Top commodities of 2017 revealed and predictions for 2018

We reveal this year’s best-performing metal, which has returned over 100 per cen

The best-performing commodity in 2017 has been a big surprise: it’s the silvery-white metal rhodium, which saw its dollar-denominated price soar by 101.6 per cent year-to-date, up to December 5.  

It was followed by palladium, which increased by 48.1 per cent. Lead took third position, rising in value by 25 per cent. Zinc, which gained 22.4 per cent, and Aluminum, up 19.5 per cent, complete the top five, according to figures supplied by Thomson Reuters.   

In comparison, the price of gold increased by only 9.2 per cent, and silver – last year’s best-performing metal - was only up a mere 0.1 per cent.

The bottom performers were natural gas, down 22.3 per cent, the ‘soft’ commodity sugar, which declined by 21.8 per cent; and uranium. The latter lost 14.9 per cent of its value in 2017.  

A number of factors influence the price of a commodity, including demand influenced by global growth and supply. The performance of the dollar also has a big bearing due to the fact that most raw materials are priced in the US currency. Moreover, the performance of some commodities can also be at the mercy of the weather and local politics.  

Commodity Price change, year-to-date
5/12/2017
Rhodium 101.6%
Palladium 48.1%
Lead 25.0%
Zinc 22.4%
Aluminium 19.5%
Copper 17.9%
Oil (Brent crude) 14.9%
Nickel 14.9%
Wheat 9.5%
Gold 9.2%
Oil (West Texas) 7.3%
Source:
Thomson Reuters Datastream, to 5 December 2017

2017 review

This year’s success of rhodium as well as palladium is partly down to optimism about global growth, argues Russ Mould, investment director at AJ Bell. ‘Both are used in catalytic converters for cars and auto demand has surprised on the upside in Europe in proved more resilient than many expected in the US. 

‘This also suggests investors are yet to really get worried about the (negative) implications of electric vehicles for demand, which may be a surprise to investors in Tesla and also those who have driven the price of EV-battery plays cobalt and lithium carbonate higher in 2017.’

When it comes to gold, he argues that it was helped by dollar weakness ‘although interest rate hikes from the Federal Reserve and Bank of England has dampened demand for the precious metal’. It is also possible that Bitcoin is sucking some cash away from gold too.  

Silver, which has more industrial uses compared to gold, failed to outperform gold this year. But Mould points out that it looks cheap on the gold/silver ratio, which stands near 80, when the historic average is something like 55. The higher the ratio the more expensive gold is compared to silver. 

-Best and worst performing stock market regions in 2017

On the whole, developed markets and emerging markets all expanding their economies for the first time in five or six years, helped to boost industrial metals prices in 2017. 

Henry Croft, research analyst at Accendo markets, notes the standout commodities of the year have yet again been those with high exposure to electric vehicles and smartphones. He adds: ‘This is something that looks set to continue into 2018, especially with an increasing number of pledges from carmakers to focus on the production of electric vehicles while shunning traditional fossil fuels.’

Moreover, he points out, China’s economic strength ‘will likely be a proxy for base metals, including copper and iron ore, as the number one consumer of commodities in the world continues to reform its economy in an attempt to avoid a hard landing’.

Commodity Price change, year-to-date
5/12/2017
Platinum 2.2%
Cotton 1.4%
Silver 0.1%
Corn -4.7%
Coffee -7.3%
Tin -7.7%
Cocoa -9.4%
Uranium -14.9%
Sugar -21.8%
Natural Gas -22.3%
Source:
Thomson Reuters Datastream, to 5 December 2017

2018 preview

Looking ahead to next year, Ben Yearsley, director at Shore Financial Planning, says: ‘The increasing popularity of electric cars will be one of the bigger influences on certain metal prices over the coming years and decades.’ 

He adds that while he loathes to predict what will happen in 2018, the long-term demand for certain commodities is ‘obvious’. 

Yearsley says: ‘The key one is copper. About twice as much copper is needed in electric cars as in petrol and diesel driven ones. Whilst the switch from petrol will take decades, the direction of travel is obvious. In addition, lithium and nickel will be two other beneficiaries of the same trend.’

Mould agrees that the electric vehicle story is likely to remain an influential narrative.   

He cautions, however, that in the short term, copper could be held back by ‘the return to action of the Escondida mine in Chile after industrial action. Although the limited investment in new mines seen over the past few years could offer some price support in a year or two’s time, providing global economic growth remains healthy and China in particular meets its GDP growth targets.’

Elsewhere, gold could fail to shine again in 2018. According to Croft the yellow metal will ‘continue to be subject to a continued hawkish turn from central banks across the world, potentially reducing the appeal of the world’s go-to safe have asset as interest rates rise and quantitative easing programmes in the US and Europe wind down.’

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