by Bob Stokes
Updated: December 28, 2016
[Editor's Note: The text version of the story is below.]
At the start of 2016, much of Asia's outlook for commodities was grim.
There were discussions of how China's economic slowdown had been detrimental to commodity prices, and by extension, the nation's shipping businesses. This prompted the mergers of China Ocean Shipping with China Shipping (Wall Street Journal, Dec. 11, 2015):
China’s two state shipping giants will combine their container-shipping assets … to strengthen the nation’s competitiveness in an industry battered by weak demand and persistent overcapacity.
Also in December 2015, Anglo-American, one of the world's largest mining companies, announced that it would sell off 60% of its operations and reduce its workforce from 135,000 to 50,000. On the same day, Anglo-American suspended their dividends, and so did Freeport McMoRan, another large miner. Dividend suspensions at the two companies are rare, and have only occurred after persistent price declines.
Despite the deep pessmism, our January 2016 Asian-Pacific Financial Forecast featured a segment titled "Turnaround time for commodities." The publication showed this chart and said:
EWI’s Chief Commodities Analyst Jeffrey Kennedy … is looking for commodities to end a large-degree three-wave decline. Then, they should begin a rally.
With Kennedy’s analysis in mind, let’s look at the major [Elliott] waves in the Bloomberg Commodity Index and the Baltic Dry Index, which have basically followed a similar pattern since the early 1990s. Moreover, the two indexes are near lows of previous fourth waves of lesser degree, levels that often mark the approximate end of corrections. Since hitting all-time highs in 2008, the commodity index has fallen 68% and the shipping price index 96%. Wave C in the Bloomberg Commodity Index is nearly equal to wave A, a common relationship.
In other words, the Elliott wave structure of both indexes pointed to the beginnings of uptrends.
Let's see what's occurred since as we review this chart [entire wave labeling available to subscribers] and commentary from the December 2016 Asian-Pacific Financial Forecast:
The resource sector continues to rebound in line with our forecast this year.
Our October 2016 issue [also] pointed out that the value of trade in commodities would likely continue to rise with the MSCI Emerging Markets Index for a while. The prices of industrial commodities such as copper, iron ore and coal, in particular, have surged in recent months.
Even the CEO of Minerals Council of Australia did not expect the rally in the price of natural resources. This is what he told Bloomberg on Nov. 28:
"Anyone who says they are not surprised by this is kidding themselves."
Well, Asian-Pacific Financial Forecast subscribers were not surprised. No kidding.