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Australian miners and energy producers have been carried along in the slipstream of surging commodity prices across a range of markets.
Key points:
- Base metals, iron ore and oil prices have been surging in recent weeks due to varied global dynamics
- The ASX mining index is up 10 per cent since the start of the month
- Aluminium is the biggest mover, up 23 per cent this month, after the US imposed sanctions on a big Russian producer and its oligarch owner
Base metals have seen an extraordinary spurt after the US imposed sanctions against Russian companies, prompting fears of a supply squeeze.
Aluminium rose 5.5 per cent on the London Metals Exchange (LME) overnight and are now up more than 23 per cent over the month.
That sentiment has flowed through to nickel, which jumped 7.4 per cent last night, while zinc (+3.3 per cent) and copper (+2.2 per cent) were also bid up.
Oil has run up 10 per cent in the past fortnight, with the global benchmark Brent crude futures now above $US73 a barrel, the highest price since 2014 when the market was in freefall from above $US100 a barrel.
While not as explosive, iron ore is back in demand in China with futures trading on the Dalian market pushing up prices by more than 4 per cent in afternoon trade.
The rise in physical prices translated into solid buying, with the ASX300 metals index up 10 per cent since the start of the month.
Alumina — which operates as a joint venture partner with US aluminium giant Alcoa — has been the biggest beneficiary, rising 7.1 per cent, and is trading its the highest level in a decade.
Rio Tinto (+3.1 per cent), BHP (+2.8 per cent) and South32 (+4.6 per cent) all enjoyed solid gains.
Russian sanctions
The base metal rally has largely been driven by sanctions imposed by the US Treasury Department on the giant Russian producer RUSAL which came into force on April 6.
RUSAL accounts for about 6 per cent of global aluminium supplies and 9 per cent of imports into the US.
It was suspended from the LME's approved list of brands earlier this week.
Interruptions to production at a big Brazilian smelter has also heightened fears of shortages for industrial customers.
CBA commodities analyst Vivek Dhar said those worries were spreading to nickel given another big Russian producer Norilsk Nickel supplies 9 per cent of the global market and has close ties to RUSAL.
"Unlike aluminium, which saw explicit sanctions against RUSAL, there have been no explicit sanctions against nickel producers," Mr Dhar said.
"However, markets are still concerned Norilsk Nickel, which is linked with both RUSAL and sanctioned oligarch Oleg Deripaska, could eventually face sanctions," he said.
Iron ore bounces as China eases credit restrictions
The run in commodity prices has also been supported by the Chinese central bank's decision to ease the tight rein it has been keeping on commercial banks' lending operations.
The People's Bank of China move to cut the banks' capital reserve ratios was seen by futures traders as a nod to steel makers and property developers to ramp up activity.
Slightly softer-than-expected quarterly production figures from both BHP and Rio Tinto did their bit as well.
Iron ore futures on the Dalian exchange jumped 4.3 per cent today to 465 yuan ($US74) a tonne, the highest level in almost three weeks.
Coking coal and steel futures saw more muted trading after a stronger session yesterday. Spot iron ore prices on Wednesday were up 2 per cent to $65.88 a tonne.
"What our central bank did will give some support to real estate projects, so there should be support for steel demand in the short-to-medium term," a Shanghai-based iron ore trader told Reuters.
But he said the price increase in iron ore futures, which added to Wednesday's 2.1-per cent spike, may be temporary.
"This could be short-lived because we may also be seeing some speculative money," he said.
Oil nears a four-year high
The forces driving oil higher are entirely different.
Tensions in the Middle East, the likely return of US sanctions against Iran, ongoing problems in Venezuela, tightening inventories in the US and talk Saudi Arabia wants to drive prices above $US80 a barrel are, if not a storm, then certainly a big tailwind behind the price.
News reports filtering out this week suggest Saudi Arabia wants to see oil in a band between $US80 and $US100 a barrel ahead of its partial privatisation of state oil company Aramco.
Woodside rose 1.1 per cent to $31.30 and is up more than 8 per cent for the month while Oil Search and Santos rose 0.9 per cent and 0.3 per cent respectively.
Topics: iron-ore, copper, bauxite, mining-industry, oil-and-gas, australia