Copper, aluminum, and zinc seeing a rally: What's the reason?
What's the story
The prices of base metals such as copper, aluminum, and zinc have witnessed an unprecedented surge in recent weeks. The rally is being led by these metals across major global exchanges. On the London Metal Exchange (LME), copper prices have crossed the psychological $10,000 mark while on India's MCX platform they are trading near record highs. The same bullish trend is seen in China, the world's top consumer of these metals.
Price surge
Aluminum and zinc prices surge
Aluminum prices have hit three-year highs, crossing ₹264 per kg in India. Meanwhile, zinc prices are trading at multi-month highs internationally and at record levels domestically. This price surge isn't just a speculative bubble but is driven by a mix of supply constraints, strong demand, geopolitical tensions, and policy shifts.
Market dynamics
Supply disruptions due to geopolitical tensions
Copper production has been disrupted by a string of setbacks at major mines. Accidents at Chile's El Teniente mine, protests in Peru, and a deadly mudslide at Indonesia's Grasberg mine have collectively taken hundreds of thousands of tons off the global supply chain. On the other hand, global infrastructure spending and the shift to renewable energy are driving demand for metals like copper and aluminum.
Influences
Weaker US dollar boosts metal prices
A weaker US dollar makes dollar-denominated commodities cheaper for foreign buyers, which boosts demand. This has particularly benefited the copper and aluminum. Meanwhile, inflationary pressures and economic uncertainty have prompted investors to turn to commodities as a hedge, further driving up prices. The global base metals market is currently balancing between rising demand and constrained supply.
Forecast
Future outlook for base metals
The future of the base metals market will depend on how these factors evolve. For copper, demand is expected to outstrip the supply in coming years due to a lack of new mining projects. The energy transition is a key driver with copper use growing in EVs, wind turbines, and smart grids. In aluminum, demand is rising especially in China but supply remains tight due to energy-intensive smelting processes and geopolitical constraints.