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Investment views

Natural Resources Indicator

6 November 2019

Market review

Commodity prices declined by just under 2% in the third quarter, as measured by the Bloomberg Commodity Index, with gains for precious and industrial metals more than offset by declines for energy and agriculture.

Brent crude prices fell by almost 9%, the worst quarter for oil this year. It was a volatile three months for the commodity, with markets reacting to Middle East tensions, shifting expectations for the global economy and further twists in the US-China trade dispute. Yet despite drone attacks on a key Saudi oil facility, which saw OPEC oil output fall to an eight-year low in September, expectations for weaker demand-growth as the global economy slows dominated price moves over the quarter.

Precious metals gave up some earlier gains towards quarter end, as hopes temporarily rose that the global economy might be on a stronger footing than had been feared. Even so, the gold price still climbed about 4.5% in Q3 overall, with silver also moving higher. Among industrial metals, nickel was the standout gainer, rising over 34% as Indonesia moved to ban nickel ore exports in order to retain higher-value production processes within its borders. Copper and zinc both declined on growth concerns, while iron ore fell by almost 18%, following a very strong run in the previous quarter, after fears of a supply squeeze subsided.

In agriculture, corn prices fluctuated as estimations of the impact on yields of US flooding earlier this year shifted. Corn fell early in the quarter after it emerged that farmers had managed to get more of the crop in the ground than first thought. Despite a recovery in September, the grain ended the quarter down almost 8%. Prices for wheat, cotton, sugar, beef and pork also declined. The big loser in Q3 was salmon, with prices of the fish falling by over 30% on abundant supply.

At a glance - our asset class views

COMMODITY EQUITY
-- - o + ++ -- - o + ++
  Energy  
  Crude Oil  
  Natural gas  
  Refiners  
n/a Oil services  

 

COMMODITY EQUITY
-- - o + ++ -- - o + ++
  Precious metals  
  Gold  
  Silver  
  Platinum  
  Palladium  

 

COMMODITY EQUITY
-- - o + ++ -- - o + ++
  Base metals & bulks
  Copper  
  Aluminium  
  Zinc  
  Nickel  
  Iron ore  
  Coking coal  
  Thermal coal  
  Steel  

 

COMMODITY EQUITY
-- - o + ++ -- - o + ++
  Agriculture & softs  
  Corn  
  Soybean  
  Potash  
  Nitrogen  
  Pork  
  Salmon  
  Lumber  
  Pulp  

 

Key themes

  • There are clear indications the world is well supplied with oil, or at least perceived to be.
  • We believe the downside for gold prices is limited as global growth continues to slow.
  • Demand and supply uncertainty is making the nickel market volatile.
  • After a sharp fall, salmon prices should start to recover as excess supply corrects.
  • Government action on climate change is bolstering the structural growth tailwind for decarbonisation stocks.

Views of Investec Asset Management’s Natural Resources team and reflect preferences within respective asset class. As at 30.09.19.

Investments in commodities can be volatile and subject to high risk of loss.

Important information

This material is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual results may differ materially from those stated herein. All rights reserved. Issued by Investec Asset Management, issued November 2019.

The content of this page is intended for investment professionals only and should not be relied upon by anyone else

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