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Industrial metals recovered from pandemic led sell-offs. Will the trend continue?

Brewing tensions between US and China and the performance of US dollar would be worrisome.

September 27, 2020 / 09:37 AM IST

All industrial metals sharply recouped recently from the losses due to the pandemic led sell-offs. Timely stimulus measures from the top consuming countries to prop up demand cushioned the metal prices. In addition, optimism over COVID vaccine, gaining equities and a weak US dollar also offered impetus for gains in all industry oriented commodities.

Base metals had significantly fallen all through the first quarter of 2020 due to subdued global economic activities in the wake of pandemic led lockdowns. However, most of such commodities have recently revisited the pre-pandemic levels.

In the benchmark LME futures, copper, nickel and zinc were the leading performers by gaining more than 10 percent so far this year. Lead and aluminium prices also tested the levels of January 2020.

On the domestic futures platform, copper and zinc were the standout performers with a gain of more than 60 percent by August from March lows. MCX copper futures surged to all-time high during this recovery period. Nickel and lead followed the trend by marking a gain of more than 40 percent and 30 percent respectively. However, aluminium was the only metal that limited its gains near to 15 percent from March lows mainly due to lower demand from auto sector and huge surplus.

The recovery rally revived prices by late March 2020 mainly due to the rebound in Chinese demand. The engagement of other top economies like US, Japan and European Union also acted as a major catalyst for the industrial metals to get traction.


Policy easing and fiscal stimulus measures taken by global central banks boosted industrial activities and thus the demand of metals. By mid-March People’s Bank of China disclosed monetary easing estimated to be $80 billion and pledge of $559 billion worth of cost cuts for boosting industrial activities. Likewise, the US Federal Reserve has reduced interest rate to almost zero and the Congress has passed the $2 trillion stimulus package for the economic restoration. The European Central Bank’s also declared emergency purchase programs a total of $1.6 trillion.

Reopening of factories and a revival in demand in the world’s top metal consumer, China, also largely helped on the recovery trail. After marking a negative growth in Chinese industrial production in the first quarter, sentiments improved and official manufacturing data continued to expand for the sixth straight month in the August.

Mines and smelters closed due to numerous lockdowns also brought out severe supply crisis in metals like copper. Commodities like zinc and nickel gained remarkably on Chinese steel demand. Drop of nickel output from major hubs such as the Philippines, Canada and Indonesia also supported the price. Higher demand for acid batteries in China served as catalyst for lead price gains.

The recent price performance implied that worst is over in industrial metals from the corona led crisis. However, it would be tough to continue the momentum as traders would largely look into the demand-supply dynamics. Many of the base metal markets are still oversupplied and the overall demand remains below the pre-pandemic levels. Brewing tensions between US and China and the performance of US dollar would be worrisome. Anyhow, the next phase of recovery is largely confined in stable growth of industrial activities from top consuming economies like China, US and Eurozone.

(Hareesh V is the Head of Commodity Research at Geojit Financial Services.)

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. 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: Sep 27, 2020 09:37 am
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