to set up charging stations to keep them running as well.

The large surge in prices was not just a China-initiated drive. Recoveries in other major industrial economies like the US, Germany and Japan also assisted the trend. At the same time, supplies remain on the tighter side as new mines are hard to find and it is expensive to develop and start production from new mines.

Since the metal also has a vast array of uses in heavy industry, electrical and manufacturing, it is considered a reliable indicator of the trends in the global economy.

Close

There are growing signs that aluminium would follow the momentum of copper. A firm China trade data and a rebound in industrial activities buoyed the demand outlook of the commodity.

Tight supply is the other reason supporting the metal. China's push to cut carbon emission spurs hope that aluminium supply expansions will be curbed in the near future. A spike in transportation and logistics costs too lifted the price of the metal.

The dispute between China and Australia also convulsed the global aluminium market. China is the world's leading buyer of aluminium while Australia is a major producer of raw materials for the production of aluminium.

In the meantime, lead and zinc are unlikely to participate in the present commodity supercycle. Surplus stocks of both metals are weighing the sentiment. As per the Lead and Zinc Study Group, the global supply of refined zinc is expected to exceed demand by 3,53,000 tonnes in 2021 while, the supply of lead will exceed demand by 96,000 tonnes. Also, both these metals do not have an obvious tie-in to the electrification and decarbonisation drivers that have set other metals abuzz.

Lower demand from China is raising concerns over zinc and lead prices. China's net import of refined zinc fell by 6 percent last year, the second consecutive year of decline. Net imports of refined lead have also collapsed in the past two years. Demand of lead is under pressure due to the green energy movement in several countries. Lead is also the obvious loser in the transition from conventional engines to electric vehicles.

Looking ahead, base metals perhaps benefited from the global manufacturing recovery, but lead and zinc are unlikely to generate the same investment excitement seen in copper and aluminium. China's considerable appetite for commodities and global economic optimism continues to support the base metal complex in near future.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Hareesh V is the Head of Commodity Research at Geojit Financial Services.
first published: May 13, 2021 10:09 am

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