- Copper is up 11 per cent in the past month as investors pile in
- Gold keeps climbing even as rate cuts are pushed back
Copper jumped last week and investors piled back into mining shares in the hope that the tepid institutional approach to the industry of the past year would reverse. Even iron ore, so far a loser in 2024, showed signs of life as confidence rose in the sector. New limits on Russian exports also pushed up nickel, aluminium and platinum group metal prices.
There was even talk of a new supercycle among some analysts, although for others this is a sugar rush driven by short-term copper supply worries and investors looking for places to park cash. The industrial gains are complemented by gold's price hike of 16 per cent since the start of March, even as rate cuts have been pushed back into the middle of the year at least.
BMO Capital Markets analyst Colin Hamilton said mining experts had largely watched the pile-on from the sidelines. “While most market participants were happy with the higher copper price seen over the past month, the recent run has been slightly ahead of fundamentals,” he said.
“This reflects the heavy inflows towards copper, and commodities as an asset class, a dynamic that many [miners] were keen to understand more about. There is some confidence demand can improve further to backstop current price levels, but without this emerging soon, the recent rally may prove vulnerable.”
A stronger oil price brought traders back into commodity indices, pushing prices up further, Hamilton added.
Antofagasta (ANTO) shareholders have been among the top beneficiaries of this rally so far – its shares are up 10 per cent this month, although that continues a strong march upwards since November.
Iron ore, not included in indices given its far more controlled market, had traded down in the first quarter on weaker Chinese industrial signals, but the rising tide also kicked it up 8 per cent in the past two weeks. The overall slide for the year to date is still dramatic – the steel ingredient was trading at over $140 a tonne at the start of the year, and is now around $108 a tonne.
That fall has occurred as Chinese real estate and construction sectors remained on thin ice. At the same time, the country has ramped up steel exports. “China’s domestic steel demand trended at levels similar to last year, but steel exports rose 30 per cent year on year during the first two months and are likely to remain historically elevated, in turn supporting iron ore demand,” Rio Tinto (RIO) said in its first quarter trading statement this week.
The surprise price rise this month was in aluminium, driven up by new sanctions on Russian exports. The pariah state’s production is around 8 per cent of the global total. This is unlikely to be a shot in the arm for other producers’ profits, however, with Liberum analyst Tom Price arguing that Rusal will push its supply elsewhere, off the London Metal Exchange and US equivalent. “[This] switch alone creates a short-term surplus, hitting the market prices,” he said.
As for gold, its strength remains somewhat mysterious. The usual price-supportive buyers, which are central banks and institutions adding exchange traded fund (ETF) exposure, have not piled back in with prices so high.
Hamilton pointed to a two-year high of trading on the Shanghai gold exchange recently as one pointer to where the price push is coming from. He said the inflation-adjusted, all-time price high of over $3,000 an ounce (oz) from the 1980s ($850 in real terms at the time) showed there was potentially “still a bit of upside”. Looking ahead, stronger Chinese economic numbers might put off those Shanghai gold buyers but they could kick industrial metals prices up further. As a door shuts, a window opens.
