The Trend

Commodities That Are Gaining Momentum



There’s little doubt that a bottom has been reached in most commodities, especially in industrial metals, like copper and aluminum.

Let’s start with copper.

The metal – already up about 35% on the year – could see further upside, as excitement builds for Donald Trump’s infrastructure plans, and as China’s copper demand recovers.  Even Goldman Sachs has upgraded its six-month forecast for copper to $6,200 a ton from $4,800 a ton.

 

It also boosted its full year forecast on copper to $5,600 from $4,800.

Better yet, after spending more than $1.4 trillion on infrastructure in 2016, China is likely to spend as much, if not more going forward, too, as the country plans to migrate another 200 million people from rural areas.

A reassessment of the supply-demand picture also tells us higher prices are likely.  Analysts believe we’ll see a supply deficit of around 180,000 tons in 2017, as compared to previous expectations for a surplus of 360,000 tons.


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Mine supply could also decrease 0.4% next year, according to Goldman Sachs as compared to an earlier forecast for 1% growth.  Meanwhile, on the demand side, usage growth of 2.2% is now anticipated, as compared to earlier forecasts for 1.7%.

When it comes to aluminum, there’s opportunity there, too.

Since January 2016, the Dow Jones U.S. Aluminum Index – which tracks the future prices of aluminum – has rocketed nearly 70% higher. 

 

That’s quite a move that’s far from over.

For years, oversupply issues have hit the aluminum market. An imbalance cut prices in half between 2010 and 2015.  To make things worse, the Chinese economy had just crashed, destroying the value of a many metals, including aluminum.

As a result, aluminum prices began to fall.

Nowadays, the supply-demand issues have stabilized. 

And before long, we could see an even bigger increase in aluminum prices, as Donald Trump’s infrastructure plan could help ramp up demand the metal. 

That being said, some of the best ways to profit from a potential swing higher is to look at major aluminum producers in the sector, including Century Aluminum (CENX) and Reliance Steel and Aluminum (RS).

Both stocks have jumped significantly this year, but with supply likely to fall with increasing demand around the globe, the commodity could move much higher.