(Bloomberg) -- Metals traders and mining executives are descending on London for a week of meetings and parties for LME Week, one of the biggest events of the year for the metals world. With zinc at a decade high and copper enjoying the best year since 2010, here's what everyone is talking about.
Rocketing Returns
Cash is coming back to the metals market. Copper, aluminum, lead and zinc have soared more than 20 percent in 2017 on improving demand and supply constraints driven by Chinese curbs and years of underinvestment.
ETFS Industrial Metals, the biggest exchange-traded product tracking base metals, took in $64 million this year, swelling its assets to $314 million. Glencore Plc and Anglo American Plc shares are up more than 20 percent.
“What is there not to like at the moment?” Ingrid Sternby, a senior analyst at Blenheim Capital Management LLP, said in an interview in London. “The positive price performance in base metals this year is going to attract new investor interest, and commodities are looking increasingly attractive.”
Stocks Squeezed
LME inventories are back at levels from 2008, having finally worked through a massive glut that emerged after the financial crisis. That's leading to more volatility in the forward price curve and opening up opportunities for physical traders like Glencore and Trafigura Group Pte.
Zinc Shortages
The squeeze is most pronounced in zinc. The metal has been in backwardation, a situation when near-dated contracts are more expensive than later ones, for more than a month. Plus, exchange inventories are running low, creating the possibility of shortages and more volatility in regional premiums, which cover the cost of delivery.
“The potential for a spike is certainly the highest it's been in a very long time,” Colin Hamilton, head of metals research at BMO Capital Markets, said by phone from London. “We're looking at a very strong demand outlook for the first half of the year.”
Traders will be watching Glencore's production report on Monday to see if the world's largest zinc producer decides to restart mines. It's likely to bring supply back to the market in small increments, starting in 2018, Vivienne Lloyd, an analyst at Macquarie Group Ltd. in London, said earlier this month.
Read more: Glencore Gets What It Wants With Zinc Market Tightest in Years
Electric Cars
While everything in metals still revolves around China, the debate over electric cars is reaching a fever pitch. If the optimistic predictions are true, demand for lightweight aluminum chassis and battery metals such as cobalt will transform the metals supply chain and add a powerful boost to demand. Bank of America Merrill Lynch expects battery-powered vehicles to account for 90 percent of total vehicle sales by the middle of the century.
For Electric Cars, Bright Future, Paltry Present: QuickTake Q&A
Nickel Boom
Nickel's role in rechargeable batteries is getting a lot of attention and prices are up about 30 percent since mid-June. Annual demand for the metal may increase by 230,000 tons by 2025, equal to 12 percent of the current market, according to Bank of America Merrill Lynch. Prices will probably remain high in the next couple of months on a supportive macro-economic backdrop and Chinese nickel pig iron cuts over the winter, before heading lower on a six- to 12-month horizon, Goldman Sachs Group Inc. said Monday.
Mine Spending
After four years of declines, exploration spending is slowly picking up. Investment will reach about $7 billion this year, about $500 million more than 2016, according to McKinsey & Co. That's still well below the peak of $20 billion in 2012.
The focus will be on metals like copper and zinc, which have industrial and consumer uses, as well as battery materials such as nickel and cobalt, according to Oliver Ramsbottom, a partner at McKinsey in Tokyo.
To contact the reporter on this story: Mark Burton in London at mburton51@bloomberg.net.
To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net.
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