Industrial Metals Bull Market Extends Into Q4

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Industrial metals rose in the first half. In Q3 they took a break, but momentum is starting to pick up again.

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The industrial metals exchange-traded fund, which tracks the performance of four base metals, recently hit a 14-month high.

Industrial Metals ETF hits new highs. Source: Metalminer analysis of stockcharts.com data

The industrial Metals ETF hits new highs. Source: Metalminer analysis of stockcharts.com data.

This is important because when money is flowing into the industrial metals complex, every metal gets a tailwind. Recently, we witnessed particularly strong momentum in lead, zinc and tin:

Lead prices jumped 11% in the last five days

Lead prices jumped 11% in the last five days. Source: Fastmarkets.com.

Lead prices skyrocketed last week, despite a supply surplus this year.

Zinc prices are up 60% year to date

Zinc prices are up 60% on they year to date. Source: Fastmarkets.com.

Zinc rose to new ground last week. Despite being up 60% on the year to date, the metal continues to move up.

Tin prices are up 40% year to date

Tin prices are up 40% year to date. Source: Fastmarkets.com.

Similarly, tin prices hit new highs last week, up 40% on the year to date.

Two-Month Trial: Metal Buying Outlook

Even copper and aluminum rose in September. Despite their supply surplus story, these two metals have also gained in price this year.

With the exception of domestic steel prices, which corrected last month, bullish sentiment in the metal sector is picking up. Two macro-developments contributed to this:

New OPEC Deal

At the end of the month, OPEC reached an understanding that a crude-oil-production cut is needed to lift petroleum prices, but the cartel said it will wait until November to plan how to tackle the supply glut. Oil prices rose following the announcement. This could help lift oil prices in Q4.

Remember, higher energy prices increase the cost of producing metals (especially those energy-intensive ones like aluminum) and boost investor appetite for index funds that own raw materials.

The US Dollar Weakness

In September, the Federal Reserve decided to stand pat on interest rates, while also signaling that future rate hikes would come at a snail’s pace. When the Fed doesn’t raise interest rates, the U.S. dollar likely remains under pressure, helping support metal prices. Remember that metals are priced in U.S. dollars and the move in opposite directions.

What This Means For Metal Buyers

After taking a break in Q3, bullish momentum is starting to pick up as we move into Q4. This suggests a continuation of this year’s bull market, one that we identified earlier this year. Metal buyers should have a good plan to protect their budgets.

 

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