As the World Cup approaches half-time we take a look at whats been happening to commodity markets as the first half of 2014 comes to a close. The key source of disappointment (at least from the point of view of investors and producers) are commodities related to the production of steel with coking coal and iron ore down 22% and 28% respectively on high Chinese inventories, concerns over rising supply and concern over the crackdown on commodity financing by the authorities in China.
In contrast the star performers have been Nickel and Coffee, up by 36% and 60% since the start of the year on Indonesia’s decision to restrict exports and drought in the major coffee producer Brazil.
What is the outlook for the second half of 2014?
According to Goldman Sachs energy, agricultural and precious metal prices are all likely to weaken over the next six to twelve months as concern about Iraqi supplies wanes, rising agricultural inventories weigh on soft commodities and higher real interest rates reduce demand for precious metals.
But who are likely to be the star performers in the second half?
It could be a case of mean reversion with bulk commodities related to the steel industry bottoming out and rising during the rest of 2014. Iron ore prices may be supported as higher-cost Chinese mines close amid the recent slump in prices combined with increased optimism over Chinese demand. According to Citigroup the commodity may find a floor at $90 a ton, a level that may put more than a quarter of Chinese capacity out of business, spurring production cuts at mines outside the country and providing the basis for some rebound in prices.
