After luring investors this year with tantalizing glimpses of renewed Chinese demand and supply constraints, industrial metals are losing their luster.
Money is exiting long-only exchange-trade funds (ETFs) in a torrent, and hedge funds and other large speculators are starting to follow suit.
About US$90.4 million was removed on a net basis last month through Friday, heading for the largest outflow since July 2015, according to data compiled by Bloomberg Intelligence.
Funds linked to industrial metals might see their biggest quarterly redemption since September 2015.
While lead, aluminum, copper and zinc remain among the best-performing commodities this year, investors have been cashing in on the metals’ earlier rallies.
That is because there are increasing doubts about demand growth in China and the US, the two largest economies, leaving one market — copper — in what Barclays Capital PLC called a “price trap.”
“People are thinking: ‘What are we doing in these industrial metals ETF?” said John LaForge, the Sarasota, Florida-based head of real assets strategy at Wells Fargo Investment Institute. “‘We’re not making any money. It’s not going anywhere.’ You’ll see flat prices for years.”
After a strong start to the year, most of the base metals are down since the end of March.
The the Bloomberg Industrial Metals sub-index, which tracks aluminum, copper, nickel and zinc, is set for its first quarterly loss since 2015.
The attractiveness of other assets might be helping pull money out of metal ETFs.
While the Bloomberg Industrial Metals sub-index is still up 5.6 percent this year, some equities delivered gains almost than twice as large.
The MSCI All-Country World Index rallied for an eighth straight month, soaring more than 10 percent this year, while the Standard & Poor’s 500, which reached a record this month, has climbed 8.1 percent.
The sentiment has turned negative even as copper, the most-actively traded industrial metal, gained 4.5 percent last month. The rally came as inventories tracked by the London Metal Exchange shrank by 20 percent over the same period.
Copper on Friday gained US$0.02 to US$2.70 per pound, up 2.9 percent for the week.
Prices were also pumped up as copper pipe makers in China ramped up output, operating at almost 90 percent capacity last month, while air-conditioner production surged, Dane Davis,a Barclays Capital analyst in New York, said in a report on Monday.
Iron ore with 62 percent content delivered to Qingdao rose 3.8 percent to US$64.71 per dry tonne on Thursday, the highest since May 4, according to Metal Bulletin Ltd.
On Friday, the price rose 0.3 percent to US$64.95.
Spot gold fell 0.3 percent to US$1,241.53 an ounce, down 1.1 percent from last week’s US$1,255.72. The precious metal posted its first monthly decline this year, dropping 2.2 percent.
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