Diversification in Industrial Metals Pays Off

Prices for zinc and industrial metals soared in September; see which ETFs benefitted from the price hikes

Lee Davidson 2 October, 2012 | 10:45AM
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In September, exchange-traded funds (ETFs) and exchange-traded products (ETPs) tracking industrial metals and natural gas posted the largest monthly gains.

Prices for industrial metals such as nickel, zinc, lead, and aluminum soared between 11-15% as producers began to cut back on their production to adjust to weakening demand.

In China, the world's largest suppliers of zinc announced their intention to scale back production in order to reduce the surplus of zinc that has been building since 2007. Specifically, according to the Beijing Antaike Information Development Co., China has reduced its output by nearly 7% since the start of the year. Since China currently accounts for nearly 40% of global zinc production, the production cuts have had an enormous influence on the price of zinc. In fact, since the start of the 2012, zinc prices are up by 15%. The winnowing of this supply overhang has not been the only impetus forcing industrial metal prices to rise. The US Federal Reserve's QE3 package and China's injection of cash into money market funds have raised hopes that demand for industrial metals may rise as they are essential to many industrial production activities.

Natural gas prices climbed higher in September following the Energy Information Administration's report that inventory surplus dropped compared to last year and their five-year historical average. Natural gas producers have had difficulty slowing US natural gas output despite having worked towards curbing both new investment and drilling activity. Since the start of the year, the number of US natural gas rigs has been halved but increased rig productivity has left total output unchanged.  

Meanwhile, ETPs tracking S&P 500 volatility futures fell by 20-25% during the month of September. Volatility-linked products typically spike when expected future volatility (i.e. 'fear') rises. In September, a fresh round of central bank stimulus coming from seemingly all corners of the globe sparked a rally in global equities and sent volatility ETFs plummeting.

Below is a table of some of the best- and worst-performing ETFs from September 2012:


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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Lee Davidson

Lee Davidson  is Head of Manager and Quantitative Research.

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