Financial Sense Blog | How Global Growth and Infrastructure Are Driving Commodities | Talkmarkets
Financial Services
Contributor's Links: Financial Sense

Cited by Barron's as one of the top financial websites to visit on the weekend, Financial Sense ( provides educational resources to the broad public audience through a daily podcast, editorials, current news and resource ... more

How Global Growth and Infrastructure Are Driving Commodities

Date: Saturday, February 24, 2018 8:40 PM EDT

The global economy is booming again after years in the doldrums, commodities are back in a big way, and metals prices are for the most part, way up.

In our last article showing how commodities are the place to be in 2018, we looked at five drivers: inflation, the low dollar, economic growth, the relative undervalue of commodities versus other sectors, and tightness of supply. This article expands on the economic growth argument and explains how commodity prices are being moved by a bevy of infrastructure projects around the world – all demanding “yuge”, as Donald Trump would say, amounts of metals.

But we'll also talk about how insecurity of supply has created a climate of uncertainty around commodities, fuelled by increasing trade tensions that could lead to tariffs and quotas, driving up the prices of some imported metals – further exacerbating supply-demand imbalances. The US is finally starting to get that it must reduce its reliance on foreign metal suppliers, which is great for domestic exploration and mining. But first, let's talk about global growth and what it means for commodities.

Three-Quarters of the World Is Growing

A year ago the global economy was stagnant following the recession of 2007-09, an overhang from the debt crisis in Europe, and slowing Chinese growth which had seen double-digit GDP numbers throughout the 2000s. According to the International Monetary Fund, 75% of the world is now enjoying a full recovery. The IMF predicts global growth to hit 3.7% this year, the fastest rate since 2010.

The World Bank says it’s the first year since the financial crisis that the global economy will operate at or near capacity. Emerging markets will see the lion’s share of growth, 4.5%, while advanced economies including the US, Japan, and the EU will grow at 2.2%. China is expected to grow between 6 and 7%. India, Ghana, Ethiopia and the Philippines will grow more than China, and eight of the 10 fastest-growing countries this year are likely to be in Africa, according to consulting firm PwC.

Goldman Sachs was quoted saying that “rising commodity prices will create a virtuous circle, improving the balance sheets of producers and lenders, and expanding credit in emerging markets that will, in turn, reinforce global economic growth.”

At the end of 2017 the Bloomberg Commodity Index, which measures returns on 22 raw materials, had the longest rally on record dating back 27 years to 1991.

bloomberg commodity index

The index was propelled by major yearly gains in copper, which had its best month in 30 years in December, oil, which moved above $60 a barrel for the first time in over two years, and gold, up for the second year in a row, by 12.5% in 2017. The roll continued into the New Year, with the index hitting a three-year high on Jan. 5 due to what the Financial Times described as the global economy’s best period of growth (measured in manufacturing activity) since the 2008 financial crisis.

At this year's World Economic Forum in Davos, Switzerland, the tone was vastly different from the past two years when everyone was talking about the bear market for commodities and the oil price crash.

“In panel discussions, interviews, and conversations on the evening cocktail circuit at the Steigenberger Grandhotel Belvedere, it was hard to find a bearish voice,” Bloomberg reported.

Key Infrastructure Metals All Rising

Building large, capital-intensive public and private infrastructure projects all require mined metals, in particular steel for bridges and buildings, aluminum, copper for wiring, and inputs used for making steel: coking coal, iron ore, manganese, and vanadium. Nickel is also used in large quantities for stainless steel.

The outlook in 2018 for these commodities is for the most part bullish. A report from the World Bank states that a correction in iron ore prices – due primarily to a supply glut – will be offset by jumps in other base metals including lead, nickel, and zinc.

china copper imports

A week ago mining stocks outperformed overall gains in US stock markets following the Feb. 5 correction, with investors piling into mining heavyweights like BHP, Vale, and Anglo American. The optimism was spurred by global demand for raw materials ahead of the annual Chinese New Year holiday. Copper rose above $3.24 a pound, nickel was at 14,100 a tonne, the highest since May 2015, and zinc hit a near-decade high of $3,567 a tonne. Even the iron ore price which many expect to pull back rose to a five-week best of $78.25 a tonne.

Speaking recently with Robert Friedland of Ivanhoe Mines, US Global Investors CEO Frank Holmes laid out the bullish case for copper, noting the ever-increasing demand for the red metal not only in industry but electrical vehicles which consume three to four times as much copper as gas-powered cars and trucks.

Friedland pointed to aluminum, cobalt, nickel, platinum, and scandium as among the biggest beneficiaries in the shift to EVs and clean energy. Holmes mentioned a few other key trends that are driving commodities higher, including the global purchasing managers index (PMI) being near a seven-year high, construction confidence in the Euro Zone, and construction spending in the US which hit a record $1.257 trillion in November.

As usual, a crucial factor is China, the world's largest consumer and producer of metals. On Feb. 8 China's copper concentrate imports increased 25% from the same period last year, continuing the trend from 2017 when copper imports hit a new high due partly due to Beijing banning of scrap metal and other recyclables.

china copper imports

The Chinese have also been importing record amounts of iron ore – 102.8 million tonnes in September 2017. China wants higher-grade ore because it boosts steel-making productivity and reduces emissions.

China's iron ore imports rose in January even as steel mills are idled as part of a government drive against pollution and stockpiles at ports reached new peaks above 150 million tonnes. The country consumes two-thirds of the world's iron ore shipments and produces as much steel as the rest of the world combined.

And for all the talk of the coal industry is on its knees, prices of the fossil fuel are up and so are US coal exports. Platts reported that in 2017, US coal exports rose by 60% between 2016 and 2017, to 88 million tonnes. Thermal coal prices in 2017 were the highest in Northern Europe since 2012 - $84.77 tonnes, while met-coal prices used in steelmaking averaged $173.95/tonne, up 39% from 2016.

1 2 3 4
View single page >> |
Disclaimer: This and other personal blog posts are not reviewed, monitored or endorsed by TalkMarkets. The content is solely the view of the author and TalkMarkets is not responsible for the content of this post in any way. Our curated content which is handpicked by our editorial team may be viewed here.


Leave a comment to automatically be entered into our contest to win a free Echo Show.