The global energy transition and the rising demand for base metals such as copper and aluminum are creating exciting opportunities for emerging markets (EMs) debt investors. Since these metals are predominantly produced in EMs, higher prices can significantly benefit both producers and host countries (through increased tax revenues). However, potential challenges from a second Trump administration, such as tariffs and higher interest rates, could pose risks.
Here are five key points to consider about metals as we head into 2025.
1. Alumina: The Standout Base Metal of 2024
Alumina emerged as the standout metal of 2024, driven by significant supply-chain disruptions. Key among these were bauxite production challenges in Guinea, the world’s largest exporter, compounded by additional bauxite disruptions elsewhere and interruptions in Australia’s alumina output. These factors fueled a dramatic doubling of ex-China alumina prices, which soared to record highs. While these supply issues are largely short term, they could linger into 2025, possibly sustaining elevated price levels in the year ahead.
2. A Good Year for Other Base Metals
Across the broader base metals complex, 2024 brought strong gains, largely driven by China’s increased demand, supported by green investments and higher exports of downstream products. In particular, the strong performance in alumina lifted aluminum prices, as alumina is a key input for aluminum production.
We believe copper is set to take center stage in 2025.
3. Copper: The Base Metal to Watch in 2025
In 2025, we expect sustained demand growth tied to the energy transition to support key metals such as copper and aluminum. China’s cancellation of export tax rebates on certain metals could further bolster prices in ex-China markets.
We believe copper, in particular, is set to take center stage in 2025, offering a unique combination of responsiveness to supply-demand dynamics and broader macroeconomic trends.
On the physical side, copper stands to gain from China’s stimulus measures and continued investments in electric vehicles (EVs), grid expansion, and solar energy infrastructure. These drivers reflect a long-term structural trend linked to the global energy transition.
In addition, the elimination of export tax rebates on certain copper products in China, effective in late 2024, is likely to increase export costs and could boost prices in ex-China markets.
However, copper prices may face headwinds from fewer-than-expected U.S. Federal Reserve rate cuts, a stronger U.S. dollar, and higher potential tariffs under the Trump administration (which, if enacted, could disrupt global trade flows, weighing on copper markets).
Despite these challenges, we believe copper’s essential role in the energy transition ensures it will remain a critical metal to watch in the year ahead.
The Trump 2.0 administration’s tariffs could be a headwind for base metals.
4. The Energy Transition Effect
The global energy transition continues to be a key driver of demand in the base metals sector, with copper and aluminum usage expected to remain structurally elevated due to investments in grid infrastructure, solar panels, and EVs—particularly in China.
However, the Trump 2.0 administration’s tariffs could be a headwind, especially given China's dominant role in producing and exporting solar panels, EVs, and batteries. In addition, potential policy-driven increases in interest rates and a stronger U.S. dollar could add further pressure to the market.
Despite these challenges, the energy transition represents a long-term structural trend that we believe will continue to support robust demand for these base metals on a global scale.
5. What’s Up With Gold?
Gold prices surged around 30% in 2024, repeatedly hitting record highs. This rally was fueled by central bank rate cuts and escalating geopolitical tensions in Europe and the Middle East, which added a risk premium. Although central bank purchases have been lower year-over-year, they remained historically robust through the first nine months of 2024, and India’s increased gold imports helped offset weaker demand from China.
Investor positioning, while reduced post-U.S. elections, also stayed elevated, reflecting continued confidence in gold.
We believe geopolitical risks and U.S. economic uncertainty, including inflation concerns, are likely to support gold prices in 2025.
Looking ahead, we believe geopolitical risks and U.S. economic uncertainty, including inflation concerns, are likely to support gold prices in 2025, even in a strong U.S. dollar environment. Trade tensions and tariffs could amplify market volatility, driving demand for gold as a safe-haven asset and an inflation hedge. However, high price levels may temper physical demand from consumers and central banks, potentially capping further price spikes.
We believe investors in gold companies should consider the sustainability challenges of gold mining. Gold extraction often involves processing low-grade ores, requiring more material and leading to significant environmental impacts, such as habitat destruction, pollution, and biodiversity loss. In addition, refining gold to high purity levels is energy-intensive, further amplifying its environmental footprint. While the industry has introduced measures to counteract this, such as EVs in mining fleets to reduce emissions, gold mining remains one of the more environmentally impactful sectors, warranting close scrutiny from sustainability-conscious investors.
The Overall Outlook
As mentioned, a Trump 2.0 administration could weigh on metal markets through tariffs, disrupting global trade. We could also see a stronger U.S. dollar (making metals more expensive) and persistently high interest rates constraining supply chains and demand. Economic uncertainty may also suppress demand, putting further pressure on prices.
However, potential tailwinds include China's stimulus efforts, growing demand from the green economy, and ongoing supply disruptions, which could provide some support for metal prices.
All in all, we expect the long-term structural trend of the energy transition to support demand for these metals, which in turn may benefit EM debt in the long run.
Alexandra Symeonidi, CFA, is a senior corporate credit and sustainability analyst on William Blair’s emerging markets debt team.
