The London Metal Exchange’s base metals index recently reached its highest level this year, climbing approximately 10% since January.
This surge is primarily driven by significant price increases in copper and aluminum, up around 14% and 5% respectively.
Despite this overall rise, individual metal prices present a mixed picture.
Mixed performance among metals
While copper and aluminum have seen substantial gains, nickel and zinc prices remain at or below their levels at the beginning of the year.
However, all metals have experienced a notable recovery from a price slump in April, which was initially triggered by US tariffs.
Initial fears of a global recession did not materialise, and the majority of tariffs introduced in August were ultimately not as high as originally announced by US President Trump, said Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG.
Exhausted upside potential
Despite the recent gains, experts believe that further upside potential for all metals is largely exhausted.
Even if the economic consequences of US tariffs are less severe than initially assumed, they are expected to impact the real economy, particularly in the US and China. China is the most significant market for key base metals.
“However, the weak economic outlook for China is not only due to the trade conflict with the US,” Nguyen said.
Structural problems are also slowing things down, especially the crisis-ridden real estate sector.
The ongoing decline in both residential property sales and real estate investments, with no indications of stabilisation, accounts for the subdued performance of zinc and nickel prices.
As both metals are primarily utilised in steel coating and stainless steel production, their demand is highly contingent on the construction industry.
Supply outlook dampens zinc and nickel
The supply outlook is also contributing to the dampening of zinc prices.
Concerns about raw material shortages have eased with a recovery in mine production.
After three years of decline, the International Lead and Zinc Study Group (ILZSG) anticipates around 4% growth in mine production this year.
This improved raw material availability is expected to benefit metal production, with the ILZSG forecasting almost 2% growth this year, following a 4% decline in the previous year.
Similarly, a good supply situation is weighing on nickel prices, with LME inventories rising significantly due to increased production in Asia, particularly Indonesia.
Question mark over copper price surge
The sharp rise in copper prices is primarily attributed to ongoing concerns about a supply shortage of copper ore.
The IEA previously warned that mine supply might fall short of long-term demand due to insufficient investment in new projects.
The significant decline in treatment and refining charges paid by mine producers to copper smelters in China, which have even slipped into negative territory, points to a raw material shortage.
This, combined with a recent sharp decline in LME inventories, has boosted copper’s price.
Nguyen said:
However, we believe that the price increase has already gone too far.
She added that “there are no signs that the raw material shortage is already having a significant impact on metal processing, as copper production in China is still running at full speed.”
Furthermore, the sharp decline in LME inventories was largely due to the threat of US tariffs, leading to increased US copper imports beforehand. With the less extensive tariffs introduced, LME stocks have recovered.
Analysts expect copper prices to fall back below $10,000 per ton in the coming months.
Aluminium
The price of aluminum surged mid-month, fueled by an increase in canceled warrants, though inventories still rose.
After a decline until June, inventories have been increasing again, likely due to new 50% US tariffs on aluminum and aluminum products, which have significantly impacted the market.
Meanwhile, Chinese aluminum production, which constitutes 60% of global primary aluminum, is expected to stagnate or slightly decline as it approaches Beijing’s set annual production limit.
This suggests a comfortable supply situation, especially outside the US.
“However, we assume that production has now reached a plateau,” Nguyen said.
In summary, weakening demand is likely to meet with high, albeit stagnating, supply in the coming months.
In our view, this argues against further strong price increases for the most important base metals.
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