Please refer to the Important Notice at the end of this article1
Six months ago, at the time of our half year results for the 2023 financial year, we observed that while the range of uncertainty around the growth and general inflation outlook was narrower than it had been in some time, commodity price dynamics were expected to be highly complex once again. We argued that price volatility would be generated within the year by an arm wrestle between three major forces that were summarised by the following “R”–words: reality (of slower growth in the developed world), relief (that the inflationary wave appeared to have crested); and re–opening (the China dynamic).
An ebb and flow between these forces was expected to continue throughout the half year. Our basic framing against this multi–faceted backdrop was that we expected that price formation would, on average, improve across calendar 2023 versus the second half of calendar 2022, when pessimism on Chinese growth prospects was at its height, the US Fed was at its most hawkish and the energy price shock was at its peak. But at the same time, we gauged that the constellation of prices observed at the time of our half–year results for the 2023 financial year over–stated how tight physical commodity markets were likely to be over the full year, especially in non–ferrous metals where roughly half of global demand emanated from outside China. We also argued that should there be phases within the year where prices do trade to the downside, these dips were more likely to be shallow rather than deep, noting that industry–wide cost inflation has raised real–time price support well above pre–pandemic levels in many of the commodities in which we operate, and value–chain inventories in general were low across multiple industries.
That framework has held up well. Reality has never been far away, with the materials–intensive segments of the developed world’s economies clearly slowing down, and financial fragility and policy uncertainty periodically rearing their heads. The global headline inflationary pulse has also clearly peaked, and while that is a relief in and of itself, interest rate relief in the absolute sense is still likely some way off. China started calendar 2023 well with a strong re–opening in the March quarter, but the June quarter was underwhelming, with weakness in housing weighing on both local government finances and private sector confidence levels, thereby offsetting the generally solid outcomes seen elsewhere in the system. And commodity prices were certainly volatile, with the trend of divergence between commodity clusters continuing, but dips have been relatively shallow, reflecting elevated cost support, a moderate operational performance in general, and the aforementioned low stocks.
On the specific commodity clusters, energy, food, and fertiliser markets spent most of the last six months unwinding the stunning peaks that emerged in calendar 2022. The steel–making value chain saw gains in the March quarter, but these have since dissipated, with prices experiencing two–way oscillation within a relatively narrow range in the June quarter and the month of July. Non–ferrous metals have been influenced by swings in risk appetite in the West (bank failures in the US and Europe, the debt ceiling standoff, the inflation–interest rate nexus), industry specific factors such as low exchange stocks, and the inconstant fundamental demand and policy signals coming out of China.
see & read more on
https://www.bhp.com/news/prospects/2023/08/bhps-economic-and-commodity-outlook |
