The base metals sector of the commodities market moved 1.47% higher in Q3 and was 13.19% higher than the December 2023 closing level at the end of September 2024. In a July Barchart article on the base metals sector, I concluded:
The inventory increases are likely due to economic weakness in China, the world’s leading base metals consumer. As we move into the second half of 2024, financial conditions in China are critical for the path of least resistance of base metals prices. The bullish price action in Q2 and the first half of 2024 will likely need a Chinese economic recovery to continue to the pattern of higher lows and higher highs.
Base metals edged higher in Q3 despite high inventory levels and continued Chinese economic weakness. However, lower U.S. interest rates, a weaker U.S. dollar, and late Q3 Chinese stimulus caused the sector to edge higher for the quarter.
Copper and aluminum prices move higher in Q3
COMEX copper futures rose 3.70% in Q3 and were 17.03% higher over the first three quarters of 2024.
The monthly chart shows that COMEX copper futures were $4.5530 per pound at the end of Q3. Meanwhile, three-month LME copper forwards posted a 2.40% gain in Q3 and were 14.84% higher over the first nine months of 2024.
The monthly chart highlights the price action in copper forwards that took the price to $9,829 per metric ton at the end of Q3.
Three-month aluminum forwards posted a 3.45% gain in Q3 and were 9.54% higher from the end of December 2023 through the end of September 2024.
The monthly chart shows that the aluminum forwards settled at $2,611.50 per ton at the end of Q3.
Zinc leads while lead lags over the past three months
Three-month LME zinc forwards posted the most substantial Q3 gain, moving 5.23% higher. The zinc forwards were 16.29% higher over the first nine months of 2024.
The chart illustrates the upward trajectory of LME zinc prices. On September 30, the official settlement price for three-month forwards was $3,091 per ton.
While zinc led on the upside, LME lead forwards were the only metal posting a Q3 loss, falling 5.76%. LME lead was 1.33% higher over the first nine months of 2024.
Three-month LME lead forwards settled at $2,096 per metric ton on September 30.
Gains in nickel and tin
Nickel and tin are the two least liquid LME metals. Three-month LME nickel forwards gained 1.29% in Q3 and were 5.49% over the first three quarters.
The chart shows that nickel forwards settled at $17,514 per ton on September 30.
While three-month LME tin prices were 2.20% higher in Q3, they led the metals higher since the end of 2023, with a 31.65% gain.
The monthly chart illustrates the rise to $33,458 per ton on September 30.
LME stocks remain high- Chinese stimulus could cure high inventories
The following table highlights the significant increases in LME stocks for the metals sans tin over the first three quarters of 2024:
In Q3, aluminum, lead, zinc, and tin stocks moved lower, while copper and nickel inventories moved substantially higher.
Weak economic conditions in China likely caused most inventories to grow over the first nine months of this year. However, at the end of Q3, the Chinese government announced a series of stimulus measures, including interest rate cuts and trimming bank reserve requirements. The stimulus could ignite the demand for metals as China is the world’s leading nonferrous metals consumer. Increased Chinese demand could cause declining stockpiles over the coming weeks and months, which would be a bullish sign for the base metals sector.
DBB is an ETF that owns the most liquid LME metals
While nickel and tin are the least liquid LME metals, copper, aluminum, and zinc are the most liquidly traded metals. The top holdings of the Invesco DB Base Metals Fund (DBB) include:
At $20.41 per share, DBB had nearly $128.4 million in assets under management. DBB trades an average of over 77,000 shares daily and charges a 0.75% management fee.
The monthly chart shows that DBB moved 3.22% higher from $20.14 at the end of Q2 to $20.79 per share at the end of Q3. Over the first nine months of 2024, DBB moved 13.6% higher. DBB outperformed the base metals sector in Q3 and kept pace over the first three quarters.
Chinese demand, U.S. interest rates, the path of least resistance of the U.S. dollar, and other factors will determine if the bullish trend in base metals continues in Q4 and beyond. Copper is the sector’s leader, and the other metals could follow the red metal’s lead.
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.
