Commodity spotlight: Iron ore, oil, gold and lithium

Fri 18 Feb 22, 6:04pm (AEST)

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Key Points

  • Iron ore prices retreated from 6-month highs
  • Oil prices remain above US$90 a barrel
  • Gold is trading at an 8-month high of US$1,916
  • There's a 3 million-ton demand forecast for lithium for 2030

Tug of war for iron ore prices 

Iron ore prices retreated from 6-month highs this week as Chinese watchdogs began investigating local buyers and sellers. 

On Thursday, China’s National Development & Reform Commission (NDRC) required representatives including mining giant Glencore and multinational commodity trading company Trafigura to provide recent iron ore stockpile data and transaction details. 

On the same day, authorities requested some iron ore trading companies to release excessively high inventory and bring stock levels down to reasonable levels.

By Friday, China's iron ore stockpiles rose to a 2-year high of 160.3m tonnes, according to MySteel. 

Iron ore prices are on-track to finish the week down around -13% to US$130 a tonne.

Looking at the bigger picture, economic data from China remains mixed. 

Data from China’s Real Estate Information Corporation flagged that sales from the 100 largest property developers fell -46.3% in January on-the-month and down -39.6% compared to last year. 

It looks like the all-important Chinese property market has yet to bottom. 

On the flip side, branches of China’s big four state banks in the Shandong province have lowered the minimum down payment ratios and mortgage rates for first-time home buyers. 

There is the expectation that the Chinese government will unleash more stimulus to buoy its real estate and infrastructure sectors.

Oil awaiting near-term catalysts

Oil prices eased on Friday but remained above US$90 a barrel as the risk for a Russian invasion of Ukraine remains elevated.

“For one day, energy traders decided to forget about how tight the oil market remains and took some risk off the table as Wall Street hit the sell button with every risky asset over rising geopolitical concerns,” said Oanda senior market analyst, Ed Moya. 

“Geopolitical tensions should be bullish drivers for crude prices and the risk of US$100 oil is still very high over the short-term if Russia invades Ukraine.”

Investors should also weigh the possibility of the looming US-Iran nuclear deal, which could bring online 1.3m barrels per day of oil back into export markets. 

Officials have signalled that a deal is near, which could be a potential near-term catalyst to take some heat out of oil. 

Gold: depends where the Russians are

Gold is now the talk of the town amid elevated geopolitical risks and out-of-control inflation. 

The sharp selloff across European and US equity markets on Thursday night sent the yellow metal to an 8-month high of US$1,916. 

It looks like the near-term performance of gold rests on the whereabouts of Russian troops.

Lithium doing lithium things

China's lithium carbonate prices climbed to all-time highs of 435,000 yuan (US$68,700) a tonne this week, up almost 50% year-to-date, according to MySteel.

More broadly speaking, meeting global lithium demand "will be a challenge", said executives from top global lithium producer Albemarle.

During Albemarle's earnings call on Thursday, analysts from BMO Capital Markets asked:

"It's great to have a 3 million-ton demand forecast for lithium for 2030. But let's be honest, we're never going to get there. There's no supply out there. Even if there's supply, we're not going to get there in eight years for 3 million tons."

Management replied with:

"... it's a slog, but it's doable. I think the industry has to be aggressive and has to execute well ... it's a combination of resource and conversion capacity. It is a stretch and it does require some new technology and operating in some places where historically, the lithium industry hasn't done that, but it's not impossible."

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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