Friday, 8 July 2016

Shifting dynamics in commodity markets

It would be fair to say that commodity prices in general have markedly improved their performance compared to previous years when prices sat in the doldrums and optimism sunk to new lows. The landscape of commentary surrounding these physical & intrinsically valued assets is changing shape with analysts starting to locate pockets of opportunities emerging from the ashes of a once admired sector.

Iron Ore

This commodity has much to prove in the coming months with the majority of news followers of this metal concluding that the glut in supply will remain as producers expand and refuse to budge on cutting back projects.

That'll be key in this sector but with the Chinese government demarcating steel production as an area of mass employment generation, it doesn't look likely we'll see the end of the surplus of steel inventory anytime soon.

Producers attempt to drive prices lower in an effort to force Chinese manufacturers to concede will be a time consuming process that'll result in additional supply flooding the market together with the condition the world economy finds itself in, it paints a pretty bleak picture.
Copper

On the opposite end we have copper that's experiencing a drain on inventory coupled with a time-collapse of planned projects that's halting the pace of the material reaching the surface. Combine these supply constraints with an avid pickup in demand from China and you have a recipe for recovery.

Mining companies were forced to slash projects due to a poor outlook with the one commodity that bore the brunt of this being copper. As a result the bounce that has materialised since the lows are seen as sustainable in forecasting the price in the near future.

I'm reasonably convinced the fundamentals present supports considerable upside potential going forward.


Silver

Much of the shine in gold has taken away from the superb rally seen in this commodity but has drawn the attention of pundits recently after surpassing previous highs last reached two years ago. The significant upward price moves are challenging the bearish sentiment built into this sector.

The reason behind the resurgence in price could be because of its affinity as a precious metal with gold producing similar upward surges related to uncertainty drifting into the market. If one had to make an assessment as to the probability of any of these economic negativities finding resolve soon, its likely we'll see a continued trend of investors finding refuge in precious metals.
Coal

Since I've extensively covered oil in previous articles I thought it would be a good idea to look within the energy sector away from the noise being created by price wars of oil producers.

Coal has built up a reputation as being the dirtiest and most pollutant energy used in generating electricity which has lead it to being the number one target of environmentalists and governments in eliminating carbon emissions that are subsequently affecting global warming.

Western governments have stepped up their attack on this commodity by implementing tax breaks to companies that use alternate fuels to generate electricity, namely natural gas, solar panels and wind turbines. This has hurt the material poorly as demand begins to taper off from the high outputs registered before such events.

Besides this the materials alternate use in the production of steel hasn't afforded it any favours. With this being said and the emergence of new technology that promotes the use of other less toxic products will ultimately weigh heavily on this commodity and I don't foresee much stability in the long term.
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