World Economy

Analysts Split on Outlook for Industrial Metals

Analysts Split on Outlook for Industrial MetalsAnalysts Split on Outlook for Industrial Metals

Tight supplies lifted prices for industrial metals in the third quarter, with zinc, aluminum and copper boasting the biggest gains, but analysts were split on where the sector is headed in the final three months of the year.

For the third quarter as of Thursday, the S&P GSCI Industrial Metals Index, which reflects investment in aluminum, copper, zinc and nickel and is a subindex of the S&P GSCI tacked on 10.5%. It had posted five-consecutive quarterly gains before suffering a 0.7% decline in the second quarter, MarketWatch reported.

“Industrial metals are sensitive to Chinese GDP growth, inflation and the US dollar,” said Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices. “All of these macro factors were tailwinds for the industrial metals” in the latest quarter. Zinc, nickel, aluminum, copper and lead all saw notable gains in the last three months.

Adam Koos, president of Libertas Wealth Management Group, said Chinese efforts to reduce air pollution prompted cuts to aluminum production, shrinking supplies and pushing prices up for that metal, in particular. “government policies” could help prices continue to move higher from here, he said. Aluminum futures on Comex, based on the most-active contracts, climbed by roughly 10% for the quarter, according to FactSet data. Copper futures added more than 9% and zinc added around 14%.

“Copper prices hit a three-year high in September as its ongoing supply deficit for the past seven years is expected to persist through 2018,” said Maxwell Gold, director of investment strategy at ETF Securities. “Aluminum reached a five-year high this quarter as strong draw-downs in London Metal Exchange warehouses and continued crackdowns on illegal smelting in China boosted prices.” Meanwhile, “demand for zinc, copper and nickel is expected to be higher than supply,” he said. “These metals have gone through back-to-back years of supply deficits.”

For the first time since 2001, palladium, which is used in gas-powered engines, reached price parity with sister metal platinum this week and settled above the per-ounce price for platinum on Thursday.

Palladium futures settled at $936.85 an ounce Friday—around 12% higher for the quarter. “Palladium hit a 16-year high this quarter and remains the top performing commodity year to date,” Gold said.

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