One of the more surprising developments in 2017, to many investors, was the strength in commodities. As the Chinese economy continued to transition away from infrastructure and construction investment to services as its driving force, and as Beijing cracked down on pollution and the country’s most inefficient steel mills and industrial plants, it was thought that commodity prices would come under pressure.
The synchronised global economic growth and strong purchasing managers’ index (PMI) figures that we now see, were not envisaged a year ago to the extent that eventuated. Nor were the tightening supply-demand balances in most of the metals, with many in deficit, or facing that situation looming.
In particular, the prices of iron ore, coking (steelmaking) coal, copper and oil finished 2017 at much higher prices than expected. The bottom line for Australia is that continuing Chinese demand seems set to push up the prices of our four biggest exports – iron ore, coking (steelmaking) coal, thermal (electricity) coal and LNG.