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Industrial Metals

The industrial metal complex

Industrial metals are used in many aspects of our lives in the 21st Century and are a fundamental requirement for every developed or developing economy. Industrialisation and urbanisation in the BRIC economies has seen a marked increase in demand for these resources in the last decade. It is widely accepted that the sheer magnitude of this mass migration from rural areas to cities will be the largest in human history and this will create the most substantial period of demand for industrial metals that we will ever see.

 

The demand side is only half the story. Underinvestment in new mines during the 1980’s and 1990’s was highlighted as a key factor in the birth of this commodity bull market. Low cost, high quality metals have become scarcer as the established mines are drained of their easily accessible assets. The mining industry had been investing heavily during the mid-2000’s in metal exploration, aiming to be the first to bring metals from a new source to the demand table. However the start-up times from finding a new source to bringing the asset to the market can be many years. In the late 2000's the credit crunch and sovereign debt crisis hit. Access to capital for high risk ventures such as exploration became increasingly difficult to secure and with ongoing global economic uncertainties, bankers and investors are maintaining a tighter grip on their funds than during the pre-credit crunch economy. This choking of new supply is believed to be the main factor in stimulating the next wave to the upside in the industrial metal bull market and until financing becomes easier to ascertain, it is anticipated industrial metals will be well placed to make gains.

 

The industrial metals traded on the London Metal Exchange (LME) are aluminium, copper, lead, nickel, tin and zinc. Copper is the only industrial metal traded on the COMEX and accounts for the majority weighting of most industrial metal funds and as such is known as the flagship industrial metal.