Australian Commodities In The Spotlight

COMMODITY CAPERS: According to the nation’s chief economist the prices of Australia’s major resource commodities have hit seven-year highs.

However, the news isn’t all good with prices most likely to drift lower due to less demand and growing supplies.

The Roadhouse takes a quick look at what our number one bean counter has to say about the fortunes of some commodities.

IRON ORE

The chief anticipates the iron ore price averaging around US$67 a tonne in 2019, mainly due to the supply shock suffered from the aftermath of the Vale Brazilian dam collapse lifting prices in the first half of 2019.

The impact of lower supply will be good for domestic producers, if the weather holds, and will be partly offset by weaker demand for seaborne iron ore, stemming from a slight decline in steel production in China.

Stronger seasonal steel production should support high iron ore prices through the middle of 2019.

Key risks to the outlook for the iron ore price include the trajectory of Chinese import demand, as well as a potentially larger than expected decline in Brazil’s production.

URANIUM

Uranium prices have been on the rise of late, increasing to an average of US$28.90 a pound in January, a healthy premium to its low point of US$18 a pound in November 2016.

Most of the increase took place in the second half of 2018, but prices continued to lift in early 2019.

“Very large inventories of uranium are still held around the world, and this is expected to act as a check on the recent price surge,” the chief said.

“However, prices are still expected to rise slowly, as pressure on inventories builds over time.

“A substantial number of projects were postponed or cancelled during the record run of low prices, which could lead to a prolonged supply crunch in the years to come.”

GOLD

Our economist indicates that gold prices are projected to rise by around 2.1 per cent in 2019, to an average US$1,326 an ounce (real terms).

This is to be driven by higher investor demand for gold as a safe haven asset.

Slower economic growth is forecast across all economies, both advanced and emerging.

With further interest rate rises in the US either delayed or unnecessary, the greenback is likely to weaken modestly, removing a key hurdle to higher gold prices.

“Over the five-year outlook period, gold prices are projected to rise around 1.6 per cent a year (real terms), to US$1,428 an ounce in 2024, supported by slowing economic growth in some major economies, weakness in world equity markets, and declining mine supply after 2020,” the chief said.

COPPER

Copper prices demonstrated signs of strength early in 2019, after a long period of decline during the latter half of 2018 due to US-China trade tensions producing a substantial fall in copper prices from a mid-year peak.

Copper prices have not fallen much since July, but there hasn’t been any great recovery on the horizon.

Prices at the end of 2018 were 15 per cent below the level at the start of the year, at just over US$6,000 these have lifted so far in 2019 but remain well below what market conditions would normally suggest.

NICKEL

Nickel prices fell below US$12,000 a tonne in the first quarter of 2019 after prices enjoyed strong demand in the first half of 2018, until the pesky US-China trade tensions reversed this strength in second half of the year, resulting in prices falling for six months in succession.

“Nickel demand is expected to rise steadily over the outlook period, growing from 2.3 million tonnes in 2018 to 2.8 million tonnes by 2024,” the chief said.

Nickel demand is expected to rise with electric vehicle production by 2022 once prices of electric vehicles start to come down and climate change-related incentives and penalties take hold around the world, causing an anticipated global electric vehicle uptake.

LITHIUM

Prices for lithium hydroxide peaked late 2018 before falling slightly due to global oversupply and a decline in prices in China.

Lithium prices are projected to drop further as inventories continue to build, but the chief expects this will likely reverse in later years as inventories start contracting in the 2020s.

“The removal of bottlenecks at the refining stage should start to improve market and price stability for lithium,” the chief said.

“Lithium demand will be driven by electric vehicle sales, which are expected to keep rising as their prices approach those of petrol vehicles.”