I sure hope you’ve read our Monday column “Shocking Forecasts for 2017-2022.” If not, be sure to do so here even before you read mine below. I say that because they’re so directly related — and so amazingly timely.
Yes, stocks are rallying nicely this year. But while Wall Street’s white-shoe crowd is swooning over the Dow, there is another rally taking place. One that the babbling heads on TV never seem to find time to cover.
It’s the rally in metals, a prime example of the supercycle about to kick into overdrive.
Look at this Bloomberg table of the best and worst performers in the Bloomberg Commodity Index so far this year. Do you notice something about the top five performers?
Aluminum … copper … lead … zinc … gold. They’re all metals. And gold isn’t even in the top four. Instead, it is the industrial metals that are leading the way higher.
Part of this is supply. Years of low prices discouraged development of new mines. Fast-forward to this year, and China is cracking down on overproduction, especially from mines that are heavy polluters.
At the same time, China is putting the pedal to the metal on big public-works projects. The kind of projects that use a lot of aluminum … copper … lead … zinc.
Nickel is also an industrial metal, though a bit better-supplied than some of the others. That’s why it’s in the top 10. Silver is an industrial as well as a precious metal. And gold … well, I think we all know why gold is showing strength in this topsy-turvy world with so much flight capital hungry for safe havens.
And nickel could play catch up. That’s a supply-side story, too. Last month, Philippine President Rodrigo Duterte said the country’s mining industry pollutes way too much. He added that he may stop the exports of unprocessed raw materials.
The Philippines is the world’s largest exporter of nickel ore. That does no harm to the investments I like. But could be a killer for supply … and a big boost to prices.
“China’s rebound in demand done,” say some. Baloney! It keeps reporting solid numbers on manufacturing growth, construction activity and more. The numbers bounce around, and market prices with it. But the big trend is higher.
And now let’s talk about what could REALLY kick it into high gear. I’m talking about another major supercycle that we didn’t have space to mention in “Shocking Forecasts for 2017-2022” — the one driven by the electric-vehicle megatrend.
It’s not just China’s infrastructure buildout, or even Asia’s infrastructure buildout. It is electric vehicles.
The batteries that power electric cars are lithium-ion (“Li-on”), batteries. And they do use lithium. But you know what else they use? A lot of aluminum and nickel!
What about copper? It may not be in the batteries, but it sure is in the wiring. Electric cars contain about three-times more copper than a regular vehicle. Even more copper than charging stations need.
And get this: In 2016, electric vehicle (EV) sales were up 42%, growing eight-times faster than the overall vehicle market.
According to Bloomberg estimates, EVs will account for a third of the global auto fleet by 2040.
Supercycles and megatrends are powerful. They don’t always strike like lightning. But the momentum they build is a tidal wave of change. You might not realize it’s there until it swells up right in front of you.
The metals markets are noticing, that’s for sure.
In fact, the so-called “expert forecasts” about EV growth and the metal demand it drives — every single one — have grossly underestimated this megatrend. They’ve been way too small, way too slow. This megatrend is moving much faster than many ever believed possible. And this tidal wave may be upon us before you know it.
The good news is, there are plenty of ways to ride this coming wave. Here are three ideas …
This is the year-to-date performance of popular industrial metals ETFs. The PowerShares DB Base Metals Fund (DBB) tracks a basket of aluminum, copper and zinc. The iPath Bloomberg Copper Subindex Total Return ETN (JJC) focuses on copper. And the iPath Bloomberg Nickel Subindex Total Return ETN (JJN) targets nickel.
The JJC is the most liquid, but the other two have decent trading volume. And all three will ride the coming wave higher.
Stocks of mining companies leveraged to the metal could do even better. Be sure to do your own due diligence before buying anything, of course. Alternatively, if you want my recommendations on timing and selection, go here.
All the best, Sean