Investors are buying metals from zinc to aluminum at the fastest pace since 2009, betting demand gains will tighten supply, just as Citigroup Inc. and Macquarie Group Ltd. predict this year’s rallies will end.
Exchange-traded funds in the U.S. backed by base metals took in new money this year equal to 18 percent of their market capitalization, more than any commodity group, data compiled by Bloomberg show.
Hedge funds are the most bullish on copper in at least eight years, after spending March and most of April betting prices would drop. The Bloomberg Industrial Metals Subindex is heading for its biggest annual gain since 2010.
Pickups in global manufacturing and auto sales, and gains in U.S. housing, improved prospects for metals used in everything from appliances to building materials. While Citigroup and Macquarie say rising output of some metals and weaker Chinese demand may undercut prices, the biggest gains among 22 raw materials tracked by the Bloomberg Commodity Index since March have been nickel, zinc and aluminum.
“Base metals seem to have caught investors’ attention once again,” Vivienne Lloyd, an analyst at Macquarie in London, said in a telephone interview. “Probably the most eye-catching story has to be nickel. It’s got people talking, and the appearance of deficit has been bounded around the concept of deficit in several markets.”
Nickel jumped 20 percent and zinc advanced 19 percent since the end of March on the London Metal Exchange. Aluminum gained 15 percent, copper added 6.2 percent and lead rose 7.2 percent. The Bloomberg Commodity Index of 22 raw materials slid 4 percent over the same period, while MSCI All-Country World Index of equities rose 5 percent. The Bloomberg Treasury Bond Index gained 1.7 percent.
Gains for industrial metals were fueled by concern that supplies for some won’t be enough to meet demand. Indonesia, the biggest producer of mined nickel, banned exports of unprocessed ores in January. Nickel prices have surged more than any commodity except coffee this year.
By the end of the first quarter, demand for copper exceeded output by 84,000 metric tons, according to the International Copper Study Group. That’s equivalent to the amount of the metal that would be used in about 422,000 average single-family homes, or 3.7 million typical U.S. automobiles, based on data from the Copper Development Association.
Money managers held a net-long position of 48,994 futures and options contracts for New York copper as of July 15, the fourth straight weekly gain and the highest since the data began in 2006, U.S. Commodity Futures Trading Commission data show. As recently as June 17, the holdings showed bets that prices would fall, with a net-short position of 313 contracts.