How The Commodity Market Moved In February 2019?

Commodity Valuation and Mining Stocks

The commodity market marked a surge in almost all the sub-sectors of Base-Metals, Energy, and Bullions during February 2019 amid global developments and supply restrains.

The metal market has been on a surge amid building optimism over U.S-china trade resolution and global supply concerns for most of the base metals. This development is against a steep fall in most of the commodity prices during 2014 to 2016, which led to revenue loss and inundated debt on the big mining companies, forcing them to adopt a policy of reduced debt, rather than spending on new projects.

However, the falling inventory levels across various registered warehouses of the London Metal Exchange, which can guarantee a supply of product at the time of supply concerns , is boosting these companies and investors to jump and ride on the commodity bull rally again.

Most of the base metals including Copper, marked an up-rally over falling inventories with bigger miners posting losses on the account of expenses on exploration and new projects to ride the bull rally. Copper prices further halted due to the Manufacturing PMI and Caixin Manufacturing Index data from China and ISM Manufacturing Index data from U.S.A.

As per US miner Freeport – McMoran, the trackable copper inventories had dropped 40% over the past year to mark a level of 400,000 tonnes, and zinc inventory is also down to a record level. The falling inventory along with respite signs on global economic development boosted the copper prices.

The factors responsible for the falling LME inventories are LME stricter regulations, amid concerns over producers and suppliers’ sourcing of the metals. Most of the metal miners are now placing their source from the Democratic Republic of Congo (DRC). Democratic Republic of Congo known for its high ethical issues and political instability is raising concerns over the supply side of these metals. The high royalty taken by the DRC and its action to include more and more base metals under the tag of “Strategic Metal” in order to increase the royalty, is preventing miners from operating in the region and in turn creating a supply constraint.

In the recent scenario, another event which raised concern over the supply was the ban on Vale’s operations. Vale’s ban has jolted the iron ore market and raised concerns over the supply shortage and in turn supported the iron ore prices. However, increased environmental concerns by china has halted the iron ore demand.

In the Energy sector, the rapid transformation of global economies towards a zero-emission economy curbed the Coal demand for energy generation and in turn supported the crude oil prices. Crude oil prices in the wake of coal ban and voluntary production cut by OPEC raised concern over the supply shortage and in turn supported crude oil price, which recently marked a 3-month high. However, the crude oil prices halted in the rally amid production increase by the United States of America. The major oil player Saudi Aramco also leaped to join the top 3 oil traders amid the volatility in the prices to prevent itself from any downturn.

Bullion market also marked a surge with gold and silver reaching high levels amid falling dollar and falling bond yields. The dovish stance by the FED also supported the gold prices, and the market is still waiting for gold to rebound.

 In the bullion sector apart from gold and silver, Palladium and platinum also marked a surge amid China’s demand due to its stance to jump in the hydrogen fuel battery market.


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