Speaking at the RIU Explorers Conference in Fremantle, ANZ’s senior commodity strategist Daniel Hynes pointed out that rate rises typically occur when economic growth is strong, which tend to be good periods for commodity producers.
And while the anticipated rate rises in the US were also a function of authorities wanting a more sustainable monetary environment – after a prolonged period of low interest rates – economic growth in Europe and Japan would mitigate the impact on prices.
He also suggested US and China authorities would be mindful of not stalling, or threatening to stall, growth in their respective countries.
The bottom line according to Hynes is increased rates are not anticipated to represent a “significant headwind” for commodities.
For the record, Hynes and ANZ are forecasting interest rate rises totaling 75 basis points this year in the US, and 35 basis points in China.
Meanwhile Hynes is generally positive on commodity markets this year but it believes the upside is limited versus the last big bull market.
He doesn’t, for example, see copper reaching US$8000 per tonne, nor oil at $100 per barrel.
And he doesn’t see any real upside from here in the ‘bulks’, coal and iron ore, though demand for better/higher grade ore would continue given the success China has had on the environmental front over the past 18 months.
Hynes, who said he recently saw the sky and mountains for the first time in Shanghai, contends China’s leaders have become “emboldened” by the success such that the focus would continue.
On the related subject of electric vehicles, Hynes noted such cars used nine-times the copper of conventional one, and pointed to the large amounts of the red metal that could be demanded if public transport/buses went the same way.
He also pointed to the significant supply of copper under threat this year given wage negotiations that typically take place when the red metal price is travelling well.
Meanwhile, Hynes expects increased geopolitical risks globally is expected to be supportive of gold.