by Raul de Frutos on NOVEMBER 8, 2016

October was a big test for base metals. A month in which a rising dollar would normally bring metal prices down. But, it didn’t.

This development just proved that bulls are still in control. This bull market, one that we called earlier this year, looks healthy enough to extend into 2017.

The industrial metals ETF hits new highs despite a strong dollar. Source: MetalMiner analysis of @stockcharts.com data.

Strong Demand

China makes up nearly half of the world’s demand for industrial metals. Chinese demand from infrastructure and construction projects has been robust this year and the release of new manufacturing PMI data confirmed that strong demand. The Caixin manufacturing PMI for October rose to 51.2, the highest reading since July 2014 and betting market expectations.

The automotive industry is also looking strong. In September, Chinese automobile sales rose 27% from the same period last year. This is the seventh consecutive month in which auto sales have risen and the third consecutive month where growth was above 20%. The growth rate this year is substantially higher than last year.

Shrinking Supply

Metals such as zinc, tin and nickel are enjoying a bull narrative of supply shortfall this year. For others like aluminum and lead, the supply deficit isn’t obvious, yet, but the few capacity cuts were enough for bulls to push prices higher in the face of strong demand. Lastly, bulls are even chasing copper. Supply for the red metal hasn’t really shrunk, but the combination of robust demand and the long time needed for new copper projects to move from inception to production is creating perfect conditions for a price squeeze.

Below is a snapshot of the price charts of all the metals traded on the London Metal Exchange. All of them have entered bull territory this year. If you buy any of these metals, you’d be better off having a good hedging strategy, otherwise your budget for 2017 will get hurt.

Aluminum hits a 15-month high. Source: @stockcharts.com.

Copper lagged this year but hit a one-year high this week.

Nickel rose sharply this month to the highest levels since August 2015. Source: @stockcharts.com.

Lead prices are at their highest levels since May 2015. Source: @stockcharts.com.

Zinc continues to look strong hitting a five-year high. Source: @stockcharts.com.

Tin climbs to a two-year high. Source: @stockcharts.com.