By Tom Winnifrith | Tuesday 2 May 2017
This is interesting research from Palisade and the answers may suprise you. And should inform your investment decisions. Before scrolling down, take a guess at the three best and worst performing commodities of 2016 and 2017! Ok now go…
2016 was a good year for commodities. The Bloomberg Commodity Index, which is a diversified benchmark for commodity investments, gained 10%.
Uranium ended the year down 41%! The nuclear sector spent much of 2016 continuing its six year decline that began with the Fukushima Daiichi disaster. But even there, a bright spot emerged beginning in November 2016, when uranium prices embarked on an epic rally, gaining 50% in just 3 months.
2016 had some spectacular performers. Lithium gained 71% on the tails of Tesla’s mega success, and its future need for lithium ion batteries. There is no arguing that lithium is a key material in the energy revolution.
Vanadium, primarily used as a steel additive, benefited from Chinese subsidies enacted to boost a slumping economy. Other factors? The commodity witnessed a resurgence due to its limited supply, and its additional applications in vanadium redox batteries and grid energy storage.
Iron ore takes the crown. Chinese demand for iron was unusually strong, partially driven by tax incentives and subsidies. China accounts for 65% of the world’s iron ore demand; this accompanied with a decrease in global production due to low prices resulted in iron ore gaining 90% for the year!
So what is 2017 looking like?
What goes up must come down, or so is the case with iron ore. 2016’s best performing commodity is shaping up to be 2017’s worst. Over supply in China has led to a glut that may take time to chew through.
Nickel prices surged in the beginning of the year with the rest several other industrial commodities, but has since fallen. The commodity is now down 7% for the year. Once again, China is part to blame. The country is the world’s largest consumer of the nickel, which is used as an alloying material in stainless steel. When steel subsidies decline, so too does the demand for nickel.
Tin is currently at a 6% loss. The general slowdown in global growth (yes, mainly China), has affected all base metals, including tin. The world’s largest tin producer, Indonesia, is in the midst of environmental reform and has been cracking down on illegal smuggling. Thus, exports have declined, giving a little bit of support to prices. A reversal to the upside could be coming.
The worst performing commodity of 2016, is one of the best of 2017. Uranium is up 12% for the year, peaking at 31% in February. Uranium supply is finally coming into question, especially with Kazakhstan announcing that it has cut production by 10%. We are adamant that uranium is on the doorsteps of a full-fledged bull market, and is the ultimate contrarian bet.
Palladium is another beneficiary of the clean energy revolution, with prices increasing 22% due to an increase in fabrication demand; the main driver being gasoline-powered auto markets of the United States and China. Furthermore, it appears the Chinese government will be implementing stricter emission standards, which in turn will increase the usage of palladium in auto catalysts.
Cobalt, yes cobalt, is now the premier battery metal, riding the clean energy revolution and already gaining 70% for the year! Unlike lithium and manganese, cobalt has immediate supply qualms in that the lion’s share of its production is from the highly unstable DRC. Furthermore, 98% of the world’s cobalt production comes as a by-product of copper and nickel. We maintain cobalt will be one of the performing commodities over the next five years.
So how about gold?
Gold almost made the list of top performers in 2017, showing a 10% gain for the year. It appears the US economy remains strong, but investors bought up the yellow metal because of higher than average geopolitical uncertainty. This includes increased tensions in Syria, Trump’s aggressive stance towards North Korea, and more recently, the French elections. Nonetheless, the Fed has been strong in its hawkish stance, and will stand by its inflationary fiscal stimulus. Will 2017 be the year when the dam finally breaks? We remain firm in our resolve, continuing to accumulate the best of best gold stocks.
Remember, huge moves can be made emerging from a bear market as oversold conditions make way for major supply crunches. Cobalt is a prime example of what can happen to a commodity bouncing off a bottom. Don’t be surprised to see some wild gains in prices in the months and years ahead!
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