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Commodity Markets Navigating Uncertainty Amidst Global Changes
Commodity markets are currently experiencing significant volatility as China’s economic slowdown and mounting trade tensions reshape global demand dynamics, as highlighted in a recent quarterly update from Citi. This report includes revised price forecasts for crucial commodities and adjusted targets for related mining companies.
Iron Ore Faces Challenges
Iron ore is anticipated to fluctuate within a range of US$90 to US$100 per ton, with a slight downturn expected, leading analysts to adjust their near-term target from US$100 to US$90. This pessimism is largely attributed to China’s struggling property sector and declining manufacturing activity amid heightened trade difficulties. During the summer months, Chinese steel mills are likely to reduce output due to maintenance work, further dampening iron ore demand.
Despite this, robust Chinese steel exports and cost support may prevent drastic price drops. The market for iron ore is predicted to remain balanced in 2025, with new supplies from the Simandou project unlikely to disrupt existing balances significantly. China’s crude steel production is expected to decrease by 1.5% year-on-year, while global output should hold steady. However, possible supply-side reforms in China could heighten demand pressures and increase iron ore surpluses.
Coking Coal Resilience
In a surprising turn, premium hard coking coal from Australia has demonstrated unexpected strength, with analysts increasing their near-term price target from US$160 to US$170 per ton. Supply disruptions have tightened the availability of Australian shipments. Indian steel mills have restocked significantly, offering short-term support to prices. However, as both China and India move into their off-season, demand is projected to slow down. The outlook for the fourth quarter appears more positive, with potential price increases as steel mills prepare for winter restocking.
Copper Confronts Trade Policy Uncertainty
Copper’s outlook presents a more intricate scenario. While analysts retain a medium-term bullish view, immediate headwinds could see prices dip to US$8,800 per ton (US$3.99/lb) in the upcoming third quarter if expected Section 232 US import tariffs are imposed. In the interim, heightened US copper imports are likely to buoy prices around US$10,000 (US$4.53/lb) by limiting supply and intensifying physical tightness in non-US markets. Any reverse tariff action might provide a strategic buying window for medium-term investors.
Diverse Challenges for Aluminium and Lithium
Aluminium prices are projected to hover around US$2,450 per ton in the near term due to a generally balanced market. Although seasonal demand weakness in China presents immediate risks, strong decarbonisation-driven demand supports the longer-term outlook.
Conversely, lithium is grappling with more daunting challenges. Analysts are keeping their price target for lithium salts at US$7,000 per ton while reducing spodumene targets from US$700 to US$600 per ton. An oversupply and inventory accumulation in China continue to press prices, leading to significant surpluses over recent years.
Adjusted Gold Targets
Gold prices have seen a downward revision in targets, with near-term expectations lowered to US$3,300 per ounce from US$3,500 and long-term projections revised from US$3,000 to US$2,800. The precious metal is expected to stabilise between US$3,100 and US$3,500 as the market digests changes in US policy and geopolitical risks. Analysts have posited that the recent highs around US$3,500, observed in late April, may signify a peak, with the gold market deficit appearing to be at its zenith and household holdings reaching unprecedented levels.
Navigating a Complex Investment Landscape
In conclusion, the commodity complex is poised for a challenging period ahead, as China’s economic transition, uncertainties surrounding US trade policy, and shifting global demand patterns create a complex investment environment requiring meticulous navigation. As investors brace for fluctuations, understanding the underlying drivers of each commodity will be crucial for informed decision-making in this turbulent landscape.
