Editorial: Commodities prices twist and turn

With the sobriety of September settling in, commodity prices have shown some dramatic movements as the global economy shows signs of recovery and growth.

Positive economic growth in the U.S. economy usually translates to a stronger dollar and weaker U.S.-denominated gold prices, and that’s exactly what happened to gold on Sept. 2, the first trading day after the Labour Day holiday: With the U.S. gross domestic product showing a surprisingly strong 4.2% annualized growth rate in the second quarter, spot gold prices plummeted US$19.50, or 1.5%, to US$1,267 per oz. in London, saying a quick goodbye to the US$1,300 per oz. level of support that gold had shown for much of 2014.

With the U.S. economy now in its fifth year of recovery, gold prices are down a full 10%, or US$142 per oz., from a year ago.

Dovetailing gold’s movement, silver prices sank US29¢, or 1.5%, to US$19.20 on Sept. 2, having abandoned in early August the US$20 level of support enjoyed since June.

Platinum prices have reflected labour politics in major producer South Africa. With most of the early 2014’s labour strife now settled and mine production resuming in South Africa, platinum prices have dipped below US$1,400 per oz., off from their highs above US$1,500 per oz. seen only two months ago.

Palladium has been the bright spot amongst the precious metals of late, closing at US$887 per oz. at press time. Palladium — an essential ingredient in autocatalysts — has had a good price lift in 2014 owing to continued tension in Ukraine, with threats of U.S. and European Union sanctions against major palladium producer Russia. Palladium hasn’t traded below US$800 per oz. since April 2014.

While the uranium market wallows in chronic oversupply, the spot price has shown a flicker of life owing to the strike and lock-out at Cameco’s McArthur River mine — the world’s largest uranium mine — and its Key Lake mill in northern Saskatchewan. Uranium oxide spot prices have recovered from the desultory US$28 per lb. seen in mid-2014 to a full US$32 per lb. on Sept. 1, according to Ux Consulting. That’s still pretty low, but uranium producers will gladly take the 14% monthly gain.

In the base metals, humble zinc is drawing attention from analysts this year, as major mines come offline around the world. Zinc prices have strengthened to US$1.07 per lb. at press time, with banks such as Scotiabank predicting prices as high as US$1.60 per lb. in 2015, and markets becoming “genuinely tight” in 2016.

Scotia’s other favourite base metal is nickel, which it says will rise from its July levels of US$8.64 per lb. to hit US$10.75 per lb. in 2015 and US$12 per lb. in 2016, as the Indonesian nickel concentrate export ban holds.

Among the non-metals minerals, spot potash prices in Vancouver have recovered 5% from their bottom of US$295 per tonne seen in July, as buyers across the globe restock their supplies, which had dwindled as buyers delayed purchases in 2013 partly in hopes of getting lower prices from Uralkali.

It gets grimmer again looking at iron ore and coal prices. Iron ore prices have dropped to two-year lows of US$87 per tonne from US$100 in May owing to a cooling Chinese housing market, which is a huge consumer of stainless steel. Australia’s mega-sized iron ore mines are producing at lower costs than many of their global competitors, prompting analysts to predict a wave of iron ore mine closures in the months to come, particularly if prices stay below US$90 per tonne.

Coal miners have similarly contended with two years of supply glut and depressed prices for thermal and metallurgical coal, but at least prices seem to have stabilized in recent months, reversing the deep pessimism seen in the subsector in the second quarter. While coal prices haven’t rebounded, more than a few stocks in coal mining companies have rallied to 52-week highs in recent weeks.