LONDON - Base metals started 2024 in a cautious mood but turned exuberant in the second quarter as bullish funds bet that economic recovery in China and global energy transition would generate a super-charged demand surge.

The party was in full swing by May, when copper soared to an all-time nominal high and the broader London Metal Exchange (LME) Index was showing a year-to-date gain of almost 24%.

By August it was all over, fund managers had left for hotter markets and the LME Index was back at year-start levels.

China, it turned out, was not yet ready to join any bull party. The world's largest metals user was still struggling to escape the negative drag of its imploded property sector. The base metals have been trading on the prospects of Chinese stimulus ever since.

The irony is that just as Beijing is showing signs of urgency, the market has another reason for caution in the form of President-elect Donald Trump.

NO SHORTAGE

Copper's spectacular spring rally was not a sign that the world was running out of the critical metal, as super-bulls claimed, but rather that the CME had run out of inventory.

Chinese smelters sent a reminder in the form of an unprecedented 158,000 metric tons of exports in the month of June.

That shattered any illusion of scarcity, while stubbornly high Shanghai copper stocks underlined the problematic state of Chinese demand.

Global exchange stocks of copper have grown by over 200,000 tons over the course of the year, albeit with a significant redistribution towards the United States after the CME squeeze.

Nor has there been any sign of scarcity among the rest of the LME metals.

Time-spreads have largely spent the year trading in contango with occasional bouts of tightness down to storage arbitrage rather than market dynamics.

Aluminium, zinc and lead have all seen significant LME stocks churn this year as traders sought out the most competitive warehouse rental deals.

Only tin has flared into significant backwardation at times due to low LME stocks and a troubled supply chain.

SUPPLY DEFINES RELATIVE PERFORMANCE

Tin is vying with zinc as the year's strongest price performer. Both metals have been buoyed by raw materials tightness.

It's been over a year since the giant Man Maw tin mine in Myanmar was closed by authorities for an audit and there's still no indication when it will return. Chinese tin smelters are starting to feel the pinch.

So too are China's zinc smelters as treatment terms turn negative due to a third straight year of falling mine supply.

That's not to say that there is any acute tightness in either the refined tin or zinc markets.

Constrained supply growth has been offset by weak demand. Tin usage is on track to contract by 4% this year, according to the International Tin Association, while zinc demand growth was running at just 1.3% in the first 10 months, according to the International Lead and Zinc Study Group.

But at least both markets have seen a reversal of first-half stock builds.

That cannot be said of either lead or nickel, which are the two under-performers of the LME pack.

LME nickel stocks, registered and off-warrant, mushroomed from 79,000 tons at the start of the year to 214,000 tons at the end of October.

The Indonesian nickel production boom rolls on and a new generation of Chinese smelters is now converting the country's relatively low-grade resource into Class I refined metal that can be delivered to both the LME and the Shanghai Futures Exchange.

LME lead stocks were 301,000 tons at the end of October, up from 176,000 tons at the start of the year and 21,000 tons at the start of 2023.

The bearish optics reinforce a narrative of structural decline as the world transitions to electric vehicles, which use smaller lead-acid batteries or, in some cases, none at all.

ALL EYES ON TRUMP

Electric vehicle (EV) sales are still notching up record consecutive months but this is largely a China story with sales in the rest of the world failing to match expectations.

And in China itself, strong metals demand from new energy sectors such as EVs and solar panels hasn't been enough to fully offset the weakness of old-economy drivers such as property construction.

Chinese policy-makers have vowed to step up policy stimulus to spur growth next year. China will adopt an "appropriately loose" monetary policy in 2025, the first easing of its stance since the depths of the global financial crisis in 2010.

It's the sort of "bazooka" announcement base metals have been waiting for since the middle of the year.

But now the focus has shifted to the United States and the incoming Trump administration.

The threat of blanket U.S. tariffs, particularly on Chinese goods, and U.S. dollar strength pose downside risks for the global manufacturing sector.

Trump's promise to roll back the Biden administration's green agenda by removing funds for EV subsidies risks slowing any new energy demand momentum outside China.

Base metals are back where they started the year, worrying about the state of global demand and Chinese demand in particular.

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Sharon Singleton)