Teck Resources (TCK) had a dream run this year with the stock delivering a 556% year-to-date (or YTD) return. Higher commodity prices and an improved risk-on sentiment were TCK’s key drivers in 2016. Other miners (RIO) (SCCO) such as Freeport-McMoRan (FCX) and Glencore (GLNCY) also followed commodity prices higher.
In this article, we’ll see what factors could drive Teck Resources’ 2017 performance.
In a bid to control pollution and curtail its excess industrial capacity, China reduced the hours for workers in its coal sector. However, the country subsequently relaxed the mining day norm to control skyrocketing prices. Higher coal output in China could help bring down the country’s reliance on imports, which would be negative for seaborne prices.
China has banned coal imports from North Korea to comply with the United Nations’ sanctions against the country. However, the ban is temporary and should last only until the end of 2016. Having said that, if the ban is extended into 2017, it could have an impact on prices.
The outlook for coal remains uncertain given the many variables involved. If Chinese coal mills ramp up their productions, the rally in coal prices could fizzle away. Higher Chinese demand has been a key driver of seaborne prices this year.
Having said that, coal prices seem to have settled at higher price levels for now, as is reflected in recent contracts.
Copper has rallied handsomely on Donald Trump’s proposed infrastructure investments. However, we still don’t know much about how Trump’s trade and foreign policy will impact the global economy. If Trump can walk the thin line between boosting US growth and not hurting global trade and economic activity, copper prices should get support. However, if we see trade wars, global economic activity could be jeopardized, and copper prices could come under pressure.
While the worst for commodities could be behind us, a sustainable turnaround in the commodity cycle would require more than infrastructure investments. We should remember that the bulk of copper is consumed in Asia, as can be seen in the graph above.
You can read Has the Commodity Cycle Turned Around? to find out what factors could drive commodity prices in the near term.
You can also visit our Copper page for ongoing updates on the industry.