Agnieszka Troszkiewicz and Luzi Ann Javier
Investors are buying metals from zinc to aluminium at the fastest pace since 2009, betting demand gains will tighten supply, just as Citigroup and Macquarie Group predict this year’s rallies will end.
Exchange-traded funds in the US backed by base metals took in new money this year equal to 18 percent of their market capitalisation, more than any commodity group, data compiled by Bloomberg show. Hedge funds are the most bullish on copper in at least eight years, after spending March and most of April betting prices would drop. The Bloomberg industrial metals sub-index is heading for its biggest annual gain since 2010.
Pick-ups in global manufacturing and auto sales, and gains in US housing, improved prospects for metals used in everything from appliances to building materials. While Citigroup and Macquarie said rising output of some metals and weaker Chinese demand might undercut prices, the biggest gains among 22 raw materials on the Bloomberg commodity index since March have been nickel, zinc and aluminium.
“Base metals seem to have caught investors’ attention once again,” Macquarie analyst Vivienne Lloyd said. “Probably the most eye-catching story has to be nickel. It’s got people talking, and the appearance of deficit has been bounded around the concept of deficit in several markets.”
Nickel jumped 21 percent and zinc advanced 19 percent since the end of March on the London Metal Exchange.
Aluminium gained 14 percent, copper added 6.2 percent and lead rose 7.8 percent. The Bloomberg commodity index of 22 raw materials slid 3.7 percent over the same period, while MSCI all-country world index of equities rose 4.2 percent. The Bloomberg Treasury Bond index gained 1.7 percent.
Gains for industrial metals were fuelled by concern that supplies for some would not be enough to meet demand. Indonesia, the biggest producer of mined nickel, banned exports of unprocessed ores in January. Nickel prices have surged more than any commodity except coffee this year.
By the end of the first quarter, demand for copper exceeded output by 84 000 tons, according to the International Copper Study Group. That is equivalent to the amount of the metal used in about 422 000 average single-family homes, based on data from the Copper Development Association.
Money managers held a net-long position of 48 994 futures and options contracts for New York copper as of July 15, the fourth weekly gain in a row and the highest since the data began in 2006, US Commodity Futures Trading Commission data show. As recently as last week the holdings showed bets that prices would fall, with a net-short position of 313 contracts.
The rallies might not last. Mining companies were boosting output and might swamp demand in many raw materials, Goldman Sachs Group analysts said in a July 15 report.
Forecasts collected by Bloomberg show analysts expect a drop for all base metals except tin and lead by year-end.
In a report on Monday, Macquarie forecast lower prices in three to six months for copper, aluminium and zinc.
“We are of the view that prices are now running ahead of where the fundamentals would justify for a number of the metals,” Joseph Murphy at Hermes Fund Managers, said last week. ‘‘However, the recent large inflows from ‘tourist’ investors are the reason they are moving higher.’’
Exchange-traded products tracked by Bloomberg show an inflow of $75.7 million (R805m) to funds linked to industrial metals this year, compared with a net outflow for all of last year of $51m. – Bloomberg