The rebound will be good news for large producers including BHP Billiton, Rio Tinto and Brazil’s Vale, whose profitability relies on the iron ore price.
Iron ore, which in December fell as low as $37, was at $53.20 a tonne. Gold was also a leading performer, set to close the quarter up almost 16 per cent at $1.233 a troy ounce, its largest rise since the three months to September in 1986.
The yellow metal rallied on rising concerns over China and global economic growth prospects at the start of the year and continued to see support from worries about negative interest rate policies by central banks in Europe and Japan, and the prospect of fewer interest rate hikes in the US.
“The pull back in expectations in the likely number of rate hikes this year has led to a recalibration of gold prices higher, as bullion had been sold off in 2015 on expectations of more like four Fed rate hikes in 2016,” said James Steel, precious metal analyst at HSBC.
However, gold consultancy Thomson Reuters GFMS warned that demand for physical gold in Asia was weak. “The recent price rally will prove to be shortlived and once current market turbulence starts to ease we are likely to see the price retreat again,” it said.
Commodity investors and traders continued to focus on crude oil during the first quarter, as prices rebounded after Saudi Arabia and Russia called for producers to freeze output at January levels.
After falling to a 12-year low of $27.10 a barrel in January, Brent, the international benchmark, recovered the $40 level in March, and was set to close the quarter just above $39, up 6 per cent on the quarter. West Texas Intermediate, the US marker, also looked to finish the quarter up 3 per cent, around $38 a barrel.
For the overall commodity sector, the Bloomberg Commodity index — which was dragged down by crude oil’s continued spiral downward in late January to its lowest level since at least 1991 — is poised to finish the quarter slightly higher, up about 0.6 per cent.
The rally in oil and gold lifted investor confidence. Net flows into commodity indices, exchange traded funds and structured products totalled over $20bn in January and February, the strongest start to a year since 2011, according to figures compiled by Barclays.
“It is a long time since commodities have been as popular with investors as they have so far this year,” said Kevin Norrish, an analyst at Barclays.
However, he added that the current buying was more short-term and opportunistic compared with the past. “The kind of commodity investment that is taking place currently is not the long-term buy-and-hold strategy for portfolio diversification and inflation protection that underpinned the huge inflows over the previous decade,” he said.
Despite oil’s rebound from the year’s lows, the average price for the quarter for WTI was $33.61, the lowest since the fourth quarter of 2003 and Brent, at $35.17 a barrel, was the lowest since the first quarter of 2004.
For oil companies, “the further fall in average prices means that first-quarter results are likely to show even more financial stress and greater minimisation of capex in a drive to conserve cash”, said analysts at Standard Chartered.
Source:Ft.com