A year of multiple uncertainties that continually buffeted the global commodity markets is coming to an end. The last twelve months were dominated by concerns over world economic growth, geopolitical instabilities, divergent monetary policies by the developed and the developing nations as also currency fluctuations all of which combined to take a heavy toll in terms of demand slowdown, price volatility, subdued investor interest and project delays in some cases.
The effect of all these is seen in rice movement in the last 12 months. It has generally been not a good year for commodities, and metals prices in particular – precious, base and industrial. Punters’ eternal favourite gold ended the year at just about $1,200 an ounce, a 30 per cent fall from the levels ($1,667) seen this time last year. Silver has performed even worse falling by close to 40 per cent to less than $20/oz versus the heady $31 last week of December 2012. Platinum lost less-heavily to fall to $1,374 from $1,594 a year ago, while palladium prices have remained nearly unchanged. The price fall in precious metals is quite understandable given the speculative nature of investment that often characterises fund flow into these metals.
Among base metals, aluminium was the worst performer having fallen by a fifth from $2,150 a tonne a year ago to $1,764 last week while copper managed to stay close to $7,400 last week versus above $8,000 this time last year, losing just about 10 per cent year-on-year. Nickel prices pared close to 20 per cent over the year to move to a little over $14,000 from the heady $17,500 a year ago.
Although volatile intra-year, crude oil prices generally managed to retain the levels seen a year ago, helped by supply tightness and geopolitical issues. On the other hand, agricultural markets provided a silver lining with smart rebound in production of major crops thanks to benign weather after three years of aberrations. Prices of major grains, oilseeds and oils, cotton and sugar have been more consumer-friendly.
Contrary to initial apprehensions of a market backlash to anticipated Chinese slowdown, the metals demand growth in the Asian major has actually surprised to the upside. This has been helped by strong raw material availability, according to experts. What’s more, absolute demand growth in China is possibly the highest ever in copper and steel providing a solid support base. At the same time, supply growth has been robust; for example, in aluminium, copper and iron ore. This can be attributed to strong capital investments. Additionally, inventories are still high, capping the upside potential for prices although over the year, base metals inventories fell, especially aluminium by 388,000 tonnes in Shanghai. The current general softness in commodity prices is likely to continue into 2014.
Last week, all metals rose – gold was up 1.6 per cent to fix above the psychological $1,200, silver moved up by 3.1 per cent to test $20, platinum prices increased by a healthy 3.5 per cent and palladium by 1.6 per cent. Oil WTI was up 1.3 per cent on geopolitical concerns relating to Sudan and Libya. Base metals closed the week strongly on thin Friday trading. Over the week as a whole, lead (3.2 per cent) and zinc (3.1 per cent) were the biggest price gainers followed by copper (2 per cent) and aluminium (1.4 per cent). Nickel and tin were the exception. Interestingly, injection of liquidity by China’s central bank saw iron ore prices move higher.
After giving double-digit price growth from 2001 to 2011, gold returned on investment only 6 per cent in 2012. This year, with punters deserting it for more lucrative investment assets, the haven status of the metal has truly been lost.
Gold ETF holding are down by a third, having seen outflows of 880 tonnes during the year. Interestingly, outflows from silver ETFs have been rather limited at less than 300 tonnes out of about 19,600 tonnes held. Platinum holdings are up 50 per cent.
All gold price catalysts are currently enervated. Physical demand is weak with India continuing to pursue a policy of restricting imports. Geopolitical situation is far from explosive. Liquidity, especially in the US, is expected to tighten gradually, making the dollar stronger. Investors continue to exit the metal to move to other asset classes such as equity.
On Friday, in London, gold PM Fix was $1,215/oz, a smart recovery from the previous day’s $1,197. Silver also followed suit to AM Fix of $19.92/oz versus the previous day’s $19.40. Platinum ($1,374) and palladium ($711) too closed the week strongly.
Going forward, the upcoming Chinese Lunar New Year purchases may provide some support to gold prices in addition to lower scrap sales. Prices are likely to trade in a range. However, clearly, the price risks are skewed to the downside. Gold is sure to struggle to find support in 2014.
On Friday, base metals complex closed strongly. LME cash aluminium was $1,764, copper $7,396, lead $2,265 and zinc $2,101/tonne. Going forward, with global economy showing steady signs of revival, robust Chinese demand and concerns over Indonesian export policy can trigger higher prices.