The best bet in the base metals rally

The prices of key industrial metals have been enjoying a “spectacular rally”, says Buttonwood in The Economist. Copper has jumped by about 25% since the start of April, while iron ore has delivered 12% gains for the year to date.

Commodity bulls have China to thank for this rapid recovery, says Buttonwood. Steel blast furnaces were running at 92% capacity in the first week of June, which is above normal levels. For all the talk of the Middle Kingdom’s shift to a consumer economy, the authorities seem happy to use the old method of stoking a construction boom when a round of stimulus is needed. 

Iron ore has emerged in recent years as the world’s “second most important commodity behind oil”, say Julien Hall And Fiona Boal in the Financial Times. The S&P GSCI Iron Ore index has more than tripled over the last seven years while many other metals have stalled. Now more liquid futures markets are making the steel ingredient easier than ever to trade. That makes iron ore an attractive “proxy” investment for those wishing to bet on the Chinese manufacturing sector without buying in directly. The current metals rally is also being driven by supply constraints, says Myra Saefong in Barron’s. Mine closures in pandemic-hit Latin America mean less iron ore and copper reaching global markets. Yet copper prices may struggle now amid a highly uncertain few months ahead for the global economy, says Johann Wiebe of Refinitiv. 

The best bet may well be silver, says Taki Tsaklanos of InvestingHaven.com. As both an industrial and a precious metal it stands to gain even if another virus wave triggers renewed lockdowns. That is likely to mean even more emergency money printing, which is a boon for precious metals. Currently trading around $17.80/oz, he expects silver to approach $21/oz before the end of the year.