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  • Christian Armbruester

Metal Motions

Many of our windows are made of aluminium these days, much of the wiring in electrical equipment is made of copper and we use a lot of lead for plumbing. The point is, not much construction or manufacturing gets done if industry does not have these basic ingredients at hand. As such, the prices of these so-called base metals can be used as a lead indicator for economic activity.

So, does the recent price surge of 20% in most of our favourite metals, suggest that output is picking up? The thing with commodities is that you never know if the cart is in front of or behind the horses. Moving a ton of copper from a mine to a building site is a different type of transaction than buying a share in Microsoft and settlement in our custody accounts.

The result is that we have two very different worlds when it comes to metals. One that is traded on exchanges, where investors can speculate on prices for delivery at different times in the future. The other is physical with trains, planes, and automobiles, where producers sell their metal to consumers.

Ultimately, the worlds will always converge. If the price on the exchange is too low relative to the cost of production it kills supply, but if the price is too high it kills demand. The problem is, whatever it is that has investors piling into base metals of late, we haven’t seen the same enthusiasm in orders from the people that actually build things.


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