Deloitte has identified the rise and fall of iron ore, the impact of the United States-China trade disputes and gold’s record run as the three key trends affecting the commodity market.
Naming its review ‘Under the iron sea’, Deloitte national mining leading partner Ian Sanders noted the recent sharp sell-off in iron ore as a sobering reminder of how quickly things can change in the volatile world of commodities.
“Iron ore has had an extraordinary run in 2019, comfortably the best performing commodity in a volatile market reeling from trade wars and geopolitical disturbances,” Sanders said.
“In mid-July, prices of the steelmaking raw material traded above $US120 ($173) per tonne, supported by profound disruptions across the seaborne supply chain and China’s steel intensive stimulus programme.
“Spin forward to late October and there’s a 28 per cent decline in the benchmark iron ore price from Australia to China.”
The ongoing US-China trade wars have dampened investment and shaken business confidence, which has ultimately affected commodity demand and prices.
While there are still outstanding issues to be resolved between the two power nations, there is growing optimism that the first phase of a trade deal will be signed by the middle of November.
“It is no exaggeration to call out trade tensions as the single biggest influence on commodity markets and the wider economy today,” Sanders said.
“As well as directly affecting the volume of exports and imports, trade tensions breed uncertainty, trigger volatility in the world’s financial markets and weigh in on industrial activity.
“The near-term outlook for commodities, particularly industrial metals like copper is highly correlated with the trade situation.”
China currently accounts for nearly half of the global copper consumption, so the commodity is highly influenced by the Asian nation’s trade situation.
It appears that all that glitters is gold, with the precious metal doing well in an environment that is challenging for commodities, enjoying prices at a six-year high.
“As risks escalate, investors seek refuge in so-called ‘safe haven’ assets like gold, a commodity that trades more on fear and investor sentiment rather than underlying physical supply-demand fundamentals,” Sanders said.
At around $US1500 per ounce, it is a great time to be an Australian gold producer, with trading to the US at its highest premium since early 2016.
Deloitte believes prices of $US1600 is looking like a real possibility in the near future and also tips nickel, silver and platinum as commodities to watch, as all three savour in high trading prices.