Commodity Update: Minerals and Energy – October 2014

Divergent economic conditions around the world are having a net negative impact on commodity prices. Chinese GDP growth slowed to its lowest pace since early 2009, while parts of the economy that are key to industrial commodities remain comparatively weak.

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  • Divergent economic conditions around the world are having a net negative impact on commodity prices. Chinese GDP growth slowed to its lowest pace since early 2009, while parts of the economy that are key to industrial commodities remain comparatively weak (see, China Economic Update). In contrast, the US economy has maintained its recovery track, which is driving USD strength –a headwind for most commodities (for recent global trends, see Global & Australian Forecasts –November 2014).
  • In addition to USD strength, falling commodity prices have been weighing on the AUD; the AUD eased another 1% against the USD, following a more than 6% depreciation over September. AUD devaluation, along with more subdued wage pressures, should help to buffer the impact of lower commodity prices on Australian mining operations.
  • Prices for bulk commodities remain near five year lows. Iron oreprices have been driven lower by the large scale increase in supply (primarily from Australia), while both thermal and metallurgical coal prices have fallen on weaker imports from China. Over the first nine months of the year, China’s thermal coal imports fell by 2.9% yoy, while metallurgical coal imports were 19% lower.
  • Global crude oil prices continue to fall sharply amid ample supply and weak demand expectations. Gas prices were mixed with the US steady but Britain and Japan edging higher.
  • Prices eased across the base metals complex in October in response to persistently soft demand (particularly in China). However, markets with more favourable supply conditions/outlook (eg. aluminium, zinc) are performing relatively better. Gold prices fell heavily again, affected by strength in other investor asset classes (e.g. USD and equities).

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