Commodity Price Barometer mid-2015: Towards the eye of the storm
- By: John P Sykes
Posted in: Blog, Commodities, Mineral Economics
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July brings a chance to take stock on commodity price movements so far in 2015, as we pass the year mid-point; and here in Western Australia we enter the thick of winter, which is only marginally colder than the record summer temperatures being reported in my homeland. Commodity prices however continue to be more of the wintery sort.
The mid-year update of the Greenfields Research Commodity Price Barometer ranks commodity prices on a barometer style of stormy (low), through rain, changeable (medium), fair and up to dry (high). This is done by comparing current spot prices (on the last trading day of June) to the five-year prevailing average price (1st July 2010 to 30th June 2015). Like a barometer, commodity prices are further divided by those where the needle (or price) is either rising or falling. To determine whether a commodity price is rising or falling; the 6-month average price for 2015, so far, is compared to the yearly average price of 2014.
This edition of the barometer sees the addition of aluminium into the analysis, meaning all base metals are now included. Aluminium was previously excluded as it was not a ‘mined’ commodity, with aluminium metal produced via the smelting of alumina, in turn refined from bauxite, which is the mined commodity in the aluminium supply chain. Originally it was deemed that aluminium prices did not adequately reflect the economics of the mining part of the aluminium value chain, hence it exclusion from this mining industry orientated barometer. Much of the cost of producing aluminium is in the enormously energy intensive smelting stage (and to a lesser extent in the also energy intensive alumina refining stage) than in the relatively straight-forward bulk mining of bauxite. This does contrast with the other base metals, precious metals and some of the other minor metals, where most of the production costs are at the mining stage.
However, exclusion on this basis is not entirely consistent, as firstly the actual mined raw material is not the price assessed for most other metals in the barometer; for example, most base metals are sold as concentrates, not metals, from mines – similar to bauxite. Secondly, not all the metals in the barometer have most of the costs at the mining stage either; for example, much of the cost of rare earth metals is in producing the separated oxides, not mining the ore. Finally, with a market worth close to US$100 billion (smaller only than iron ore, copper and gold of the metals in this barometer) the market cannot be ignored, so even a poor proxy is better than nothing. Efforts continue to find a suitable price source for bauxite and alumina.
In contrast to aluminium, the rare earth gadolinium has been dropped from the barometer as the price provider, Metal Pages, gives up on sourcing a price for this infrequently traded and minor rare earths market. Nine other rare earth markets are included though, so these metals remain well-covered by the barometer.
As ever, if you feel there are any other interesting mineable commodities which should be included in this (hopefully) bi-annual analysis, please let me know.
Turning to the analysis, the news for commodity prices, as expected, is not good. The majority of the metals covered by the barometer, twenty in total, are in the ‘stormy’ category, with prices more than 25% below their five-year averages. These include the enormous iron ore market; two significant base metal markets in nickel and tin; two important precious metals markets in platinum and silver; and a host of minor metals: antimony, bismuth, gallium, indium, molybdenum, rhodium and tungsten. All of the rare earths, except praseodymium, making eight in total, also fall into this category.
The news is only slightly better for a number of important commodity markets in the ‘rainy’ category, where prices are between 10% and 25% below the five-year average price. These include gold, aluminium, copper, lead, tantalum, uranium and the rare earth, praseodymium.
There are no commodities in the dry and fair categories indicating buoyant, higher than typical prices. The best performing commodities just about hold on in the ‘changeable’ category, with prices no more than 10% below the five-year average. Although, this category technically covers a band 10% above to 10% below the five-year average price, none of the metals are actually above this price, all remain below the five-year average price. The metals in this category are cobalt, palladium and zinc, all relatively small or modest markets, so not enough for the mining industry to hang its hopes on.
Looking at how prices have moved over the last six months, unsurprisingly with so many in the ‘rainy’ and ‘stormy’ categories, all the commodity prices except one have fallen in 2015 so far. Only uranium prices have shown a relative rise against the 2014 average, though it is worth noting that this is from a very low base (the current spot price around US$35 / lb, is a long way off the +US$100 / lb prices seen in 2007); the rise is only marginal (the 2015 average so far is only US$4 / lb higher than the 2014 average); and finally, even this modest rise has reversed in the most recent months.
In conclusion then the Greenfields Research Commodity Price Barometer suggests that we are undoubtedly in a ‘storm’, however it appears things may still get worse before they get better – have we reached the eye of the storm yet? Is the commodities supercycle over? What will happen to Chinese industrialisation and commodities’ demand? How will the recovery in the US and potentially rising interest rates affect commodity prices?
We’ll have to wait until the clouds clear.
Dry (and rising) +25% above 5 year average with year-on-year increase
- None
Dry (but falling) +25% above 5 year average with year-on-year decrease
- None
Fair (and rising) +10% above 5 year average with year-on-year increase
- None
Fair (but falling) +10% above 5 year average with year-on-year decrease
- None
Changeable (but rising) between -10% to +10% of the 5yr average with year-on-year increase
- None
Changeable (and falling) between -10% to +10% of the 5yr average with year-on-year decrease
- Cobalt
- Palladium
- Zinc
Rainy (but rising) -10% below 5 year average with year-on-year increase
- Uranium
Rainy (and falling) -10% below 5 year average with year-on-year decrease
- Aluminium
- Copper
- Gold
- Lead
- Tantalum
- Praseodymium
Stormy (but rising) -25% below 5 year average with month-on-month increase
- None
Stormy (and falling) -25% below 5 year average with month-on-month decrease
- Antimony
- Bismuth
- Gallium
- Indium
- Iron ore
- Molybdenum
- Nickel
- Platinum
- Rhodium
- Silver
- Tin
- Tungsten
- Cerium
- Dysprosium
- Europium
- Lanthanum
- Neodymium
- Samarium
- Terbium
- Yttrium
Technical notes
Prices are yearly averages to June 2015 compared to the five-year average (Jul-2011 to Jun-2015, except iron ore & uranium which are Jun-2011 to May-2015).
All commodity prices are from our friends at Argus Media Metal Pages, except gold and silver which come from the Perth Mint; and iron ore and uranium, which come from Index Mundi (monthly prices only).
Product specifications are LME 3-month Alumium; Antimony Regulus min 99.65% Grade II (EU); Bismuth min 99.99% (EU); Cobalt min 99.3% Russian (EU); LME 3-month Copper; Gallium 99.99% CIF Main Airport (EU); LMBA Gold morning fixing; Indium min 99.99% (EU); China import Iron Ore Fines 62% FE spot (CFR Tianjin port); LME 3-month Lead; Molybdenum Roasted Concentrates (Oxide) Mo 57% (EU) Mo; LME 3-month Nickel; Platinum 99.95% AM/PM fixes (EU); Palladium 99.95% AM/PM fixes (EU); Rhodium min 99.9% (EU); LMBA Silver Fixing; Tantalite basis 30% Ta2O5 (EU) Ta2O5; LME 3-month Tin; Tungsten APT (EU); Index Mundi UxC Uranium U3O8 Swap Futures End of Day Settlement Price; LME 3-month Zinc; Ce Oxide 99% min FOB China (CN); Dy Oxide 99% min FOB China (CN); Eu Oxide 99.9% min FOB China (CN); La Oxide 99% min FOB China (CN); Nd Oxide 99% min FOB China (CN); Pr Oxide 99% min FOB China (CN); Sm Oxide 99% min FOB China (CN); Tb Oxide 99% min FOB China (CN); and Y Oxide 99.999% min FOB China (CN).