For the industrial metals industry, demand will remain strong in the years to come given their varied uses. While industrial metals would gain from healthy momentum in Automotive and Construction, the industry remains saddled by a number of headwinds.

Below, we have discussed some of the key reasons and what investors in the industrial metals sector should be wary of in the coming months as well as over the long term:

The Perennial Problem of Oversupply

Iron: The threat of oversupply continues to plague the industry as major iron ore producers, Rio Tinto plc (RIO – Free Report) , BHP Billiton Limited (BHP – Free Report) , Vale S.A (VALE – Free Report) and Fortescue Metals Group Limited ramped up production in recent years. These producers intend to continue exploring for iron ore in Australia on optimistic sentiments about continued strength in iron ore demand over the long term. Hence, Australia, the world’s top exporter of iron ore, will gear up for reinforcing shipments.

Excess supply over demand and severe rivalry between mining giants will keep iron ore prices in check. Weakening market prices of iron ore continue to hurt miners’ aggregate revenues and margins.

Copper: Chile is expected to contribute significantly to growth in 2017. However, Peru is set to topple Chile as the world’s fastest-growing copper mining nation,per reports. An estimated full 18 new copper projects are set to start production across Peru by 2021. National output is expected to hit 4.8 million tons per year by 2021, more than double the 2.3 million ton of output last year.

Rio Tinto and BHP (separately and in joint ventures) plan to mine millions of additional tons of copper. These companies are amassing vast copper holdings to capture a greater chunk of the $140 billion global market in a bid to eventually squeeze out high-cost producers just as they did in the global iron ore business.

Slowdown in China from Past Years