Gold? Pfffft. These 3 commodities are having an even better 2019
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In recent weeks Stockhead has focused heavily on the price of gold which has been at record highs. But the gains made by gold in 2019 are nothing compared to three other minerals.
Nickel, palladium and iron ore.
Iron ore has lost much of its prestige since the West Australian mining boom of the early 2010s became a fizzer.
Australia is the world’s largest exporter of iron ore and the vast majority of Australian iron ore goes to Chinese steel producers. But events in the market have played to Australia’s advantage.
Brazil, our major competitor, was already well behind. In 2018, Australia exported 824 million tonnes while Brazil exported 382 million tonnes.
But early in the year a deadly dam disaster forced production to stop at 10 Vale-run sites in Minas Gerais.
Brazil has fallen further behind, exporting 30.7 million tonnes last month while Australia exported 78.6 million. On a year to date basis, Brazil has produced little over a third of what Australia has.
Stockhead spoke with Patersons analyst Xavier Braud, who additionally credited major Australian producers for ramping up production.
“There has been a supply gap and we all know how supply gaps go,” he said.
“All of a sudden producers find new sources and people. Fortescue were ramping up as much as they could, they’ve run excess shifts to run that market.”
CommSec predicted the end of the iron ore bull run was near. “We think iron ore prices will start falling in August and the major catalyst to keep an eye out for is rising iron ore port stockpiles in China,” it said in a note to clients this week.
NAB have also predicted iron ore prices will fall – specifically by 24 per cent – to $76 per tonne in the next 12 months.
Braud agreed the iron ore price was perhaps due a correction. “I’m not surprised, its the kind of price thats not exactly sustainable, considering [economic] growth is not that flash,” he said.
Steel producers are unhappy at present because high prices are eating into their profits. Prices are well above break-even levels (which are around $US80 per tonne).
The vice chairwoman of the China Iron & Steel Association begged the government this week to “maintain normal iron ore market order”. As we have seen in the infant formula market, the Chinese government can move quickly if needed and actions can impact small cap stocks.
Nickel markets have been strong in 2019 as well. The commodity has gained 21.5 per cent this year to reach $US12,990 on the London Metals Exchange on Thursday afternoon.
Stockhead spoke with NAB chief economist Alan Oster yesterday who noted base metal prices were only recovering from a sharp downturn last year.
But while other commodities which fell have stagnated, most notably oil, nickel has gained and small cap nickel explorers are optimistic the growth will continue.
One of these is Blackstone Minerals (ASX:BSX), which has nickel projects in Vietnam and nickel, cobalt and gold projects in Canada and Australia.
“As the LME nickel stockpiles continue to fall we expect a significantly higher nickel price over the coming 12 months, as the price has consistently outperformed against the macro headwinds associated with the trade war,” managing director Scott Williamson said.
Analysts have betted palladium will fall for months now but so far this has not happened. In fact palladium has gained 26 per cent in 2019 and is $US1,595 as at 4pm (AEST) Thursday.
It is a critical part of catalytic converters in internal combustion engines, which reduce car emissions.
But if electric vehicles are adopted en-masse, there will be no need for internal combustion engines and hence palladium for them.
While there are other uses for palladium including jewellery and dentistry, palladium is recyclable. An increase in recycled palladium would decimate demand for new stock to be mined.