Congratulations if you called the path of commodity prices this year. You’re probably also among the 0.0001pc of people who guessed Leicester City would win the Premier League. And of course, you predicted Brexit.

In a topsy-turvy world, metals have shown surprising strength. After cratering in 2015, a basket of major commodities has soared in price this year, from the remarkable 36pc climb of iron ore, to the stellar performance of precious metals, with gold and silver up 25pc and 43pc respectively. Zinc, a mineral used to galvanise other metals to stop them rusting, has chalked up a 41pc rise.

One of the few analysts to call iron ore’s recovery was Jason Schenker, of Prestige Economics, who now thinks the metal – used to make steel – will probably extend its rally into the second half, averaging $55 a tonne. Some of the FTSE 100 miners would probably bite your arm off if you offered them iron ore at that price. BHP Billiton, Rio Tinto and Anglo American all produce the metal at far below that level, meaning they can comfortably bank cash at $55 a tonne and get on with paying down debt.

David Fuller's view

Here is a PDF of Jon Yeomans article.

We should never forget that the key fundamental variable in commodity prices is always supply.  Moreover, supply is notoriously volatile because miners produce all they can when metal prices are high.  That window eventually closes because expensive metals inevitably reduce demand.  As prices plummet, producers first try to sell even more to maintain revenue.  When that becomes counterproductive, marginal producers are forced to reduce supplies and even low-cost producers eventually realise that metal in the ground will be worth more to them if they reduce refined supplies.  Demand eventually increases for industrial commodities when prices remain low.  As they begin to recover a bull market emerges if commodity producers are slow to increase supplies and GDP growth strengthens.   

We are only in the early stages of the industrial commodity recovery and demand is still soft, albeit showing some early signs of improvement.  Nevertheless, this recovery to date shares many of the characteristics which have produced previous bull markets among industrial commodities.  We should see a further cyclical rebound in commodity prices which could extend well into 2017.  Meanwhile, among the key variables will be the production capacity of miners which is more efficient than ever before due to technological innovation.  Global GDP growth will be an important influence, and while soft a present, it should improve over the lengthy medium term.  The US Dollar will remain a factor and further strength would be a headwind for resources prices.  Crude oil is likely to see a lesser recovery than most other industrial commodities, due to competition from renewables and Saudi Arabia’s overproduction gamble.