What Industrial Metals Suggest About a Recovery

Investors often view financial crises through the lens of previous events they have either lived through or studied. Naturally, the events we have been experiencing this year are often compared to the Global Financial Crisis of 2008 or the dot-com bubble at the turn of the millennium. In an environment of increased financialisation, where assets become divorced from conditions on the ground (Wall Street vs Main Street), the comparisons may reveal some interesting parallels. But when you look at the industrial metals, each with their own unique supply and demand characteristics that markets must acknowledge, you get a sense that this time we may be in a radically different situation from the crises of old.

In recent economic downturns, the formula was relatively simple. Decreased demand led to falling prices. Bloomberg’s Industrial Metals Index is a particularly useful chart to look at, as it demonstrates the magnitude of the decline we saw during the last crisis. In 2007–2008 commodity prices were soaring. The index peaked above 255 in April of 2007 and then set another lower-high at around 240 in February 2008. As the crisis spread to the rest of the world, demand collapsed and by February 2009, the index dropped to just above 90, the largest drop in its history.

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