Commodities and base metals advanced in 2019 on the back of interest rate cuts, supply constraints and an ongoing and unpredictable trade war. The start to 2020 has already seen extreme volatility in global markets and commodity prices.
Here are some predictions on how commodities could play out in 2020 and which ASX commodity stocks to watch this year.
Gold
For the last 3 years, the price of gold in Australian dollars has been creeping higher with gains of 4.6% and 8.5% in 2017 and 2018, respectively. Following trade tensions and the Federal Reserve cutting rates, gold had a breakout performance in 2019. Prior to the current crisis in the Middle East, analysts from Goldman Sachs and Citigroup estimated that bullion could soar to $US1,600 an ounce in 2020.
Newcrest Mining Limited (ASX: NCM) is the biggest gold stock on the ASX and one of the largest gold miners in the world. Newcrest performed strongly in 2019 on the back of gold surging, with the company's share price surging more than 80% at one point and finishing the year 41% higher. Other gold stocks that had solid gains in 2019 were Northern Star Resources Ltd (ASX: NST) and Evolution Mining Limited (ASX:EVN).
Iron Ore
Following the Vale tailing dam disaster last January, the iron ore spot price surged on constrained supply hitting 5-year highs. As a result, the share price of miners like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) soared to highs not seen since the GFC.
Analysts are mixed on their forecast for iron ore in 2020. Some projections estimate that steel demand and consumption in China is expected to fall as the country's economic growth slows. On the other hand, some analysts believe that the fundamentals are bullish for iron ore with supply expected to be constrained and growth in steel production to continue.
Copper
Following the ongoing trade war between the US and China, copper failed to maintain its rally in 2019 as manufacturers reduced inventories. As trade tensions ease with the proposed Phase 1 deal between the US and China, the outlook for copper may be brighter in 2020.
Many analysts are bullish on the copper price as they predict a rebound in global consumption. OZ Minerals Limited (ASX: OZL) is an established, low-cost copper producer on the ASX with a strong track record of production. The company could see the commencement of production from its Carrapateena mine in 2020, which could become its second major copper mine.
Foolish takeaway
The signing of a Phase 1 deal could see the tensions of the US–China trade war ease and potentially fuel a rally in commodities and base metals. With China accounting for around half of the world's consumption of metals, lower volatility and higher growth could see prices soar.
As we have seen, commodities are extremely volatile and sensitive to various factors. In my opinion, investors should compile a watchlist of stocks and consider a more medium to long-term view before making an investment decision.
