Base Metals Extend Best Rally in Three Years on Growth Optimism

  • Nickel leads gains as Japan producer widens deficit forecast
  • Zinc nears 10-year high, while copper at highest since 2014

Why Industrial Metals May Be in a Bull Market

Industrial metals extended their longest weekly rally in three years, with nickel pacing gains and zinc reaching the highest in almost a decade as investors grew more optimistic about the outlook for supply and demand.

An index of the six main metals traded on the London Metal Exchange advanced 1.2 percent, after climbing for a sixth straight week on Friday, the longest such rally since April 2014. Nickel jumped as much as 3.4 percent in London as Japan’s top refiner said it expects a larger global shortage, while trading volume ballooned on the Shanghai Futures Exchange. Most of the main contracts on the LME rose, with copper touching the highest since 2014.

Base metals have climbed in the past six weeks on a combination of faster global economic growth, a weaker dollar and shrinking supplies. Investors are turning more bullish on the outlook for top metals user China, Wei Lai, an analyst with Cofco Futures Ltd., said by phone from Shanghai. The rally has helped push a Bloomberg Intelligence gauge of 18 of world’s biggest mining companies up 28 percent in the past two months.

“Mining equities and industrial metal prices will remain resilient in the next three to six months due to the lagged positive effect of Chinese infrastructure projects,” Fitch Group’s BMI Research said in a report Monday. Mining firms will also benefit from their continued focus on reducing debt and costs, and may outperform broader indexes, it said.

Read more: BHP is expected to report a profit rebound Tuesday

Nickel rose 3.1 percent to settle at $11,315 a metric ton at 5:51 p.m. on the LME, after touching the highest since Dec. 16. 

  • Copper climbed as much as 2.1 percent to $6,623 a ton.
  • Zinc reached $3,180.50 a ton intraday, the highest since October 2007.

First Quantum Minerals Ltd. led gains by metal producers in the Americas, surging as much as 8.2 percent after resolving a electricity tariff dispute in Zambia. Freeport-McMoRan Inc. rose as much as 5.2 percent.

Sumitomo Metal Mining Co., Japan’s top nickel producer, widened its deficit forecast to 51,000 tons this year, from a May estimate of 4,000 tons, Masanori Ohyama, general manager for nickel sales, said Monday. The shortage reflects slowing Indonesian output of nickel pig iron, a lower-grade alternative to the refined metal, after a drop in prices earlier in the year, Ohyama said, adding that many producers still face tough conditions.

“Demand for nickel is rising as stainless steel mills ramp up production to reap better margins, while supply is constrained by faster gains in ore prices ahead of the Philippines’ rainy season,” said Wang Cong, an analyst with SMM Information & Technology Co. Ore supply from top producer the Philippines will drop in the wet season, which runs from October to April, according to Wang.

— With assistance by Winnie Zhu, and Luzi-Ann Javier

    Before it's here, it's on the Bloomberg Terminal.