by Allan Seccombe, 03 October 2016, 07:30

THE outlook for a broad range of commodity prices has turned positive, with January this year marking the low point, and Chinese demand once again the dominant factor this year and in 2017.

In Macquarie’s Commodities Compendium, which showed upward revisions in a host of commodity price expectations for the next 12 months, the importance of China for global commodity demand and pricing was again underlined as the key driver for the sector after a difficult year in 2015 and at the start of this year.

"Perhaps the biggest single contributor to the stronger-than-expected commodity pricing environment this year has been the resurgence of Chinese demand as the Chinese government continues to prolong its more commodity-intensive phase of growth," Macquarie said.

"Metals and bulk commodity markets are in the midst of a mini-renaissance, with the vast majority of those we cover showing gains over the levels seen at the start of the year.

"We continue to increase our 12-month forward-demand outlook across industrial metals as the Chinese government prolongs its more commodity-intensive phase of growth, something we expect to persist through the next political transition in 2017.

"This creates a relatively short, demand-driven window of opportunity for commodity prices and commodity producers," it said.

SA is the largest producer of platinum, ferrochrome and manganese.

"Platinum should have a firmer 2017, but its best hope at present for decent price gains lies in a higher gold price.

"We are long-time palladium bulls, and remain positive about its prospects in the medium term, but now think it is due a correction as global car sales slow.

"So far in 2016 both the main PGMs [platinum group metals] have had a good run, with both firmly higher at mid-September compared to the start of the year. They have, however, fallen from their peaks seen in July.

"This is especially true for platinum, which for the first time in 2016 is faring worse than its sister metal."

In the chrome market, there is a real potential for a supply crunch of raw chrome ore as exports from SA, which represented 58% of the market last year, dropped "strongly", resulting in prices more than doubling to $209/tonne from about $100/tonne in March.

"Looking longer term, however, and without growth in South African supply, sourcing chrome units will be increasingly hard for the planned stainless steel industry growth in China and Indonesia," Macquarie said, pointing out cuts in South African ferrochrome output at the end of last year.

In manganese, producers made substantial supply cuts, which outside coal, were the "largest seen in any mined commodity" at the start of the year, cutting back 16% of output in the first six months because half of global production was generated at a loss.

But since prices have normalised, some companies have restarted their mines. In SA, transport of manganese ore from the Northern Cape to Port Elizabeth has been problematic, with derailments and rockfalls in July and August leaving stockpiles at the port at decade lows.

"Crude steel accounts for more than 85% of total manganese ore demand, and we forecast zero production growth to 2020," Macquarie said.

Iron ore demand should remain positive to mid-2017 based on Chinese demand to fuel its commodity-intensive economic growth, but new supply from the major producers will come on stream from then, pushing 70-million tonnes of higher cost ore out of the market and reducing the price for the steel ingredient. However, Macquarie does not expect prices to fall below $40 a tonne "even at the weakest point of the market in 2018".