Industrial Metals Lose Their Luster

The industrial metal space has been struggling to gain traction as of late, as a cloudy forecast for the global economy has left these commodities in limbo. But that was not before many made strong runs in the past decade. According to Bloomberg, “six primary metals more than tripled in the 10 years to 2012.” These highs have started warding off a number of buyers as many fear a slowdown in key markets like China and other emerging economies [for more industrial metal news and analysis subscribe to our free newsletter].

Economic Uncertainty

While the U.S. has been recovering, slowdowns in economies across the globe have put pressure on these hard assets. Many even argue that the current U.S. recovery is largely aided by the Fed’s monetary policy, and once that disappears the economy could be in for a world of hurt. An unpredictable economy hits the industrial sector hard as building and infrastructure developments are often nixed in times of economic unrest. It would seem that the markets are fearing a further slowdown given the recent volatility in key industrial metals [see also Marc Faber: Why Industrial Commodities Will Continue to Fail].

Copper“The 100-day historical volatility in three-month copper on the London Metal Exchange fell to 14.9 percent, the lowest since October 2003, from as much as 71.4 percent in February 2009, according to data compiled by Bloomberg. Swings in Standard & Poor’s GSCI gauge of 24 commodities dropped to 13.2 percent, the lowest in at least 10 years, from 56.9 percent in October 2009″ Bloomberg reports. Similar statistics were also found for zinc, tin and lead.

With volatility dropping, it may suggest that there is less demand for trading these metals as investors look to steer clear of what could be a dangerous position. For long-term investors, it may be a bout of relief to see these assets push and pull with less ferocity, but it still suggests an overarching fear of how these metals will perform in the near future [see also The Ten Commandments of Commodity Investing].

A Short Opportunity

For those who are less-than-optimistic about the future of the world economy, these metals may provide a strong short opportunity. After a decade of strong gains, there certainly is room for a downward drop. The CME is ripe with options and futures contracts to help investors pinpoint a specific strategy, but there are other products that can help serve a similar purpose. PowerShares offers the DB Base Metals Double Short ETN (BOM), which uses a -200% leverage on a basket of aluminum, copper and zinc contracts. Note that this fund will be particularly volatile and should only be used by those with an exit strategy and a stomach for hefty movements.

Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.

Disclosure: No positions at time of writing.

This entry was posted in Copper, Industrial Metals, Lead, Tin, Zinc and tagged , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

2 Responses to “Industrial Metals Lose Their Luster”

  1. Gold_Price says:

    The gold price is benefitting while the industrial metals lose their luster. As the gold price rebounds in the coming weeks, we advise that investors closely track it on

  2. [...] Amid the buying euphoria on the equity front, those eager to get a piece of the action may be hesitant to jump in long given the stellar run-ups seen thus far on the year. Luckily, the investment landscape is far reaching and not every security is trading near all-time highs. Construction and mining equipment bellwether Caterpillar (CAT) offers a compelling opportunity at the moment, which warrants a closer look from anyone looking to establish tangential exposure to the global metals and mining market. [...]

Leave a Reply

  • Subscribe

    • RSS Icon   Twitter Icon
    • Sign up for free today:
  • Search