2019 has been a rollercoaster ride of a year for commodities but some of this year’s forecasts have been as wrong as the gains for certain metals, and stocks, have been heady.
Coal, for example, was tipped as this year’s hot product. Instead, precious metals — in particular, palladium and rhodium — stole the show.
It’s a cautionary tale for any forecasters, though the FM has, nonetheless, asked analysts to take a bash for 2020.
"Two years ago no-one wanted the platinum shares," says Wayne McCurrie of FNB Wealth & Investments.
That’s graphically illustrated by Impala Platinum’s gains this year. Its shares had sunk to less than R16 by August 2018 — their lowest in the past two decades, before embarking on a spectacular rebound, which culminated in last week’s peak of R127.
The gain: a staggering 698%, though year to date it’s a somewhat more sober 245%.
Neal Froneman’s huge bet on palladium has proved prescient for Sibanye-Stillwater, whose share has risen around 200% this year.
The company’s market cap of almost R82bn is now substantially greater than that of Gold Fields, from which it was spun out in 2013, holding only Gold Fields’ flagging old Free State gold mines.
Platinum group metals (PGM) miners have been unquestionably saved by the palladium price, which reached record highs of more than $1,900 an ounce in 2019, while platinum is yet to recover past $950 an ounce.
With palladium in short supply, the rally is expected to continue, though cheap and plentiful platinum is thought to be due for a comeback soon.
And even if you failed to ride the palladium wave, a punt on mining stocks in general would have paid off handsomely: the resources index has climbed 21% year to date against the all share, which has risen just 7%.
Iron ore, meanwhile, a key component in steelmaking, was a standout for its unrelenting volatility.
Prices shot up at the start of the year when a deadly tailings dam incident in Brazil threatened to disrupt global supply.
They moved from $76 a ton in January to over $120 by July, which drove prices in stocks exposed to the metal.
Kumba Iron Ore’s share price, for example, has climbed 49% year to date, though back in July its gains were a whopping 92%.
Iron ore has since steadied to trade at around $90 a ton.
Investment bank ING maintains a "fairly bearish" outlook for the metal next year, given a resumption in supply from Brazil and global economic uncertainty.
In a note it says: "We currently forecast that iron ore prices will average $81 a ton over 2020."
Apart from iron ore, the major bulk commodities have had a generally lacklustre year.
Coal, for example, came off highs of around $100 a ton in early 2019 — though that price was described by mining analyst Peter Major as "Looney Tunes".
By early November, export coal prices were as much as 40% down, trading between $60 and $70 a ton as major importers experienced a mild winter and a glut of cheap gas in Europe throttles coal demand.
The share price of Glencore, the world’s largest thermal coal exporter, has dropped almost 17% year to date, though this year’s market losses are arguably due to investigations by the department of justice in the US and the UK’s serious fraud office for bribery.
As far as oil is concerned, it’s been a flat year and the US Energy Information Administration says Brent crude spot prices, which averaged $64 a barrel in 2019, are expected to dip to an average of $60 a barrel next year.
They cite rising global inventories, which are expected to overpower any Opec production cuts.
Yet the oil and gas sector is tipped as one to watch in 2020: billionaire US investors like Berkshire Hathaway’s Warren Buffett have taken some lavish bets that the energy industry — the worst performer on the S&P 500 this year — is set for a mighty rebound.
Another metal to keep an eye on is copper.
SP Angel analyst John Meyer says copper has had a series of supply-side disruptions, including heavy rains in northern Chile and sustained civil unrest at various mines.
This would usually help prices, but uncertainty created by the US-China trade tariff battle has hurt the metal price, and in August pushed it to its lowest level in two years.
Meyer argues that a trade war resolution, if paired with further production cuts due to protests in Chile, could be the catalyst to move copper prices significantly higher in 2020.
Ongoing trade confusion has also knocked aluminium prices.
For a company like South32, which feels the pain of a lower aluminium price as well as lower coal prices (and is one of few major diversified miners without exposure to iron ore) it’s been a tough year.
As of early December, the share had lost almost 20% in value.
But Peter O’Connor, analyst at Shaw & Partners, believes the share slide has run its course and South32 is due to start catching up with its peers, and possibly even outperform them.
Gold has been a happy beneficiary of the uncertainty that affected most bulk commodities and base metals.
The safe-haven metal rallied from $1,280 an ounce in January to beyond $1,550 an ounce in September before softening to trade at $1,460 this week.
Gold stocks have been clear beneficiaries: AngloGold Ashanti has posted a 52% gain this year, while Harmony Gold and Gold Fields’ share prices have surged 77% and 72% respectively.
ING argues that gold will be subject to the same themes as 2019: trade uncertainty and global growth, and expects prices to average $1,475 an ounce next year.
Major’s crystal ball
Predictions about how resources will perform in any given year are more likely to be wrong than right, says Peter Major, director of mining at Mergence Corporate Solutions.
Still, the FM has done its bit to coax out a forecast.
Major says oil has been a "non-event" all year, and he expects that to continue in 2020.
Longer term, "I think gravity and history are dragging the price closer to $50", he says.
Major is bearish on iron ore too: he expects prices to drift to below $70.
But he argues that base metals have pulled back from their long-term averages and says: "I don’t think any of them can fall much more."
Gold, he thinks, has "done its thing" and is unlikely to surprise in 2020.
As for 2019’s sleeper story: the rise and rise of the palladium price, Major cautions that a fall of 20%-30% is probable, with no subsequent uptick in platinum prices.
He’s bullish on uranium as demand for nuclear power increases and governments seek out zero-carbon power generation.
And the wildcard?
Industrial mineral fluorspar, used in various ceramic, chemical and metallurgical processes.
Price growth was phenomenal in 2018 and 2019, and it now trades at between $400 and $500 a ton, compared with $200 a ton in 2017.
S&P Global Market Intelligence predicts "astronomical growth" in the market into 2023.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.