The base metals traded on the London Metals Exchange include copper, aluminum, nickel, lead, zinc, and tin. Base or nonferrous metals are infrastructure building blocks and are increasingly green metals as they have significant applications in green energy initiatives combating climate change. Electric vehicles and wind turbines require copper, while nickel and lead are crucial battery components.
In 2023, the base metals sector fell 10.03%. In a December 19 Barchart article outlining the prospects for copper prices in 2024, I wrote:
The odds favor higher copper prices in 2024. Meanwhile, any long risk position requires leaving room to add if the prices fall over the coming weeks. Picking bottoms is always a dangerous venture in the volatile commodity asset class.
On December 19, nearby COMEX copper futures prices were at the $3.898 per ounce level. On April 10, May copper futures were near $4.25 per pound, and the trend was higher.
Illiquid LME tin leads the sector higher in Q1 2024- Nickel edged higher
Tin is the metal that suffers from the lowest trading volume and inventories on the London Metals Exchange. Low liquidity tends to foster high price variance.
The chart illustrates that tin prices rose 2.45% in 2023 and added to last year’s gain with an 8.01% increase in Q1 2024. Three-month tin forwards led the base metals sector and settled at $27,451 per ton on March 29, 2024. Tin prices were significantly higher at the over $31,000 per ton level in early Q2.
Nickel is the second-least liquid LME metal.
Volatile three-month nickel forwards dropped 44.75% in 2023 and posted a marginal 0.88% gain in Q1 2024. Nickel settled Q1 at $16,749 per metric ton and was nearly $1,500 per ton higher in early Q2.
Copper futures and forwards post gains in Q1 and are higher in early Q2
While aluminum and zinc are the most liquid LME metals, copper is the leader of the base metals pack.
The chart shows COMEX copper futures that rose 2.10% in 2023, adding to gains with a 2.99% Q1 increase. The nearby futures contract settled at $4.0070 per pound on March 29, 2024. Copper futures were above the $4.25 level in early Q2.
Three-month LME copper forwards gained 2.23% in 2023 and added another 3.60% in Q1 2024. The copper forwards settled at $8,867 per ton at the end of Q1 and were trading at over $9,400 in early Q2.
Lead and aluminum prices were lower in Q1- Zinc fell the most in Q1
Lead, a critical metal for battery production, edged lower in Q1.
Three-month lead forwards fell 9.79% in 2023 and edged only 0.65% lower in Q1, settling at $2,055 per ton. Lead prices were over $100 per ton higher in early Q2.
Aluminum prices slipped in Q1.
The chart shows that three-month high-grade aluminum forwards that edged only 0.25% higher in 2023 fell 1.97% in Q1 2024, settling at $2,337 per ton. Aluminum forwards were over $120 per ton higher on April 9, 2024.
Zinc led the way on the downside in Q1.
Zinc’s price fell 10.58% in 2023, adding to the loss with an 8.24% decline in Q1, closing the quarter at $2,439 per ton. Zinc prices were higher at over $2,670 per ton in early Q2.
LME inventory changes in Q1 reflect China’s economic weakness
Since China is the world’s leading base metal consumer, prices reflect the strength or weakness of the Chinese economy. Over the past year, sluggish conditions in the world’s second-leading economy have weighed on nonferrous metal prices.
Meanwhile, LME inventories indicate the fundamental equation for the metals. The changes in LME stocks in Q1 were as follows:
- Copper inventories fell 32.8% to 112,475 tons.
- Aluminum stockpiles rose 1.0% to 554,475 tons.
- Nickel stocks moved 20.4% higher to 77,148 tons.
- Lead inventories moved 100.6% higher to 272,200 metric tons.
- Zinc stocks increased 20.5% to 270,875 tons.
- Tin inventories dropped 40.5% to 4,570 tons.
Over the coming weeks and months, the inventory data will provide clues about the Chinese economy and demand and the global fundamentals for the metals that are infrastructure building blocks and increasingly green energy ingredients.
An emerging bullish trend- DBB tracks the most liquid LME metals
In early Q2, base metals prices are trending higher despite lower bonds and a steady U.S. dollar, indicating underlying strength in the nonferrous metals sector.
The most direct route for base metals exposure is through the COMEX copper futures market or the LME forwards exchange. The fund summary for the Invesco DB Base Metals Fund (DBB) states:
DBB owns a portfolio of the most liquid LME metals, including aluminum, zinc, and copper. At $19.22 per share on April 1-0, DBB had around $130.98 million in assets under management. DBB trades an average of 93,983 shares daily and charges a 0.77% management fee.
DBB shares fell 5.9% in 2023 and were 1.9% lower in Q1 2024, closing March at the $17.96 per share level. At $19.22 on April 10, DBB was 7% higher in early Q2.
The price action in early Q2 is bullish, but China’s economy, U.S. interest rates, and the path of least resistance of the U.S. dollar will determine the base metal’s price paths. Keep an eye on inventories for fundamental clues, but the trend is always your best friend, and it is bullish in early Q2 2024.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
