Want to find a commodity thats relatively unscathed by the recent turmoil Look no further than iron ore and coal in Asia. While trade in both is measured in billions of dollars a year, both have benefited from not being widely traded on paper exchanges such as ICE Futures Europe and the New York Mercantile Exchange.
This has insulated them from the vagaries of investor sentiment, which has taken a roller coaster ride in recent weeks as the Europeans muddle through their sovereign debt crisis, threatening to send the global economy into another crippling recession.
Of course, iron ore and coal wont be immune to a renewed recession, especially if a slowdown hits China, which buys 65% of seaborne iron ore and is also the main marginal buyer of thermal coal.
But the question is whether iron ore and coal can continue to outperform exchange-traded commodities like copper and oil, or whether they will experience deeper price declines in coming weeks as they catch up to their paper counterparts.
Spot iron ore prices have dropped 6.2% to $171.75 a tonne in the past three weeks, but London-traded copper has slumped 23% over the same period.
Its also worth noting that spot iron ore has dropped only 11% from its all-time high reached in February, while copper, currently around $7,042 a tonne, is down almost 31% from its record, reached around the same time.
Given that both metals are effectively driven by the Chinese demand outlook, its clear the exchange-traded copper is faring far worse than the physical market commodity.
While there are undoubtedly differences in the supply situation for iron ore and copper, to some extent they are both tight markets, although perhaps iron ore has more limited supply currently and a stronger longer-term demand outlook.
Chinas iron ore imports may jump to 1 billion tonne a year by 2015, a rise of 60% from 2010 levels, according to Australian producer Fortescue Metals Group .
In such a scenario, supplies may struggle to keep pace with demand as new mine projects may not add enough and Indias iron ore exports are likely to remain subdued to meet domestic demand in Asias other emerging industrial giant.
But copper also faces a similar story of strong growth, with demand for refined metal likely to rise around 5% a year in coming years from about 19.5 million tonnes this year.
Similar to iron ore there are doubts new mine supply will be enough to meet such a demand projection, indicating copper supplies will remain tight, a forecast that underpins the view of several investment banks that copper will recover to above $10,000 a tonne by next year.
Turning to coal and so far spot prices from Australias Newcastle port, the worlds biggest export harbour for thermal coal, have been remarkably steady this year.
Production disruptions caused by flooding in Australia at the end of last year and the start of 2011 helped send the weekly Newcastle index to a high of $136 a tonne in February, but since then it has traded in a fairly narrow range around $120 a tonne and was at $123.42 last week.
Coals steady performance has been maintained even in the face of lower demand from Japan, where thermal plants were knocked offline by the March earthquake, and limited buying by China, although traders say this has increased in recent weeks.
Although not directly comparable, crude oil has performed far worse than coal, with New York futures down almost 29% from their April high and 9% in the past three weeks. Crude is more exposed than Asian coal to a slowdown in Europe and the United States, but given its decline from its 2011 is three times that of coal, it's clear that similar to iron ore and copper, the exchange-traded commodity is faring worse.
So, how is this likely to play out in coming months, given that the expectation is for markets to remain volatile as the Europeans lurch through the crisis and the world economic outlook deteriorates It would appear the non-exchange traded commodities have the luxury of pricing more on their supply and demand fundamentals, and will only drop sharply if Chinas economy hits the wall.
Exchange traded commodities will be blown back and forth on waves of sentiment with the actual physical market balance playing a distant second fiddle.