The London Metal Exchange is the world’s largest market for futures built on base metals like copper, tin, and other important industrial metals. It offers precious metal contracts too, which often outshine base metals in the public consciousness, but most traders have some idea of what moves silver and gold. Here, we’ve gathered some common factors that move base metals instead.
Mining Supply, Disruptions and Smelting Caps
Like all commodities, base metals are exposed to underlying real-world events that can impact their price. In fact, when compared to precious metals, base metals have higher exposure to industrial use cases like construction and technological development. While silver and gold do have a technological edge to them, they’re often valued and hoarded for status and political importance alone.
With that covered, let’s start at the beginning with the mines where copper, tin, aluminium, and zinc get pulled out of the ground. There are so many things that can disrupt mining activity at some of the world’s major mines, ranging from labour negotiations to on-site accidents, plus some political exposure through major suppliers like Chile or Indonesia. They can create supply deficits, driving the price of said metals up with volatility. Likewise, smelting and export caps can introduce non-supply related restrictions, like China’s hard cap for aluminium or Indonesia’s hawkishness over nickel.
One of the main benefits of the internet is the ability to tap into news feeds across most of the globe to identify disruptions as they happen. This can give traders and investors small windows of opportunity, especially when combined with an online trading platform built for commodity spreads, including CFDs for copper price action. Generally, investors should remember that supply disruptions will drive price upward, often in short timeframes, as base metal supply isn’t as extensive as gold, and mines take years to open.
Demand for Technological Development & Interest Rates
While supply is all about the mining and shipping of base metals, demand-side factors on price come from how the metals are used. China is important here too, as it’s the biggest consumer of base metals worldwide. Traders keep an eye on their manufacturing purchasing managers’ index (PMI) to see if their manufacturing sector is growing (over 50) or flagging (under 50). Growth means more demand, driving prices up if supply isn’t catching up.
More topical is the growing role of copper, nickel and aluminium in renewable energy hardware, electric car wiring and the AI data centre boom. Copper is far and away the most exposed here, owing to its conductive properties, as hyperscalers rush to build data centres all over the planet.
On the macro level, base metal consumption can also be an indicator of the economy as a whole. A healthy economy drives base metal usage, often through massive construction projects funded partially or in whole by debt. This also means high interest rates will drive the price of base metals down, as industrial demand weakens and physical holders de-stock because warehouse financing gets more expensive. The same rates would also strengthen the US Dollar, which makes metals more expensive for buyers using other currencies.
Naturally, those exposed to base metals should curate a feed that targets both local, mining-level events for their chosen metal, plus macroeconomic drivers that also affect price action. Unlike precious metals, base metals can experience more short-term volatility when supply or demand shifts, but positioning is always key.