By all accounts, industrial demand has not been the driver of the strength in industrial metal prices — supply-demand balances won't help you explain the cross-section of base metal returns this year, TDS' Senior Commodity Strategist Daniel Ghali notes.

Copper’s rally driven by fragmented inventories, not fundamentals

"Instead, the strength in prices has been a function of the fragmentation in inventory systems. This has been particularly beneficial for Copper markets. Ultimately, the threat of tariffs has resulted in a virtuous cycle in Copper's microstructure by continuing to incentivize a pull of available metal into the US, keeping the LME tighter than would otherwise be the case."

"Global inventory pools can now be more easily depleted than they can be replenished, fueling a new all-time high in LME prices as a result. The world is inching towards a war-time economy. Forget about a potential trade deal: this is the megatheme you want to trade today."

"Following the Five-Year Plan, expectations are rising for data center capacity growth in China, which could further upend supply-demand balances over the coming years. And, the world simply can no longer absorb mining disruptions in Copper markets; smelter output is increasingly vulnerable to a decline in byproduct precious metals revenues should prices subside."