The outlook for commodity prices “is by and large a mixed bag” driven by a combination of factors.
These include changes in global demand and supply on the back of changing consumer preferences, political and regulatory changes, says Moreblessing Chanakira, Principal Natural Resources at Absa Corporate and Investment Banking.
The ongoing US and China tit-for-tat tariff war currently playing out will continue to dominate in the short to medium term.
“Precious metals were resilient in 2019 with the star performers being gold and palladium. The gold price steadily rose keeping with the 2017/2018 trends. Investors’ view of gold being seen as a store of value has bolstered the metal in the face of geopolitical and global economy uncertainties. One saw the rise in the gold price fluctuate between $1 340/oz and $ 1400/oz during this period and in the latter part of 2019 the price hovered just under $1 500/oz,” she says.
“We expect the trend to carry on into 2020 supported by the US presidential elections and the US and China trade peace talks. This is positive for the marginal mines to the extent they can contain their costs,” Chanakira says.
Chanakira says, “palladium has outperformed its other sister metals in the PGM basketdriven by persistent supply deficit in the palladium market, a trend that has gone on for almost a decade. One has seen the price of palladium climbed steadily over the last few years with a rapid increase in 2018 and 2019 and finally breaking a record high of 2,500/oz in mid-January 2020”.
Supporting the rapid palladium price increase was high demand for the metal driven by stricter emission standards. The supply deficit is expected to widen further driven by the implementation of new Chinese emission standards (requiring more palladium per vehicle) and higher demand for renewable energy which will in turn positively impact prices. Although palladium prices will rise going forward, “…what goes up must come down and one will eventually see palladium prices self-correct,” she says.
On the other hand, Platinum’s performance has been subdued in the last few years driven by a supply surplus in the market. Platinum saw reduced demand in 2019 as we saw a shift away from diesel cars (that mostly use platinum) to petrol fuelled cars (that use palladium). Going forward we expect platinum prices to remain flat.
“Base metals had a mixed performance in 2019. Nickel was the best performer in the complex on the back of the ban on nickel ore exports from Indonesia. Copper prices stabilised on the back of easing US-China trade war tensions. Aluminium was the laggard driven by weak market fundamentals throughout 2019 and is expected to remain flat in the medium term,” she says.
Coal overall has seen a significant decline in prices in the past 10 years. Metallurgical coal prices took a knock due to slowed-down production in the steel market. “The reduction in thermal coal prices was driven by a drive for cleaner sources of energy.. We therefore expect the drive for greener fuel to remain a threat for thermal coal going forward and prices to remain subdued,” Chanakira says.
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