Commodity prices appear to be running out of steam, but it’s unclear if the boom is over
Commodities such as platinum group metals, copper and iron ore have seen their prices drop in recent weeks.
- Commodities such as platinum group metals, copper and iron ore have seen their prices drop in recent weeks.
- Mining analysts say the slippage will not affect local producers and is temporary.
- Mining has contributed significantly to the country’s GDP, due to the higher returns observed by companies.
After hitting record highs in the past year, commodity prices have retreated in recent weeks, but the slippage is nothing out of the ordinary.
While global sentiments such as the risks of inflation in the United States and the indication of China to release stocks from inventories have helped keep prices under control, analysts believe the surge has happened too quickly and that the prices were too high and therefore the market could use a blast.
The Federal Reserve predicted last week that it could raise interest rates much faster than expected, causing market nervousness and seeing commodity prices plummet. Commodity prices have traditionally been a leading indicator of inflationary pressures, and when interest rates rise, commodity prices fall slightly.
The cooling of copper, iron ore, and platinum group metals (and to some extent gold) has also raised questions about whether the so-called “supercyle” of commodities could. be close to the end.
On Tuesday, the price of copper at $ 4,171 per tonne was 7.9% lower than last month, while iron ore traded at $ 210 per tonne, down 3.2% from it four weeks ago. Palladium and rhodium – whose demand has benefited from the auto industry’s shift to lower-carbon vehicles – have also seen their prices drop in recent weeks as global demand exceeds supply.
Platinum, which hit an annual high of $ 1,292 an ounce earlier this year, was trading at around $ 1,080 on Tuesday, which remains a good price compared to average prices in 2019 and 2020, before the start. of the bullish cycle.
âI think it’s a very healthy correction,â said RenÃ© Hochreiter, mining analyst at Noah Capital.
He said there was nothing wrong with the current slight drop as local miners were still reaping the rewards of the higher prices and were in a much better financial position than in previous years.
âWe’re still in a supercycleâ¦ and supercycles typically last an average of ten years. The correction is incredibly healthy, because resources were starting to look like bitcoin, and that’s not good,â Hochreiter said.
Soaring platinum and palladium prices and solid production growth enabled Sibanye-Stillwater to achieve record results in the first quarter of 2021, with the company reporting a 78% increase in adjusted profit to 19, R 8 billion before interest, taxes, depreciation and amortization (Ebitda), compared to the same period a year ago.
Sibanye is the world’s largest producer of platinum, the world’s second-largest producer of palladium and the world’s third-largest producer of gold.
The company is now expanding its presence in the lucrative market of battery minerals, another metal that has seen a surge in demand.
Hochreiter said the price movements could be due to excess production in the market and at the end of the coming year, but demand is still the same.
His feelings were echoed by Peter Major, mining analyst at Mergence Corporate Solutions, who believes that the slippage in commodity prices is “nothing extraordinary” and poses no risk to producers.
Copper – which has been a star for the past year thanks to its rally in key markets such as China – on Friday fell 1.8% to close at $ 9,119.75 per million tonne, while aluminum closed down 1.4% at $ 2,375 per million tonne. .
âOur producers have never done so well, even with the skid. We’re still firmly in a supercycle,â Major said.
“The prices are still in a range never seen before and companies haven’t seen these prices even in 2008.”
There had been four supercycles in the past, and the first was in the early 1900s when the United States entered the industrialization phase. The second cycle came after World War II, followed by the energy cycle in the 1970s; then came the supercycle led by China in the early 2000s.
As the largest consumer of commodities, China’s indication to release inventory into the market could be interpreted as a sign of reducing its exposure to commodity markets. But what is clear to economists is that South African businesses and the economy will not be impacted by the drop in prices. The mining sector played an important role in the GDP growth observed in the first quarter, as companies contributed to the tax hike.