Bull Year to October Following a roller-coaster start to the year, when commodities hit multi-year lows, 2016 has been a banner year for mined commodities and mining investments. The crucial seaborne commodity demand from China has remained robust despite its moderating growth. Mining companies previously saddled with burdensome debt following their super-cycle extravagances have now restructured and sold assets, giving them better control of their balance sheets. More importantly, rising mined commodity prices have buoyed investor sentiment, in turn dramatically boosting mining company share prices. The graph below shows 18 commodities, 10 of whose prices have increased by more than 20%, confirming a bull market through October. Only two, uranium (-34%) and potash, (-27%), show declines.

Base and light metals have also done well. The exceptions are copper, with a meager 2% gain year-to-date, and uranium, with a -34% pullback to more than decade lows at a recent spot price close to US$22/lb. The star performer is zinc, up 49% year-to-date, followed by tin, up 40%. Bulk commodities are a mixed bag, with iron ore consistently above US$50/t, up 26% year-to- date, and Australian coking coal up an amazing 167%; Australian seaborne thermal coal is also up 65%, both driven by production slowdowns in China. Potash, however, has declined steadily to around US$200/t, a 27% decline on oversupply concerns. The Crystal Ball Macquarie Research views nickel and cobalt as good short-term bets, but in the longer term they favour gold, silver, zinc and nickel. The firm is less optimistic about potash, aluminum and iron ore. Most major mining companies are also bullish on copper, but believe it may take as much as two years to recover fully from the current over-supply. Barclay’s Research thinks there will be fourth-quarter weakness, but sees commodities regaining strength beyond that. FT.com also reports that improving economic conditions in Asian markets and a likely weakening US dollar support the Barclay’s view. China is itself a major miner. A BMI Research report says the country's domestic mining output growth will shrink to below levels of the last decade as Beijing seeks to consolidate the mining industry and curb new capacity in order to sharpen environmental policies. Recent domestic curbs to moderate metallurgical and thermal coal production have escalated Australian coal prices, at least for the short term.

(Written by Peter R. Jones, Executive Vice President, Century Global Commodities Corporation )