Commodities Outperform Other Asset Classes In The First Quarter Of The Year 2019

Commodities Outperform Other Asset Classes In The First Quarter Of The Year 2019

Commodities prices soared and posted hefty gains as compared to the different asset classes in 2019. The high commodity prices in the March quarter was mainly due to the change in global policies. The rapid electrification in the automotive industry supported the base metals prices along with the higher demand from China.

The major economies across the globe marked a rapid transformation to become a zero-emission economy and burnt extensive capital. China declared an incentive plan to promote the electric vehicle segment to curb the environmental pollution across the major cities, which in turn, prompted the automotive industry to tap in the growing segment. The demand for electric vehicle thus supported few base metal prices such as Nickel, Zinc, etc.

Nickel demand surged by the rapid electrification of the vehicle and propelled its prices in the international market. Nickel Futures (LME) marked an up-rally from the level of $10532.50 (Low in January 2019) to the level of $13757.50 (High in March), which marked a return of approx. 30% in three months. Apart from nickel, base metals such as copper, zinc, etc., also gained significantly.

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The supply concerns in the base metal market coupled with high demand in the industry led the base metal prices to boom. The DRC supply concern along with falling inventories in copper led the major investment banks such as Citi group, Goldman Sachs to adopt a bullish stance.

The supply concern in steel raw material market along with a steady demand for steel led the iron ore prices above $90 mark.

Not just base metals, other segments in the commodity market such as energy and bullions also gained significantly. Crude oil spot (XBR) rose from the level of $52.96 per barrel (Low in January 2019) to the current level of $71, crude comfortably rose above $70 mark, which marked 2019 high. The voluntary production cut by the OPEC members coupled with the U.S. sanctions on major oil-producing countries supported the crude prices from the starting of the year 2019.

The rising commodity scenario was also joined by the bullions, which also marked a significant gain in the prices since the commencement of the year 2019.

Gold prices also extended gains, with gold spot rising from the level of $1276.77 (Low in January 2019) to the level of $1346.79 (High in February 2019). However, gold lost its lustre as global economic conditions revived and coupled with the progress in the U.S-China trade talks exerted pressure on gold prices, and it fell from its February high to the level of $1280.93 (Low in March).

The improvement in global economic conditions amid the progressive trade talks and improving data supported the commodity prices since the commencement of the year 2019. As per the data from BofA Merrill Lynch Global Research, commodities were the top returning asset till April 4th, 2019 and the commodity market returned about 16.6% in the first quarter, while global equities market returned about 13.6% for the first quarter.


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