As we head into the final days of 2020, iron ore and copper stand out as the best performers among commodities.
Thanks to continuing strong demand for China prices for both key industrial commodities will be up strongly by close of business on December 31 – iron ore more than 70%, copper more than 30%.
Could iron ore top $US180 a tonne by Christmas and get closer to $US200 a tonne by New Year?
Iron ore is now trading at levels last seen in October 2011, near the heights of the biggest price boom of all (that helped trigger Australia’s huge mining investment boom).
Copper prices cracked $US8,000 a tonne for the first time since February on the LME in London on Friday, 2013, and copper prices in Shanghai rose to levels last seen a year ago.
Another surge on Friday saw the price of 62% fines jump $US5.90 or more than 4% to a new nine-year high of $US164.39 a tonne, according to Metal Bulletin’s Fastmarkets.
The price of 65% fines (from Brazil) surged to $US177 a tonne.
The price of 62% fines is now up 78.3% from the December 31 2019 level of $US92.13. 62% fines prices edged up from $US160.11 a tonne on December 11, a gain $US4.26 a tonne.
The price of 62% fines are up more than 24% so far in December.
The price of 65% fines is up 70.6% from the end of 2019.
The reasons for the surge are self-evident – continuing strong demand from Chinese steel mills and a shortage of ore from Brazil (which is underperforming) and supply constraints in Australia, especially at Port Hedland where the Roy Hill mine and port saw a fall in November shipments because of maintenance.
Chinese steelmakers have called the sharp rise “unreasonable” and “abnormal” but pressure is coming from the Dalian futures market where iron ore was trading at more than 1,076.50 yuan (more than $US171 a tonne) a tonne for the May contract on Friday.
Chinese regulators have tried to limit price rises on the Dalian exchange – changing fees to make it more expensive, altering the terms and conditions to try and allow more iron ore blends and ‘brands’ to be traded (to increase volumes) and the rules on steel crap have been changed to allow steel mills to use more, even though a ban on scrap imports starts on January 1, 2021.
The Chinese Steelmakers Association has complained to the government and regulators and lobbied Rio Tinto about some of its recent trading activities which market sources said involved high price ore shiploads.
Rio tried to placate the industry group by saying it was willing to work with steel companies to review pricing mechanisms, but didn’t suggest price cuts.
Copper prices have had a similar 2020. The price is up 31% so far this year but 73% from the low on March 23 of $US2.10 a pound. Friday saw the current front month on Comex end at just over $3.64 a pound, a rise of 3% last week.
Reuters reported on Saturday that “Copper has joined stocks and other risk assets in buoyant gains in recent weeks, lifted by optimism about global economic recovery after positive news about COVID-19 vaccines.”
Warning signals are flashing, however, since the most recent extension of copper’s rally has been dominated by speculators, not buying from industrial users, said Gianclaudio Torlizzi, partner at consultancy T-Commodity in Milan, Reuters reported.
“We think the market is driving higher only from financial euphoria. The industrial Chinese buyers are not buying this spike and this real time indicator has been stalling over the last two weeks,” he said.
“Demand is not going along with the price, so I’m starting to be sceptical about this rally and I’m taking this upside in prices as a very good opportunity to short the market.”
Benchmark three-month London Metal Exchange copper touched $US8,028 a tonne on Friday, its highest since February 2013. Reuters said that on the Shanghai Futures Exchange, copper jumped to a more than nine-year high of 59,500 yuan ($US9,095.36) a tonne.
Helping push copper prices higher is a weak inventories position at the LME, Shanghai exchange and COMEX warehouses.
Reuters said that the combined stockpiles of the metal LME, ShFE and COMEX warehouses are near their lowest since December 2014 at 281,648 tonnes as of December 17.
In contrast lead inventories at the LME have jumped 20% in the past couple of weak after a sharp rise in prices, and tin prices bounced to a 20 month high on Friday.
Meanwhile US oil prices are on the cusp of topping $US50 a barrels for the time since early in 2020. Brent crude ended Friday at more than $US52 a barrel.
Oil prices are down 19.8% for US West Texas Intermediate and Brent, the global marker, is down more than 20%.
That’s ignoring the artificially depressed performance of oil in April when a market squeeze pushed the price of US West Texas Intermediate to minus $US37 a barrel (meaning that performance since then has been huge as the price topped $US49 a barrel on Friday in New York.
And Comex gold finished with a small loss on Friday to end around $US1,886 an ounce. That left it up 2.3% for the week and up 0.9% for the month.
The precious metal is up more than 24% for the year so far but was a lot higher in August, peaking at $US2,089 an ounce.
