Iron ore and gold prices are able to maintain their lustre in the market, and while gold prices are being supported by the recent development of epidemic threat in China, iron ore is still managing to hold its recent highs. Apart from these two, most of the hard commodities are under pressure over recent development across the globe.
Iron Ore and Steel Recap and Present
Steel production once again surged on a yearly basis across the globe in 2019 with China leading the production front, which helped the iron ore price rally propped up. The iron ore futures on the Dalian Commodity Exchange (CFD) recovered significantly during the last quarter of the year 2019, with prices surging 25 per cent from RMB 544.0 a tonne (low in October 2019) to RMB 684.50 a tonne (intraday high on 8 January 2020).
In August 2019, iron ore prices fell after a steep rally due to the measures adopted by the China Steel and Iron ore Association (or CSIA) to bring down the high cost, initially reached due to the supply shortage across Australia caused by the impact of tropical Cyclone Veronica over the Pilbara region and Port Hedland, where most of the Australian iron ore mining companies operate.
Apart from the supply shortage due to the tropical cyclone in the Pilbara region and the ban on the Brazilian giant- Vale in the wake of the Brumadinho dam collapse in Brazil, the robust steel production across China also played a significant part in supporting iron ore prices.
- Global Steel Production and China Angle
The global steel production reached 1,869.9 million tonnes in 2019, which marked a production growth of 3.4 per cent against 2018. The middle eastern region and Asia contributed significantly and maintained the demand for iron ore alive throughout the year 2019.
Asia produced 1,341.6 million tonnes of crude steel during the year, up by 5.7 per cent as compared to the previous year. China alone produced 996.3 million tonnes during the year, which marked an increase of 8.3 per cent as compared to the previous year.
The increase in the crude steel production also increased China’s share of global crude steel production by 4.71 per cent in 2019, and China’s share of global output stood at 53.9 per cent in 2019 as compared to the previous share of 50.9 per cent in 2018.
The higher output coupled with decent steel margin in late 2019 supported the iron ore demand once again, and iron ore regained its lost momentum at the end of the year. However, the recent outbreak of the coronavirus has put a lid on the gains, and iron ore prices are trading at RMB 659 (close on 30 January 2020).
Gold started the year 2019 with some handsome gains, and the gold spot rose from $1,780.70 (low in January 2019) to the level of $2,322.26 (high in August 2019) in the wake of the high demand from Central Banks across the globe and gold-backed ETFs.
Suggested Read: ETF Gold Rush and Future
In late 2019 or in December 2019 quarter, gold prices fell as the geopolitical factors, which were pushing the buying of Central Banks and gold-backed ETFs, showed signs of turning the corner. The United States and China started exchanging words for phase 1 of the bilateral trade deal, which further strengthened the USD and exerted pressure on gold in the international market.
On back of the improved situation, the global equity market started moving higher and exerted more pressure on gold; however, the market soon correlated the high equity indices with the prevailing interest rate and started seeing the equity market as overvalued, which propelled the gold prices again in the market, and in Australian dollar-denominated gold spot reached a record high and is currently holding the ground. Further, coronavirus scare stemming from China has also helped the gold prices.
The rally in precious metals along with spiked demand and supply crunch supported the palladium prices as well, and the commodity dazzled; however, the market now remains apprehensive over the commodity as EV trends gain momentum.
The oil market has been a turbulent one with Brent crude oil futures (CFD) surging from USD 52.51 a barrel (low in January 2019) to $75.60 (high in April 2019) at the beginning of the year in the wake of a production cut of 1.2 million barrels per day by OPEC+ members.
Post soaring at the beginning of the year 2019 (or January 2019 quarter), the oil market went down in the wake of high production from the United States. From the beginning to the end of the year the market had remained turbulent over certain factors, which varied from attacks on Saudi oil tankers to tension across the middle east and the development of wart situations between the United States and Iran.
While certain factors played-out for oil at the end of the year 2019, the beginning of 2020 has been a problem for oil market so far, with prices of Brent crude oil futures (CFD) dropping to the present low of USD 56.74 (intraday low on 30 January 2019).
The sudden drop in oil could be attributed to the record high production in the United States.
To Know More, Do Read: U.S. Contours All-Time High Oil Production; Libya Supply Constraints Subdued
Base Metals Market
Copper started the year with a slight increase with copper futures on COMEX rising from USD 2.594 a pound (low in January 2019) to the level of USD 2.986 (high in April 2019); however, the intensified U.S-China trade war unfolded, and copper prices fell to USD 2.494 (low in September 2019).
Copper prices were soon supported by the supply concern which took roots in the market due to the strike in Chile and at the copper mines of both top copper-producing companies Codelco and BHP Group Limited (ASX:BHP).
The supply concerns coupled with the positive trade talks between the United States and China again supported copper prices in the market. Apart from that, the improved manufacturing and construction activities in China along with the infrastructure development push by the Chinese government, especially for the development of the power grid, also fanned the copper price.
Nickel prices remain in the rally for most of months throughout the year 2019, except for March 2019 quarter, which marked a slight correction in nickel prices. The main reason which propelled the nickel price was the export ban decision taken by the Indonesian government. The government decided to ban the export of nickel to protect the nation’s interest.
To Know More, Do Read: Indonesia Export Ban to Create a Nickel Boom while Mincor and Independence Develop Assets?
While prices of battery metals were under strong pressure in 2019 amid geopolitical tensions. The year 2020 has been a kick-starter for battery metals with demand for cobalt, nickel, lithium, etc., gaining momentum amid EV drive lead by Tesla and many other EV makers such as Volkswagen, BMW.
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