Commodity prices took a knock Monday on stronger than forecast economic news from the US – especially the level of activity across the country’s most dominant sector, services which showed a sharp rise in November, despite the Federal Reserve’s rapid rate rises this year.
That survey plus a rise in durable goods orders and Friday’s stronger than forecast November jobs numbers – 263,000 new jobs and wage growth bouncing back over 5% for the first time in several months – saw US interest rates rise, Wall Street shares fall and the gold especially lead commodity prices lower.
Gold shed more than $US28 an ounce to drop back under $US1,800 an ounce on the renewed belief that the Fed will not be slowing or stopping interest rate rises any time soon.
That slump will rattle an already nervy gold sector on the ASX on Tuesday after the metal’s price weakened slowly in recent days.
Wheat prices fell to a 13-month low in Chicago as it shook off the last ripples from Russia’s invasion of Ukraine. The current contract closed at $US7.40 a bushel, a long way from the post-invasion peak of $US1,277 a bushel in early May.
But one commodity stood out – iron ore which topped $US110 a tonne in China on Monday (according to Fastmarkets) and finished at $US108.55 in Singapore on the SGX.
That close for 62% Fe iron ore was the highest in almost four months – August 12, according to the SGX data.
Iron ore prices have risen 10% from less than $US100 a tonne a week ago (November 30).
Market sentiment for iron ore has also been buoyed by China’s measures to support its struggling property sector and the continuing relaxation of its harsh Covid control policies.
These measures should have a better chance of developing into stronger demand for steel and iron ore amid a shift away from strict adherence to the zero-covid policy, ANZ analysts said in a note on Monday.
But more farsighted analysts said the demand was being led by season buying by steel mills ahead of an earlier Lunar New Year break.
The week-long New Year (2023 is the Year of The Rabbit) starts January 22, which is nearly two weeks earlier than 2022, when it started February 1.
When the New Year break is in February, buying of key commodities is spread across December and into January. When it is early, as it is next month, steel mills and other importers bulk up with extra purchases in November and December especially from Australia where it takes much less time to buy the ore, deal with Rio, BHP or Fortescue to book arrival time and take it before the break.
Demand should peak next week for pre-holiday delivery in Australia. Brazilian shipments had to ordered and the ships left Brazil in late November to arrive in time for unloading and stockpiling before the break.
The strength in iron ore prices will again push the prices of companies like Fortescue, BHP and Rio Tinto higher on Tuesday. Fortescue shares were up 6.8% on Monday, BHP shares gained 2.3% and Rio shares jumped 3.7%.
Monday’s iron ore price gains were built into those rises, but the solid finish on the SGX will underpin the sector for the start of trading today with the futures trading showing a 47 point fall after Wall Street’s wobble.
