The base metals sector includes copper, aluminum, nickel, lead, zinc, and tin, which are infrastructure building blocks. Over the past years, the rising demand for alternative and renewable power sources has increased the demand for some of these metals, as they are critical ingredients in batteries that store energy. The base metals sector moved 8.19% lower in Q4 but was 3.77% higher in 2024. A stronger U.S. dollar and higher long-term interest rates weighed on prices during the final three months of 2024. 

The dollar index rallied, and the long bonds declined, weighing on base metal prices

Base metals trade on the London Metals Exchange, but the pricing mechanism is the U.S. dollar. A stronger dollar tends to weigh on metals prices, making them more expensive in other currency terms. In Q4, the U.S. dollar index rose 7.73% and was 7.19% higher in 2024. 

Meanwhile, even though the U.S. Federal Reserve cut the short-term Fed Funds Rate by 100 basis points in 2024, the long-term U.S. 30-year Treasury bond futures fell 8.42% in Q4 and were 8.65% lower in 2024, as U.S. interest rates rose. Higher interest rates increase the cost of carrying metal inventories, causing many consumers to purchase hand-to-mouth. The higher rates weighed on base metals in 2024’s final quarter. 

Meanwhile, economic weakness in China, the world’s leading base metal-consuming country, was another bearish factor for the nonferrous metals. 

The chart highlights significant increases in LME copper, aluminum, nickel, and lead inventories in 2024. While zinc stocks were higher, only tin inventories declined in the year that ended on December 31, 2024. Increased stockpiles could reflect the lack of Chinese demand, weighing on the metals prices. 

Copper posted a double-digit Q4 decline but was higher in 2024

Copper, the leading base metal, experienced double-digit percentage price declines in Q4 and moved only slightly higher in 2024. 

The quarterly continuous COMEX copper futures contract chart highlights copper future’s 11.56% Q4 2024 decline. The copper futures moved 3.50% higher in 2024. After reaching a record $5.1985 per pound high in May 2024, the nearby futures settled at $4.0265 on December 31, 2024. March copper futures were higher on January 10, 2025.

Three-month LME copper forwards posted a 10.79% Q4 decline and were 2.44% higher in 2024. After trading to an all-time $11,104.50 per ton high in May 2024, the three-month copper forwards settled at $8,768 on the final day of 2024. LME thee-month copper prices were higher on January 9, 2025.

Aluminum prices fell in Q4 but rose in 2024

Aluminum is the most liquid metal on the LME, with the highest number of contracts changing hands. LME aluminum prices moved 2.30% lower in Q4 as interest rates increased and the U.S. dollar rallied.  

The quarterly three-month LME aluminum forwards chart illustrates aluminum’s Q4 decline, but the base metal posted a 7.03% 2024 gain, settling at $2,551.50 per ton on December 31, 2024. Russia is the world’s third-leading aluminum-producing country. Sanctions on Russian metal likely supported aluminum prices in 2024, leading to an over 7% annual gain. Three-month LME aluminum prices were marginally lower on January 9, 2025.

Q4 declines in nickel, lead, zinc, and tin- Mixed results for the four base metals in 2024

In Q4, LME three-month nickel, lead, zinc, and tin prices moved to the downside. However, the 2024 results were mixed with losses in nickel and lead and double-digit percentage gains in zinc and tin. 

• Three-month LME nickel forwards fell 12.48% in Q4 and were 7.68% lower in 2024. The nickel forwards settled 2024 at $15,328 per ton and were slightly higher in early 2025.
• Three-month LME lead forwards declined 6.87% in Q4 and 5.63% in 2024. The lead forwards settled at $1,952 on December 31, 2024, and were marginally lower in January 2025.
• High-Grade LME zinc dropped 3.64% in Q4 but moved 12.06% higher in 2024. Zinc settled 2024 at $2,978.50 per ton and was lower in early 2025.
• Three-month LME tin forwards were 13.08% lower in Q4, but the thinly traded tin forward market posted a 14.43% gain in 2024. The tin forwards were at the $29,083 per ton level at the end of last year and were higher in early 2025. 

The path of the U.S. dollar, U.S. interest rates, and China’s economy will determine the path of least resistance of the base metals prices in 2025. Keep an eye on LME inventories for demand clues, as rising or declining inventories are signs of fundamental weakness or strength. 

The DBB ETF has exposure to the three most liquid base metals

The most direct route to a risk position in base metals is via the COMEX copper futures contract or the three-month forward contracts for copper, aluminum, nickel, lead, zinc, and tin. Copper, aluminum, and zinc are the most liquid LME metals by volume, while nickel, lead, and tin suffer from low volumes and can experience significant price variance because of their low liquidity. 

The top holdings of the Invesco DB Base Metals Fund (DBB) include:

The chart shows that DBB has virtually equal exposure to LME zinc, copper, and aluminum. At $18.97 per share, DBB had over $107.54 million in assets under management. The ETF trades an average of over 86,000 shares daily and charges a 0.77% management fee. The most recent $0.896 per share dividend translates to a 4.72% yield. The dividend is a function of rolling backwardated LME contracts where deferred prices are lower than nearby prices. 

The chart shows DBB’s 9.33% Q4 decline and the 3% gain in 2024. DBB settled at $18.85 per share at the end of last year and was slightly higher in early 2025. 

A weaker dollar, lower U.S. interest rates, and improvements in China’s economy would likely support base metals in 2025. Meanwhile, global inflationary pressures have increased production costs, which supports higher prices. However, tariffs, sanctions, and other trade barriers under the incoming Trump administration could exacerbate volatility in 2025. 

On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.