SHANGHAI: Iron ore and steel ended 2019 as China’s best-performing commodities, while edible oils also won big, but an easing in Sino-US trade war tensions and the end to some one-off factors could reverse recent trends, say analysts.
In 2020, copper is likely to shine as the expected signing of a Phase 1 trade agreement boosts the manufacturing sector, while soybeans should benefit from a rebuilding of the country’s pig herd.
Iron ore hit a record high on the Dalian Commodity Exchange in July and ended the year up 140%. On the Shanghai Futures Exchange wire rod rose 64%, while rebar gained by a third.
Iron ore supply shortages and government spending on infrastructure to shore up a slowing economy amid the US trade war helped drive price gains, but the sector’s bull run is seen over.
“Supply disruptions have largely come to an end and Brazil and Australia are ramping up production,” said Judy Su, Citi commodities research senior associate. “We also anticipate property starts to decline into 2020 off a high base, reducing Chinese end-use steel demand prospects.”
Shanghai nickel rose 36% in 2019 due to Indonesia’s ore export ban from Jan 1, 2020, but other base metals were hit by the Sino-US trade row and sluggish global growth.
However, analysts expect Shanghai copper to gain in 2020 as a trade deal should boost China’s manufacturing sector by lowering tariffs.
Protein
Edible oils topped agricultural commodities in 2019 due to a slowdown in oilseed crushing following an outbreak of deadly African Swine Fever (ASF) that devastated China’s pig herd.
China typically imports soybeans to crush for meal to feed its livestock sector, leaving soyoil as a by-product. Less demand for feed cut soyoil output, pushing up prices on Dalian by nearly a fifth. Rival oils palm olein on Dalian and rapeseed oil on the Zhengzhou Commodity Exchange rose by around the same amount.
China is expected to import more soybeans in 2020 as it rebuilds its pig herd, which should increase soyoil supply and put pressure on edible oil prices.
However, it could prove a boon for soybeans.
“I’m bullish on soybeans because stocks are tight. Once ASF tides over I expect a rebound in crush margins that could drive buying higher,” said OCBC economist Howie Lee.
Cotton prices on Zhengzhou, which registered sharp losses in 2019 as the trade war dampened apparel demand, could also benefit from a trade war resolution.
“The lack of demand started from downstream and reverberated all the way upstream to cotton as a raw input,” said OCBC’s Lee.
“If demand returns there will be restocking of inventories, leading to higher domestic cotton prices.”
China solidified its position as the world’s top oil consumer in 2019, but its futures contract on the Shanghai International Energy Exchange has yet to become a price maker, trading in line with West Texas Intermediate to gain a third this year while Brent rose by a fifth.
Prices are expected to remain rangebound in 2020 as swelling supplies, particularly from the United States, offset cuts from the Organisation of the Petroleum Exporting Countries amid weakening worldwide demand, brokers and analysts said. – Dec 31, 2019, Reuters
**Graphic shows China iron ore, metals and steel year-to-date performance
