Base metals to remain bullish in 2018

The year 2017 was a year of rally for almost all resource and industrial commodities. Experts say 2018 is also expected to see a rally in the prices of base metals. Coal, iron ore and steel might see some moderation in the first quarter of 2018.

In the year that just ended, metals, steel and crude oil went up by 20-30 per cent. Iron ore and coal were also bullish, which together pulled up the Baltic dry bulk index, reflecting the rising shipping freight rates. The latter index has risen a little over 40 per cent in 2017 and 70 per cent in two years. In most commodities, goods demand and supply disruption was a major issue.

Gnanasekar Thiagarajan, director, Commtrendz Research, says: “Base metals are the only part in the commodity complex that look sound, both fundamentally and technically. There is scope for more upside in metals, as supply-side problems continue and demand continues to be robust, not only in China but in other economies, too. Many buyers could get tired of waiting for prices to decline and could join the bandwagon soon.” 

Several mines have started seeing labour issues and he sees the rising prices motivating unions going on strike to press for their demands, “further accelerating the supply-side problems”.

Bernard Dahdah, senior analyst at Natixis Commodities, also describes a falling US dollar index, down 8.6 per cent in 2017, as a major reason to keep metal prices higher. Natixis forecasts metal prices to continue rising for a year or even in 2019.

FousEconomics, a research and forecasting agency, says in its latest update that “increased supplies of coking and thermal coal, coupled with reduced demand from China, will cloud the outlook”. The report also forecast a 10 per cent fall in steel and iron ore in the first quarter of 2018.

All commodity prices had peaked earlier, either in the pre-Lehman crisis days in 2007-08 or in 2011, ahead of the Olympics in China, due to abnormal demand.
 

Most commodities and the freight index are still far away from those peak prices. Says Thiagarajan: “That kind of appetite is not seen from China or any other destination as of now and possibly even in 2018. So, though the trajectory remains on the bullish side, there are challenges and it might take more than normal demand and huge supply-side problems to reach previous highs."