Year of the metals

In platinum, the combination of largely inelastic demand and risks to uneconomic supply being curtailed have the potential to exacerbate deficits and tighten market conditions. This would enhance a recovery in ETF holdings from a four-year low, and as with silver, create the prospect of platinum doing better than gold next year. It could potentially drive a 250-dollar reduction in its discount towards the five-year average around $750 an ounce. 

Copper and aluminium supported by supply disruptions and green transformation

The industrial metal sector also stands to benefit from the prospect of lower funding costs driving a long overdue period of industry restocking from China to the rest of the world. Copper remains our favourite industrial metal, because there are expectations for robust demand, as seen in China this past year. This has kept exchange monitored stocks near a multi-year low. Increasingly, there’s also a risk of supply disruptions and production downgrades.

We‘ve seen major supply disruptions, specifically for copper, the so-called King of green metals due to its multiple application usage. These disruptions have been led by the government enforced closure of the First Quantum operated Cobra Panama mine. Other mining companies such as Rio Tinto, Anglo American and Southern copper have all been making downgrades, primarily due to rising challenges in Peru and Chile. Overall, it paints a picture of a mining industry challenged by rising costs, lower ore grades and increasing government intervention. 

For now, given the wide spectra of challenges mining companies will face in the coming years, some of which have raised the all-in costs of production and with that their profitability, we prefer direct exposure to the underlying metals, primarily through ETFs.