Financial Mail

Energy shows its mettle

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Gold Not so sensitive to growth Several articles in last refer.

Nazmeera Moola ( Economic Viewpoint, January 15-21) is wrong to suggest metal prices are historical­ly more sensitive to growth prospects than oil prices. Gold is essentiall­y an interest rate and inflation trade, while platinum is related but with its own dynamics. Copper is linked to growth but mainly in Asia.

Copper is also sensitive to warehouse stocks and forward curve storage plays. Steel is mainly an Asian growth story and iron ore is a good proxy for that, with the “red hot spread” remaining relatively constant through iron ore’s spectacula­r collapse last year.

That leaves energy prices, of which coal, natgas and crude oil remain probably the best indicators of global growth. After all, everyone needs baseload energy and petrol, but not everyone needs gold, copper or steel. All energies are in the doldrums, indicating that globally coal prices may finally have had their day. If ever Eskom might consider linking its coal purchases to a heat adjusted inland export parity price, then now is surely opportune.

Commoditie­s typically trade with historic volatility around 30%. Implied volume is currently spiking upwards of 50%. This should warn everyone that crude oil prices are likely to recover just as quickly as they fell, probably to around US$70, being the marginal cost of shale gas condensate­s in the US.

SA’s current account is sensitive to the crude, gold, coal and platinum ratio. Also bear in mind that crude has fallen more than refined products globally, so our refineries are also doing better. Though some fuel levy increase is probably palatable, we should be careful about burdening motorists as the price recovers. The rand

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