Since metal markets are relatively small - the London Metal Exchange's turnover is a mere dollars 3bn a day - fund managers can have a large effect on prices as they scour the world for alternatives to more conventional and less volatile financial assets.
The question is whether such buying has moved ahead of the fundamental forces of supply and demand in metal markets, and will eventually reverse itself. If price rises have not been soundly based, the implications are important. The bond market jitters stemming from fears of rising, commodity price-led inflation could well be misplaced.
Philip Crowson, the metals guru at RTZ Corporation, is cautious, as befits a senior employee of a company which, until recently, had seen falls of up to 50 per cent in the prices of its main products since 1988.
The gains of 8 per cent to 10 per cent in the output of aluminium and copper in response to rises of 2 per cent and 4 per cent in US industrial production in 1992 and 1993 suggest a strong revival in metals demand.
But these increases have largely gone to fill up the inventory pipelines of metal users. This will continue at a steady pace, says Mr Crowson, leaving metal prices to be ultimately determined by such wild cards as net Chinese metal trade, CIS exports and the supply policies of Western producers.
He concludes that prices, standing 6 per cent above their 1993 average, will not drop back to last November's low points but may not show much overall increase on the year.
If not exactly bullish, this may come as some relief, on balance, to RTZ. Last year exchange-rate gains helped to dull most of the effects of falling metal prices while timely cost-cutting, extra on- stream volume and a shrewd investment in coal production allowed a 10 per cent rise in underlying earnings and a 5 per cent dividend rise. After a run-up in metal prices, the shares should now be held for the longer term.Reuse content