Commodity Update – Minerals and Energy September 2012

Over September, minerals and energy prices have been assisted higher by central bank monetary easing and various other stimulus measures taken by policy makers around the world. Bad news has become good, and good news has become ‘bad’ for markets.

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  • Over September, minerals and energy prices have been assisted higher by central bank monetary easing and various other stimulus measures taken by policy makers around the world. Bad news has become good, and good news has become ‘bad’ for markets; it is yet to be seen just how supportive this ‘good’ news will be for commodity prices in coming months and quarters.
  • The price of iron ore bounced back to almost US$110 per tonne (CFRTianjin) in September, from a low of around US$85 per tonne earlier in the month. This unwinding largely reflected heightened expectations that Chinese authorities are at the ready to bolster growth.
  • Gold continued to outperform most commodities over September, with the price currently trading close to $1,775 per ounce, supported by expectations of further stimulus. Oil prices have eased from high levels recorded in early September, triggered by a reversion to fundamentals.
  • Despite some improvement in financial stability following the ECB announcement that it would resume its bond buying operations, Euro-zone activity remains weak and the outlook for growth is still poor.
  • GDP in Europe looks to be heading towards another contraction in Q3, while the Chinese economy has slowed notably and theUSeconomic recovery remains sluggish. Recent downgrades to global growth estimates suggest the rally in minerals and energy prices over September may be short lived.
  • As usual, we expect near-term movements in minerals and energy prices to remain volatile as macroeconomic events unfold. Further out, prices are generally expected to soften but remain elevated relative to history.

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