By all accounts, industrial demand has not been the driver of the strength in industrial metal prices — supply-demand balances won’t help you explain the cross-section of base metal returns this year, TDS’ Senior Commodity Strategist Daniel Ghali notes.
Copper’s rally driven by fragmented inventories, not fundamentals
« Instead, the strength in prices has been a function of the fragmentation in inventory systems. This has been particularly beneficial for Copper markets. Ultimately, the threat of tariffs has resulted in a virtuous cycle in Copper’s microstructure by continuing to incentivize a pull of available metal into the US, keeping the LME tighter than would otherwise be the case. »
« Global inventory pools can now be more easily depleted than they can be replenished, fueling a new all-time high in LME prices as a result. The world is inching towards a war-time economy. Forget about a potential trade deal: this is the megatheme you want to trade today. »
« Following the Five-Year Plan, expectations are rising for data center capacity growth in China, which could further upend supply-demand balances over the coming years. And, the world simply can no longer absorb mining disruptions in Copper markets; smelter output is increasingly vulnerable to a decline in byproduct precious metals revenues should prices subside. »