Are commodity markets in oil and iron ore bottoming out, thereby helping our market to shake off gloom and doom about the sectors, especially iron ore over the past year or more?
After a surge last week, global iron ore prices are up more than 20% so far this month, while world oil prices are up 18% to 20% in the past three weeks.
Some analysts – more hopeful than anything else – think that the rebound in oil prices in the past few weeks, and the quite sharp recovery in iron ore prices so far in April are a sign of rising confidence and a change of sentiment towards commodities.
But it is still early days and the world oil market has to go through another OPEC meeting in June, as well as the expected fall in US oil production and inventories and the dislocation that will cause for a short while.
For Australian investors, the rapid turnaround in the world iron ore price holds the most interest.
Last week iron ore enjoyed its biggest gain since 2012, rising more than 12% to over $US57 a tonne, with a 5.9% jump being reported on Friday night alone.
The Steel Index spot price of ore rose $US3.20 or 5.9% to $US57.00 a tonne on Friday, the highest since mid-March.
And the Metal Bulletin’s benchmark spot price jumped 13.5%, or $US6.88 to $US57.81 a tonne. That was the largest one week rise since September 2012, when the price was recovering from big sell-off in August of that year (which almost crippled Fortescue Metals).
The iron ore price has now recovered more than 22% since hitting record lows at the beginning of April of just over $US46 a tonne.
Analysts believe the recovery in iron ore prices reflects restocking by Chinese steel mills as well as expectations that the central government will provide more initiatives to spur economic growth.
BHP Billion’s decision announced last week to slow the expansion at Port Hedland of its export capacity to 290 million tonnes, also helped change attitudes to the iron ore price.
Last week’s cut in the reserve ration for Chinese banks of 1% (equal to the largest on record) has supported the idea of more stimulus coming from Beijing.
Brent crude has now risen for the last three weeks in row, rising 18%. The move in China also bolstered oil last week.
In fact Brent crude oil prices have now rebounded by 45% since hitting a five-year low in January, jumping to $US65.80 a barrel on Friday, the highest level this year.
But they remain well below the 2011-2013 average of around $US110 a barrel.
Helping bolster sentiment for oil was another fall in the weekly US rig count by Baker Hughes.
That showed the number of rigs drilling for oil in the US dropped 31 to 703 in the week to April 24.
The pace of declines rose from the previous week, when 26 rigs were taken offline but is slower than the January peak when 94 rigs were closed down one week.
Meanwhile gold had a poor week, losing more than 2%. Comex gold futures in New York for June delivery fell $US19.30, or 1.6%, to settle at $US1,175 an ounce. That left the metal around 2.4% lower than a week earlier.
Comex May silver lost 15.9c, or 1%, to $US15.675 an ounce, and was around 3.4% lower for the week.
And Comex May copper rose 5.65c, or 2.1%, to $US2.751 a pound on Friday, but still ended the week with a small loss.
