A weakening in the value of the US dollar towards the end of 2019 (it ended around 6-month lows in late December against some currencies such as the Aussie dollar), plus supply constraints and other concerns helped most commodities end the year and decade with solid gains.
Major factors to watch this year will be the value of the greenback and the monetary policy stance of the Fed, the pace of growth in the global (especially Chinese) economy and demand from major users.
Supply constraints might help some commodities (nickel, perhaps copper and iron ore), while the extended production cap from OPEC and friends could put a support level under oil around $US60 a barrel (where it ended 2019).
The cap agreement in late November saw crude oil futures prices end the year up 28%.
Iron ore physical prices were also up around 28% which was good news for Australia and the federal budget while gold added nearly 19% and silver about 15% but copper was up a more sedate 5.8%
Hog (pigs in the US) futures rose 17% driven by the impact of African Swine Fever on China’s pig herd which has slashed in half. That helped Chinese consumer inflation to once again top 4% by the end of the year.
But while producer prices turned negative in the final months of 2019, factory activity measures showed a recovery in November and December, hinting that the Chinese economy might be a more positive factor this year.
That could be positive for iron ore prices.
The price of 62% Fe iron ore rose $US1.05 on Tuesday to end 2019 at $92.13 a tonne, according to the Metal Bulletin. That compares to the Metal Bulletin’s iron ore price ending 2018 on $US72.73 a tonne.
Iron ore prices rose to 6 plus year peak in July at just above $US125 a tonne.
Most forecasts are for a slow fall in iron ore prices in 2020, but all will depend on two factors – steel prices/profit margins in the Chinese steelmaking sector and the speed at which Vale, the big Brazilian miner, returns production and export capacity idled in the wake of the January 25 mine tailings dam wall disaster.
Vale has already made it clear that it will be towards the end of 2021 before the lost capacity is back online and production and exports are close to 2018’s 384 million tonnes of sales (including pellets).
Vale has said that much the added capacity will be used in the first half of 2020 to replenishing its stockpiles in Asia.
In the market, Rio Tinto shares rose nearly 28% in 2019, BHP shares added 13.7% but shares in Fortescue soared 155% over the year. It will be very hard to repeat that performance this year.
Fortescue shares rose 22% in the final quarter, BHP shares were up 5.2% and Rio Tinto shares rose 8.4% – so the trio outperformed the winder market for the year and the final quarter.
In Brazil, shares in Vale recovered from the sharp sell-off in the wake of the January 25 mine tailings dam wall disaster – the shares rose more than 115 in the final quarter of the year to be up 4.51% for the full 12 months.
Oil forecasters do not expect oil prices to move sharply in either direction this year.
They see Brent crude around $US63 a barrel, according to a Reuters poll on the last day of 2019, down modestly from current levels, as the OPEC production cap offset weaker demand.
Over the past year, increased US oil production offset the supply caps from OPEC, led by Saudi Arabia (and by ‘friend’, Russia) and American sanctions on Venezuela and Iran.
Weak demand, including in developed economies, remains a primary concern for 2020, but watch for China to continue to boost its imports (they were up by around 10% over the first 10 months of 2019).
US crude oil production in October rose to a record of 12.66 million barrels per day (bpd) from a revised 12.48 million bpd in September and is expected to top 12.7 million in December (the data will be issued in February/March).
But the pace of US growth is expected to slow noticeably in 2020.
March copper futures fell 3.6 cents, or 1.3% to end 2019 at $US2.7985 a pound. For the year, copper rose 5.8%, with a roughly 9% return over the quarter and a gain of more than 6% in December.
