A Reinforced Base Metal ETF

Includes: DBB, JJU
by: Tom Lydon


In the commodities space, base metals are rallying.

Aluminum and zinc are strengthening on lower inventories and greater industrial demand.

An outperforming ETF option to track base metals.

While everyone is busy scrambling in the equities space, base metals and related exchange traded funds are rising on demand for industrial metals and declining inventories of zinc and aluminum.

The PowerShares DB Base Metals ETF (NYSEARCA:DBB), which evenly splits its portfolio with aluminum, copper and zinc futures, has gained 4.2% over the past month and increased 12.3% over the last three months.

LME aluminum futures were trading around $2,029 per metric ton. The iPath Dow Jones-UBS Aluminum Total Return SubIndex ETN (NYSEARCA:JJU) is up 5.0% over the past month and up 13.8% over the last three months.

Aluminum is trading around a 16-month high, after the Chinese government announced a $161 billion loan to China Development bank to help fund subsidized housing, Wall Street Daily reports.

The metal is utilized in a myriad of applications, including roofing, wiring, window framing and electrical products.

Fueling the run-up over the past month, traders were concerned over supply, with inventories falling and producers cutting output after the slump in prices last year. Many expected demand would exceed supply and widen the deficit next year, Bloomberg reported.

Meanwhile, LME zinc futures were trading around $2,393 per metric ton.

Zinc prices have jumped to a near three-year high, with large long interest on zinc contracts, Financial Times reports.

Demand for industrial metals has also helped lift the metal prices, with prospects of a supply deficit supporting the zinc market. Roger Yuan, analyst at GS, expects large mines in Australia and Ireland to be depleted by mid-2015, which will further exacerbate the tight supply, Shanghai Metals Market reports.

PowerShares DB Base Metals Fund

Max Chen contributed to this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.