The outlook for commodity prices “is by and large a mixed bag” driven by a combination of factors such as changes in global demand and supply on the back of changing consumer preferences, and political and regulatory changes, says Moreblessing Chanakira, natural resources principal at Absa Corporate and Investment Banking.  

The ongoing US and China tit-for-tat tariff war currently playing out will continue to dominate in the short to medium term. 

“Precious metals were resilient in 2019 with the star performers being gold and palladium. The gold price steadily rose keeping with the 2017/2018 trends. Investors’ view of gold being seen as a store of value has bolstered the metal in the face of geopolitical and global economy uncertainties. The rise in the gold price fluctuated between $1,340/oz and $1,400/oz during this period and in the latter part of 2019 the price hovered just under $1,500/oz,” she says. 

“We expect the trend to carry on into 2020 supported by the US presidential elections and the US and China trade peace talks. This is positive for the marginal mines to the extent they can contain their costs,” Chanakira says.

She adds: “Palladium has outperformed its sister metals in the platinum group metals basket driven by persistent supply deficit in the palladium market, a trend that has gone on for almost a decade. The price of palladium has been climbing steadily over the past few years with a rapid increase in 2018 and 2019 and finally breaking a record high of 2,500/oz in mid-January 2020.”

Supporting the rapid palladium price increase was a high demand for the metal driven by stricter emission standards. The supply deficit is expected to widen further, driven by the implementation of new Chinese emission standards (requiring more palladium per vehicle) and higher demand for renewable energy, which will in turn positively impact prices. Palladium prices will rise but “what goes up must come down and one will eventually see palladium prices self-correct”, says Chanakira. 

On the other hand, platinum’s performance has been subdued in the past few years driven by a supply surplus in the market. Platinum saw reduced demand in 2019 as we saw a shift away from diesel cars (that mostly use platinum) to petrol-fuelled cars (that use palladium). Going forward platinum prices are expected to remain flat.

“Base metals had a mixed performance in 2019. Nickel was the best performer in the complex on the back of the ban on nickel ore exports from Indonesia. Copper prices stabilised on the back of easing US-China trade war tensions. Aluminium was the laggard driven by weak market fundamentals throughout 2019 and is expected to remain flat in the medium term,” she says. 

Coal overall has seen a significant decline in prices in the past 10 years. Metallurgical coal prices took a knock due to a production slowdown in the steel market. “The reduction in thermal coal prices was driven by a drive for cleaner sources of energy … we therefore expect the drive for greener fuel to remain a threat for thermal coal going forward and prices to remain subdued,” says Chanakira.

This article was paid for by Absa Corporate and Investment Banking.

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