Commodities Outlook: Gold Price to Fall in 2018

A maturing Chinese economy will hurt demand for commodities such as aluminium and iron ore. Gold's prospects are mixed

Morningstar Equity Analysts 5 January, 2018 | 10:18AM

China iron oreMorningstar analysts continue to see commodity and miner share prices as overvalued, propped up by Chinese stimulus. Iron ore's relative buoyancy since early 2016 is typical of most industrial commodities. Recent conditions have been highly favourable for miners such as Rio Tinto (RIO), but we do not expect this to last. With China's credit growth slowing, we continue to expect mined commodity prices in general, and particularly for iron ore, to fall and for share prices to follow.

The miners we cover are generally substantially overvalued. This reflects our expectation for a change in demand growth from China as its economy matures and moves toward less commodity-intensive and more consumption-driven growth. High-cost miners and those with larger exposure to iron ore and coking coal tend to look the most overvalued.

Aluminium has fared better than iron ore in recent months, with prices revisiting 2012 highs. Prices have moved higher because of better-than-expected demand and reduced production capacity in China. We believe investors have become overly enthusiastic on both counts. We forecast a significant slowing in aluminium demand growth and anticipate that the impact of capacity cuts will prove far overstated.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BHP Group PLC1,306.40 GBX2.16
Rio Tinto PLC3,810.50 GBX0.90

About Author

Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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