Base metal prices have seen a strong revival in 2024, after being beaten down in 2022 and then a sluggish 2023. The S&P/TSX Global Base Metals Index has risen about 13 per cent so far in 2024.

Among individual metals, tin has outperformed others by surging 26 per cent this year.

The trigger

A strong pick-up in the global manufacturing activity has been one of the major triggers for base metal prices surging this year. The JPMorgan Global Manufacturing PMI has risen consistently from 49 in December to 50.6 in March. Sandeep Daga, Founder, CEO of Metal Intelligence Centre (MIC), says, “There has been a revival and the global manufacturing PMI has gone into the expansion phase, prompting a turnaround in sentiments”.

Recent data show that the global PMI has dipped to 50.3 in April. However, any reading over 50 indicates that it is still in expansion phase. Further fall in PMI though, can dampen the sentiment.

Secondly, the positive economic signals in the US and China have started playing out in metal prices. Amit Goel, Co-Founder and Chief Global Strategist at Pace 360, says, “Instead of a recession, the US sported strong growth numbers last year. China, on the other hand, did interest rate cuts and introduced monetary stimulus to stabilise the economy.”

Thirdly, the bearish stance in the markets turned around. For instance, the net long position in copper has increased almost five-fold since the beginning of this year.

According to the data from the Commodity Futures Trading Commission (CFTC), the net long positions (non-commercial) in copper futures contract on the COMEX has increased from 8,617 contracts in the first week of January, 2024 to 58,064 by end-April.

Little upside room

Experts believe that there is not much room left on the upside. The current rally in metals price could top out in a month or two. According to Amit Goel, the US economy could start to slow going forward.

“US growth is topping out in my opinion. There could be a dramatic slowdown ahead in the US, which can spill over to other global major economies as well,” he says. That could have a negative impact on the commodity prices.

“There could be room for a maximum of another 4-5 per cent rise in metals price from here. But, after that the metal price can correct about 8-10 per cent by October this year,” he adds.

MIC’s Sandeep Daga says the current rally is completely driven by investment money and not because of consumer demand.

“The bull cycles in 2002, 2009 and 2020 were driven by a strong Chinese demand. That is missing this time,” he cautions. He says that base metal prices in China are trading at discounts compared to the London Metal Exchange prices and also the inventories are at high levels.

“Usually, the Chinese price will rise rapidly at the beginning of a bull cycle. That has not happened. Copper inventory in China is at its peak since 2020 which means China is not consuming much,” says Daga.