DBB: The Case For Copper, Aluminum, And Zinc

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Base metals, including copper, aluminum, and zinc, trade on the London Metals Exchange and are influenced by liquidity and price volatility.Copper prices have rallied in early Q2, while aluminum and ...

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The LME trades copper, aluminum, nickel, lead, zinc, and tin forwards. The aluminum, zinc, and copper markets are the most liquid, while nickel, lead, and tin suffer from limited volumes and open interest. Low liquidity tends to increase price volatility, creating hazardous trading and investing conditions. Copper is the LME metal with the highest profile, and many market participants believe it is a barometer for the health and well-being of the worldwide economy. Many of the LME metals tend to follow the copper prices. However, aluminum and zinc are more liquid metals than copper. The Invesco DB Base Metals Fund ETF (NYSEARCA:DBB) owns a copper, aluminum, and zinc portfolio, providing direct exposure to the three most liquid LME metals. Copper prices have rallied in early Q2 Nearby COMEX copper futures (HG1:COM) were 2.99% higher in Q1 after rising 2.10% in 2023. The futures settled at $4.007 per pound at the end of March. Monthly Chart of COMEX Copper Futures (Barchart) The chart shows the rally in early Q2, which took copper futures 6.4% higher than the Q1 closing level of nearly $4.40 on April 18. Three-month LME copper forwards were 3.60% higher in Q1 after rising 2.23% in 2023. The forwards settled at $8,867.00 per ton at the end of March. Monthly Chart of LME Copper Forwards (Barchart) At $9,582.50 per ton, three-month copper forwards were 8% higher in early Q2 compared to the Q1 closing level. Aluminum and zinc prices have followed Three-month LME aluminum forwards fell 1.97% in Q1 after edging only 0.25% higher in 2023. Aluminum was at the $2,337 per ton level at the end of March 2024. Monthly Chart of LME Aluminum Forwards (Barchart) The chart highlights the 10.7% gain in early Q2 as aluminum forwards moved to $2,587 per ton. LME zinc fell 8.24% in Q1 after a 10.58% decline in 2023. Zinc was at the $2,439.00 per ton level at the end of March 2024. Monthly Chart of LME Zinc Forwards (Barchart) At $2,828.25, high-grade zinc was 16% higher in early Q2. Mixed signals from stockpiles The LME is the world's leading base metals exchange with an extensive network of warehouses. Stockpiles provide clues about the metal's fundamentals. Falling stocks indicate rising demand and falling supplies, while rising inventories point to surpluses. In Q1:  LME copper inventories fell 32.8% to 112,475 metric tons. LME aluminum stocks edged 1.0% higher to 554,475 metric tons. LME zinc stockpiles rose 20.5% to 270,875 metric tons.  As of April 17, LME stocks were at the following levels:  At 123,775 tons, copper inventories were 10% higher than the Q1 closing level. At 513,850 tons, aluminum stocks were 7.3% lower than at the end of March 2024 level. At 257,975 tons, zinc stockpiles fell 4.8% from the end of Q1.  While the stock levels can provide significant insight into copper, aluminum, and zinc fundamentals, the data is a mixed bag in mid-April 2024. China is a critical factor for base metals prices China, as the leading base metals consumer, plays a pivotal role in determining the prices of nonferrous metals. Understanding this, investors can make informed decisions about their investments, considering the growth or contraction in China's economy and its potential impact on metal prices. Meanwhile, addressing climate change is a growing demand vertical, impacting base metal prices. Goldman Sachs analysts call copper \"the new oil\" because of its EV and wind turbine applications. Nickel and lead are critical battery metals. Zinc and aluminum are primarily infrastructure metals that are highly sensitive to the Chinese economy. Base metals prices fell in 2023 because of slowing growth in China. A rebound in the world's second-leading economy could cause stocks to decline and prices to rise. Meanwhile, inflation and higher energy prices have raised production costs, putting upward pressure on metals prices. DBB provides exposure to the most liquid base metals Copper, aluminum, and zinc are the most liquid LME metals, and the trend in early Q2 has been higher. The most direct route for price exposure is through the COMEX copper futures or the forwards trading on the London Metals Exchange. The Invesco DB Base Metals Fund is an exchange-traded fund (\"ETF\") that provides an alternative to the futures and forwards arena for market participants seeking nonferrous metals exposure. DBB's investment objective is to track the performance of the DBIQ Optimum Yield Industrial Metals Index Excess Return, which is designed to reflect the performance of certain industrial metals. DBB's most recent top holdings include: Top Holdings of the DBB ETF Product (Seeking Alpha) At $19.92 per share, DBB had $135.57 million in assets under management. DBB trades an average of 135,905 shares daily and charges a 0.75% management fee. DBB provides direct exposure to the three most liquid LME metals: Copper, aluminum, and zinc. Monthly Chart of the DBB ETF Product (Barchart) The chart shows that DBB fell 5.9% in 2023 and declined 1.9% in Q1 2024, closing at $17.96 per share at the end of March. At $19.92 on April 18, DBB was 10.9% higher in early Q2, reflecting gains in copper, aluminum, and zinc. Technical resistance is at the January 2023 $22.34 high and the March 2022 $27.01 peak. The case for higher base metals prices includes:  Inflation has increased production costs. Chinese economic recovery will likely increase the demand for the base metals. Addressing climate change is bullish for base metals. The price trends have turned higher in early Q2 2024. U.S. and U.K. sanctions on Russian metals support higher prices. Prices have rallied over the past weeks despite higher U.S. interest rates and a strong dollar index, reflecting underlying strength in the supply and demand fundamentals.   Base metals could be in the early days of a recovery rally that will take prices significantly higher over the coming months and years. DBB is an ETF that provides exposure to the leading and most liquid nonferrous metals.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428196915"}