Will jitters be calmed or justified?
What does the year ahead hold for investors in commodities and resources stocks? Based on the past two months alone, it would be fair to expect the positive sentiment to continue.
That optimistic outlook, though, depends on your standpoint. Cadiz Director: Mining Peter Major, for instance, is nervous that the commodity bull market is reaching its end.
“Based on January, this is the best I’ve seen it in more than six years. Everything out here is just too good to be true,” he says. “We’re in a bull market for commodities. I don’t know how long it can last, but it’s now been more than two years almost nonstop. Companies that were going to go bust are now making real money.
“Will it last? No, definitely not. If these commodities run another month or two, I’m not even going to wait for May. I’m going to be out by April.”
This may seem an unnecessarily pessimistic view, especially following recent domestic events that hold out hope for a new dawn for SA’s mining sector. Major acknowledges that his pessimism is fuelled by his long career in the resources sector that has subjected him to numerous downturns.
Could 2018 be a year in which those jitters are calmed, or justified?
For Major, the warning signs lie in many metals trading way above their long-term averages. He singles out gold at double its average, platinum above its long-term average of $900 and coal and iron ore at a “scary” $94 and $77/tonne respectively
Offering a more moderated view on the prospects for markets this year, Hanré Rossouw of Investec Asset Management believes the current prices are supported by solid fundamentals.
“Last year’s dramatic outperformance was unexpected in a sense. But the key thing to watch this year is that we’re going into a synchronous global growth environment where we’re seeing both emerging and developed markets performing very strongly.”
This growth is expected to continue to drive demand for bulk materials, while the development of renewable energy and battery technologies are expected to spur growth in certain base metals.
“If you look at the demand drivers for base metals, it flows into copper, nickel, cobalt, zinc and lithium,” Rossouw says. “So we have the expectation for stronger global growth in 2018, but we’ve got a structural change in demand patterns on the base metal side.
“So I think, in general, we expect both base and bulk to do well, but base to outperform on the back of the structural demand changes.”
Throw into the mix the expected positive spin-offs for the local economy following political changes, and investors might well be in for another solid year.
As Major points out though, some of the optimism might be based on false hopes of dramatic changes in fortune. This hope, he suspects, is based on the view that things could not possibly get any worse.