The latest prices and key trends from the SM Commodities Index.
Iron ore
Prices for iron ore rose 15.9% June to July in response to the seasonal slowdown in iron ore shipments we always see in July, as the Australian miners maximise shipments up to their June financial year-end, according to IHS Markit.
This is, of course, a continuation of the blow up in iron ore prices following Vale's closure of 92 million metric tonnes (MMt) of iron ore capacity in quarter one and supply disruption resulting from extreme rainfall in Northern Brazil and Australia. Chinese steel production, up 10% year-on-year in 2019, has also pressurised global iron ore supply, drawing down inventories from 147 MMt in China to a low of 116 MMt.
Recent weeks have seen steel production restrictions, impacting finished steel stocks, which lifted steel prices, albeit temporarily, drawing iron ore up to its five-year high of $125 /metric tonne (Mt). Rebounding supply from Brazil and Australia however, has increased port stocks by 2.3 MMt, the first rise since March.
Combined with tariff uncertainty and easing demand in China, Europe and the US, this has caused prices to retreat in early August to around $97 /Mt, with momentum likely to take prices back to around $90 /Mt.
Nickel
The nickel price on both the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) spiked over July.
After declining for most of the second quarter, the LME nickel price increased from $12,025 /Mt on 2 July to above $14,000 /Mt. While there is fundamental support for nickel prices to rise over the second half of 2019, this 11.6% increase in July alone reflects investor speculation more than market fundamentals.
Discussions in early July that the Indonesian government would once again ban exports of nickel ore in 2022 caused investors to pile into contracts on both the SHFE and the LME, causing prices to spike.
IHS Markit views the Indonesian export ban announcement as a transitory event that currently does not affect the price outlook for 2020 and 2021. Nevertheless, we continue to expect significant volatility as prices respond to changing macro conditions, especially movement in the dollar and sentiment around trade negotiations.
Click on the image to enlarge
