The shock story as we kick of 2016 has of course been the further steady deterioration in commodity prices, and the shattering effect this weakness has had on global stock bourses.
Against this backcloth I believe now is a great time to consider whether fossil fuel giant Tullow Oil (LSE: TLW), dedicated copper play Antofagasta (LSE: ANTO) or gold producer Centamin (LSE: CEY) is the best destination for resources-hungry investors.
Oil still sinking
Although severe price weakness has been witnessed across most major commodities, it is the further decline in oil values that has grabbed the headlines. Brent values have lost a shocking fifth of their value since the bongs greeted the arrival of New Year’s Day, and prices edged to fresh 12-year lows around $29.46 per barrel just this morning.
But brokers are becoming increasingly convinced that oil prices are set to fall even further — indeed, Royal Bank of Scotland has even suggested that values could even collapse as low as $16 per barrel!
Despite these worsening prices, however, oil producers are still illustrating little appetite to rectify the chronic oversupply washing over the market. Perhaps most worryingly, the growing political discord between Saudi Arabia and Iran means that an agreement from OPEC to cut output is becoming ever-more unlikely.
Instead, output from Iran and Iraq, and possibly from Libya, too, looks likely to stomp higher from this year.
Copper keeps collapsing
Prices of copper have also suffered the humiliation of striking fresh multi-year nadirs in recent days. Three-month futures at the London Metal Exchange slumped to their cheapest since mid-2009 below $4,350 per tonne, and many are tipping the bellwether material to slump below the critical $4,000 marker in the coming months.
Trade data from China provided a rare moment of cheer for the copper market this week — numbers showed red metal imports hit 530,000 tonnes in December, the second-highest amount in history. And oil imports of 33.19 million tonnes last month represented the highest amount on record.
Still, these rampant numbers are indicative of rampant bargain-hunting by Beijing rather than a signal of robust underlying demand.
All that glistens is not gold
In stark comparison to crude and copper, the current macroeconomic turmoil affecting global markets has sent investors piling back into ‘safe-haven’ investment gold. The precious metal struck two-month peaks above $1,110 per ounce earlier this week.
It could certainly be argued that gold is a better destination than ‘industrial’ commodities like oil and copper, its ‘store of value’ qualities helping to keep values afloat in the current environment. Consequently I believe Centamin is likely to prove a less volatile stock selection than the likes of Tullow Oil and Antofagasta.
However, I for one would am not tempted to plough into any of the three firms mentioned. For Centamin, a steady appreciation in US dollar values crushed prices during 2015, while a backcloth of insipid inflation and weaker physical purchases from Asia has also hampered precious metal prices in recent times.
And with these factors set to persist in 2016 and probably beyond, I see little reason for gold to extend its steady move higher.
With worsening supply dynamics affecting most other dollar-denominated commodity classes like oil and copper, too, I reckon all three stocks I have mentioned are likely to remain too risky for prudent investors for some time to come.
