Via the excellent Damien Boey at Credit Suisse:
Today, we have seen the Dalian iron ore futures price fall by almost 6%. Many have been expecting a pullback in prices, as supply side pressures ease. But is there more to the iron ore price story than just a supply side squeeze? After all, one could easily make the case that financial demand chasing late cycle inflation and uncertainty hedges such as gold and oil have been surprisingly strong this year.
To be sure, iron ore and base metals prices are far more cyclical than gold and oil prices. We would expect them to fall in the event that world and emerging market growth slow below a trend pace. And we have seen such a slowing recently. But if we told you last year that the commodities complex as a whole would “hold up” heading into an escalating trade war, we would not have been taken very seriously. We, and the street have been surprised by the resilience, and in some cases, strength of commodity prices all things considered. Something appears to be different this time around.