It's no secret that base metals have done well in the month of November. Copper is up 20% month-to-date, its best monthly showing in a decade, according to Bloomberg. Everything from lead to zinc to nickel is up double-digit percentages also.
The PowerShares DB Base Metals Fund (DBB)―which holds futures on copper, aluminum and zinc―now has a gain of more than 33% for the year.
YTD Returns For DBB
These monster moves come despite a surge in the U.S. dollar during November, a factor that normally weighs on commodity prices. Some analysts attribute the sudden jump in base metals to speculation that U.S. President-elect Donald Trump's infrastructure spending plan will provide a big lift to demand.
But it's not just a Trump-fueled rally. Metals were already doing well this year amid signs of stabilization in China's demand and faltering supply.
"It is tempting to blame the sharp post-election rally in industrial metals prices on President-elect Trump's platform of lower taxation and higher public spending on infrastructure," wrote analysts at Goldman Sachs. "We would argue this rally was a continuation of a reflation trend put in place at the start of 2016 by the Chinese through credit stimulus aimed at infrastructure projects and policy-driven supply curtailments."
China's Coal Gambit
As Goldman suggests, China might have more to do with the rally in base metals and other commodities than any potential infrastructure plans in the U.S.
The case of coal starkly illustrates the affect that the Asian giant has had on commodity prices this year. In an effort to reduce the glut of coal, increase prices and bail out indebted Chinese coal miners, the government of China ordered cutbacks in production.
However, those cutbacks have proven to be much more severe than expected, prompting a rally in coal prices beyond what anyone had imagined. At one point this year, global prices for metallurgical coal (used to make steel) tripled, while prices for thermal coal (used to generate electricity) doubled.
Now China is reversing course and determining how to bring prices back down without harming the country's struggling coal industry. Even so, coal prices remain stubbornly high, helping fuel a 115% year-to-date gain in the Van Eck Vectors Coal ETF (KOL).