Base metals rally: Fading tailwinds

Base metals have been flying high in recent months. The London Metal Exchange Index (LMEX), a benchmark tracking the performance of six primary metals — aluminium, copper, zinc, lead, nickel and tin — touched a record high of 5,618.40 on January 29. This has been an extended rise for the index after surging about 30 per cent last year. The year 2025 has been the best one for the LMEX since 2021, when it surged about 32 per cent.

Key base metals price also hit important levels in late-January. Copper futures touched its lifetime high of $14,527.50 per tonne, while both aluminium and zinc touched their four-year highs ($3,356 and $3,575.50 per tonne respectively) on January 29 this year. Lead futures marked a 10-month high of $2,102 per tonne on January 15; and nickel futures rose to a two-year high of $19,160 per tonne on January 26.

While there had been talks about supply constraints and a potential increase in demand, a major trigger for the rally last year was the dollar debasement theme.

Dollar shift and early triggers

Since early 2025, the dollar index had been on a decline. By the end of June, the dollar index had lost nearly 11 per cent. From the charts, it is evident that the March-June period was when base metals started gaining traction.

Of course, there were triggers from the ground as well. The Grasberg copper mine in Indonesia, one of the largest in the world, witnessed a deadly mudslide that severely impacted operations. It is estimated that about 600,000 tonnes of copper supply was disrupted due to this incident, which is nearly 3 per cent of the global copper mine production. Also, demand for the metal from China in 2025 grew at an estimated rate of 5.5 per cent (until November), one of the reasons for copper to outperform its peers.

Not just copper, China’s consumption of lead, particularly in the production of cars and e-bikes, supported lead prices. For zinc, after declining over the past three years, demand recovery in Europe, aided by improvement in construction and industrial activity, helped push prices higher.

With respect to aluminium, on the supply side, global production growth slowed sharply to 1.1 per cent in 2025, rising at the weakest pace in five years. This reflected a combination of China nearing its long-anticipated 45-million tonne production cap (implemented to check overproduction and for environmental and climate reasons) and supply-chain disruptions in key producing regions such as the Gulf, rather than any outright cut in output. While production continued to grow marginally, the loss of momentum reinforced expectations that future supply expansion would be limited, lending support to aluminium prices.

Investors chase momentum

As these events unfolded, investors began chasing metals, pushing prices further higher. The major push came around August, which is evident from the Commitment of Traders (COT) data of the US Commodity Futures Trading Commission (CFTC).

Net long positions in copper futures on COMEX rose sharply from 18,249 contracts on August 5, 2025, to a peak of 75,619 contracts on December 23, 2025. In aluminium futures, investors were net short by 1,332 contracts on August 5, 2025, but at the peak, they turned net long with 356 contracts on December 9, 2025.

This phase marked a shift where investor positioning played a bigger role in sustaining the rally in base metals.

Outlook turns less supportive

That said, it is not all rosy for base metals going ahead, as demand for most metals is expected to soften in 2026.

What contributed to the rally in metals in 2025 may not be present in 2026. The dollar index, which fell sharply till June last year, has since stabilised. Despite the impact of tariffs, the US economy appears to be holding up well. As it stands, the market may be nearing the end of the rate-cut cycle, which had been a drag on the greenback. Consequently, investors who sold the dollar fearing tariff-related risks may no longer be inclined to maintain aggressive short positions given the resilience of the US economy. The confirmation of Kevin Warsh as the next Chair of the Federal Reserve, who is perceived to be hawkish, can also be a positive for the dollar.

On the charts, the dollar index (97.80) has strong support in the 96-95 region. Resistance is in the 100-101 region. A decisive break above 101 can take the dollar index up to 104-106 this year.

China’s demand outlook also appears soft amid a slowdown in economic activity. Fixed asset investment recorded negative growth for four consecutive months between September and December last year, while the real estate climate index declined from about 94 in March 2025 to 91.5 in December 2025.

Supply overhang

From a supply-demand perspective, most metals are expected to be supplied in excess of consumption, keeping market balances in surplus. Copper, the outperformer, is expected to see excess supply nearly double to 206,000 tonnes in the first 11 months of 2025. Zinc’s surplus in 2026 is projected to more than triple to 271,000 tonnes compared to 85,000 tonnes in 2025.

The surplus in nickel and lead are also expected to rise by 25 per cent and 12 per cent to 261,000 tonnes and 102,000 tonnes respectively.

Investment demand wane

Investor positioning has also started to reflect these concerns. Net long positions in copper futures on COMEX fell to 58,018 contracts on January 27 from a peak of 75,619 contracts on December 23, 2025. Similarly, the net long positions in aluminium futures dropped to 71 contracts on January 27 from a peak of 356 contracts in December.

Moreover, elevated metal prices themselves could act as a demand dampener.

Overall, the fuel that powered the recent rally in base metals appears to be waning. As the year progresses, excess supply, soft demand and the possibility of a stronger dollar could put downward pressure on prices. The market, therefore, appears to be past its peak — at least for the time being.

What could break our bearish inclination is a surprise stimulus package or strategic buying from Beijing or an unforeseen disruption in global supply chain.

LMEX (5,323)

The LMEX has come down after making a high of 5,618.40 earlier last month. The trend remains up. Support is in the 5,100-4,950 region. However, there is not much room left of the upside. Strong resistances are at 5,800 and 5,900. Though these resistances can be tested in the next few months, a rise beyond 5,900 is unlikely. A reversal from this 5,800-5,900 resistance zone can drag the LMEX down to 5,200 or 5,000. A corrective bounce from around 5,000 towards 5,300 cannot be ruled out. But eventually, the LMEX can break 5,000 and extend the fall to 4,700. So, the preferred path of move will be to see a rise to 5,800-5,900 first in the next few months and then see a reversal towards 5,200-5,000. Thereafter, a corrective rise to 5,300 can be seen before the index falls to 4,700 eventually.

LME Aluminum ($3,085)

The contract has an immediate support at $2,960. This can hold on its first test. A reversal from here can take the contract up to $3,400 initially. A break above $3,400 can see an extended rise to $3,500-3,600, but not beyond that. Broadly, $3,400-3,600 will be the wide resistance zone that can cap the upside from here. A downward reversal from this resistance zone can take the contract down to $3,000-2,950 again. This time, the contract can break $2,950. Such a break can drag the LME Aluminum contract down to $2,700-2,650 by this year-end or in the first quarter next year. On the other hand, if the contract breaks $2,960 from here, then the fall to $2,700 can happen much faster. This bearish view will go wrong if the contract breaks above $3,600 decisively. In that case, the price can surge to touch $4,000.

LME Copper ($12,994)

Immediate support is at $12,300 which can limit the downside for now. A rise from this support can take LME Copper up to $15,000-15,500. This $15,000-15,500 is a strong resistance zone which can halt the current rally. The price action since 2018 is in the form of a bull channel. The region around $15,500 is the upper end of this channel. So, a rise beyond $15,500 is unlikely. A reversal from this resistance zone can drag the price down to $12,500-12,300. A short-lived corrective bounce to $13,500 is a possibility thereafter. Eventually, the LME Copper can break $12,300 and fall to $11,600 and even $11,200 in a year or so. In case the price breaks below $12,300 from here, then the fall to $11,600 can happen straightaway. But for this to happen, a strong negative trigger is required. That looks less likely.

LME Zinc ($3,345)

A crucial channel resistance is at $3,550, which has been tested already. The contract touched a high of $3,575.50 in the last week of January and has come down from there. That keeps the channel intact. It also opens the door for the LME Zinc contract to fall towards the lower end of the channel in the coming months. Short-term support is at $3,170-3,150. If this holds, then a rise back to $3,400-3,500 is possible again. In that case, a consolidation between $3,150-3,550 can be seen for a few months. But eventually, the contract can break $3,150. Such a break can drag the price down to $2,900 initially. Thereafter, a corrective rise to $3,100 is a possibility. A fresh leg of fall from $3,100 will have the potential to drag the LME Zinc contract down to $2,850 – the lower end of the channel by this year-end or early next year.

LME Lead ($1,960)

The contract was stuck inside a narrow range of $1,830 and $2,110 all through 2025. This range continues to remain intact. That leaves the outlook unclear for LME Lead at the moment. However, if we look at a multi-year time frame, then $1,500-2,900 has been the wider trading range since mid-2009. So, going by this and looking at the price action since 2022, the bias remains negative.  As such, we see high chances for the contract to break below $1,830. Such a break can drag the LME Lead contract down to $1,750 initially and then to $1,550 eventually in the next couple of years. This view will go wrong only if the contract breaks above $2,100. If that happens, then a rise to $2,300-2,350 is possible. That will also keep the upside open to see $2,500 levels as well. But such a rise looks less likely.

LME Nickel ($17,090)

The LME Nickel seems to be better placed on the charts relatively compared to other metals. The contract has found good support in the $15,000-14,000 region recently and has risen back very well. In the short term, there are good chances to see a rise to $20,000 or even $22,000. The price action thereafter will be very crucial. Failure to rise past $22,000 and a downward reversal from there can be negative. In that case, the LME Nickel contract can fall to $16,500-15,000 again. On the other hand, a break above $22,000 will be very bullish to see $28,000 levels. But this rise is less likely, considering the bearish inclination on the other metals. So, we can expect the upside to be capped at $22,000 from here. The danger is only if the contract falls below $14,000. If that happens, $11,000-10,500 can be seen on the downside.

Published on February 7, 2026