Industrial metals-related exchange traded products are strengthening this year as tightening inventory levels and rising optimism for a return to global growth following a U.S.-China trade deal are supporting the fundamental outlook.
Year-to-date, United States Copper Index Fund (NYSEARCA: CPER) gained 12.0%, iPath Series B Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) rose 11.9%, iPath Serues B Bloomberg Nickel Subindex Total Return ETN (NYSEArca: JJN) increased 21.5% and iPath Series B Bloomberg Tin Subindex Total Return ETN (NYSEArca: JJT) advanced 12.7%.
Meanwhile, the broader Invesco DB Base Metals Fund (NYSEArca: DBB) was up 7.8% and iPath Bloomberg Industrial Metals Subindex Tota Return ETN (NYSEArca: JJM) was 11.0% higher.
Industrial metals fundamentals look promising. On the supply side, according to data compiled by Capital Economics, inventories of several metals stored on global exchanges have declined over 25% from the start of last year through February 18, the Wall Street Journal reports. Meanwhile, with Washington and Beijing coming closer to a trade deal, investor sentiment on the demand side has further helped support pricing.
“We suspect that the primary reason for the falls seen in global exchange stocks is that mine supply growth has been sluggish,” Capital Economics analysts said in a recent note.
Base metals, which are used heavily in construction and manufacturing, act as the necessary building blocks or raw materials for everything in a wide range of industires. Investors often look to industrial metal price moves as a barometer, notably the so-called Doctor Copper, for the health of the global economy and growth in China, the world’s largest commodity consumer and second largest economy.
Observers argued that signs of caution from the Federal Reserve over the pacing of further interest rate hikes have helped weaken the dollar, which makes it cheaper for foreign buyers to purchase USD-denominated commodities. Furthermore, the Chinese government has helped restore confidence in the economy’s outlook through a number of stimulus measures.
“We expect further Chinese stimulus to lead to a gradual recovery in demand” for base metals, Jefferies analysts said in a note this month, adding that it should be enough to push the copper market and other commodity markets into deficit, pushing prices higher.
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