Metals leave commodity rivals in the dust as China flexes muscle

Metals are the undisputed kings of commodities and among the world’s best performing major investments thanks to Chinese state power.

While energy and farming prices wallow in glutted markets, the top six raw materials in the Bloomberg Commodity Index this year are all metals, mostly due to China’s pledges to use its control of local producers to rein in supply.

Aluminium, with prices up 20 per cent this year, led copper, zinc, gold, silver and then nickel higher on the index, while natural resources from sugar to crude oil and soybeans are all lower. A London Metal Exchange gauge of prices for six industrial metals has jumped to its highest in more than two years, beating major assets including U.S. equities and bonds.

“I don’t see anything to make me doubt our belief that base metals are now in a bull market,” said Guy Wolf, head of market analytics at Marex Spectron Group. “As people start to realise that the reasons for prices going up are robust and sustainable, that’s going to bring more money into the market.”

The picture contrasts with oil, still below US$50 a barrel after a slump in 2014 as a glut from U.S. shale production persists. Excess output is also weighing on agricultural markets such as soybeans and sugar, with the European Union poised to allow farmers to plant as much beet as they want.

The aluminium industry, plagued by oversupply since a slump in demand after the global financial crisis almost a decade ago, has been reining in inventories. About 5 million metric tonnes of the 7 million tonnes of excess metal produced from 2008 to 2011 has now been consumed, according to researcher CRU Group.