Iron ore was the unexpected star of the commodities complex in 2018 as it held its value while gold, copper, silver and especially oil lost ground, especially in the final weeks of the year.
Bonds though did better among financials while the Aussie dollar ended the year more than 6% lower against the greenback – a nice boost for booming export prices for several key commodities.
But the devaluation had no impact on inflation and the 38% slide in oil prices in the final three months of the year will be a powerful disinflationary pressure on the Consumer Price Index in the December and March quarters.
The Metal Bulletin’s Chinese iron ore index price ended 2018 on $US72.73 a tonne, down just 11 cents from the $US72.61 at the end of 2017. It peaked at more than $US82 a tonne in late January and fell to a low of around $US65 in April.
That was after a $US1.25 a tonne rise in the price on December 28, the final day of trading for 2018.
It was also well above prices forecast by analysts and even the Australian government’s official commodities forecaster which saw the price around $US52 a tonne, which was later upped to nearly $US63 a tonne.
Coking coal prices held up and ended the year at or just over $US200 a tonne, despite being widely forecast to fall to $US150 a tonne or less in the final half of the year.
For Australia, that helped offset the slide in oil of 19.5% for US crude and 13.5% for Brent (and 39% for US crude in the final quarter and 36% for Brent). US West Texas Intermediate ended 2018 8 cents, or 0.2%, higher at $US45.41 a barrel.
Brent, the global marker ended the year with a 94 cent or 1.77% rise to $US54.15 a barrel.
LNG prices weakened towards the end of 2018 but volumes shipped into Asian markets rose.
With the better than expected performance of iron ore and coking coal, the high LNG shipments will see Australia report a solid 2018 trade performance and lower current account deficit.
Comex gold rose 7.2% in the final three months (down 4% for the year, though).
Based on the most-active contract, gold futures rose 4.7% in December. Comex silver fell 7.6% over the year, but was up more than 7% in the final quarter of the year and ended the year at $US15.55 an ounce
Comex copper fell more than 6% in the three months to December and was down 13% for the year. Comex copper ended the year at $US2.63 a pound.
Wheat prices rose by just over 2% over 2018 – the drought in Australia helped support the price, as did the trade war between the US and China. Corn prices slipped 5%.
Soybean prices fell more than 9% over 2018, again thanks to the trade war which saw China cut its purchases of US beans to virtually nothing
The US Dollar Index was down 0.2% at 96.22 on December 31 and lost 1.1% in December. However, the rose 1.2% in the final quarter of the year and 4.5% in 2018. The euro fell 4.6% against the greenback.
The Australian dollar fell 10% against the value of the US dollar in 2018 – starting the year around 78.30 US cents, peaking in late January at nearly 91 US cents and closing New Year’s Eve at 70.43.
On a Trade Weighted Index, the Aussie fell 6.4% – from 64.9 at the end of 2017 to 60.9 at the end of 2018. That was not a large devaluation.
And besides cash, the other winner for 2018 was bonds – especially US bonds – the yield on the year 10-year security slipped under 2.7% on the final day of 2018 to close at 2.695%. That was the lowest yield since February
The 2-year note yield fell 3.6 basis points to 2.500%, while the 30-year bond yield was down 0.7 basis point to 3.037%.
Marketwatch.com said that on a yearly basis, the 10-year note yield was up nearly 30 basis points, while the 2-year note yield, (which is more sensitive to the Federal Reserve’s rate increases), rose by around 60 basis points.
The 10-year Australian government bond ended 2018 at 2.31%, down 31 points over the year. That was not forecast by analysts, many of whom stuck with forecasts for rising rates and only abandoned them as the economy slowed from July onwards.