FxWirePro: Surge in commodity prices and Chinese imports lures AUD bidders’ interests again but Aussie logistical hurdles to hinder exports

The commodity prices have rallied strongly into the year end. Metallurgical (met or coking) coal prices have soared 230% in the last six months to be up four-fold for the year. Iron ore has had a smaller but still significant 48% rally in six months and has more than doubled in the year. This rally was not limited to just the bulk commodities with oil prices also up almost 50%yr, copper gaining over 20%yr, nickel and lead lifting around 30%yr and zinc rocketing almost 80%yr.

The relative under performers have been aluminium (+14%yr) and gold (+8%yr). While each commodity does have some unique factors, two broad themes came together to provide a solid backdrop for this broad-based recovery.

Against that coal and iron ore are likely to sustain a good portion of their dramatic rises, and economic data should improve in Q4 and Q1, but these forces are subservient to the US dollar’s trend. There’s also the issue of Australia’s AAA rating, seen at risk. 

Chinese imports of coal almost doubled in 2016 after contracting through 2014 and 2015. However, the seaborne market remains very tight particularly for high quality met coal with Australian exports constrained by a combination of logistical and labour issues and with many miners still focusing on costs. Our own industry liaison suggests current high prices are being viewed as a short-term windfall gain rather than a new, more robust trend and as such, most producers have not altered their investment plans and are not seeking to meaningfully change production targets.

Hence, you could observe that the intermediary bulls of GBPAUD struggle to break and sustain above stiff resistance of 1.7080 levels (i.e.7EMA), currently trading at 1.6934 levels signaling more bearish pressures.