It's no bubble, just look at rare metals
By Ambrose Evans-Pritchard
May 24, 2006
THE rare metal rhodium has surged to $US6275 an ounce, leading a rally in niche commodities that goes beyond the climb in gold, silver, or copper markets.
Rhodium's price has risen more than tenfold since early 2004, driven by demand for catalysts, LCD screens and missile technology.
Unlike copper and other base metals, it is not traded on any exchange and thus is not subject to speculative plays by hedge funds on futures markets.
Barclays Capital yesterday cited the roaring bull market for such niche metals as proof that real demand, fuelled by Asia's industrial revolutions, is driving the global commodities boom.
"When market commentators use the simplistic argument that industrial metals are being driven by investment bubbles, they would do well to look at price performance in some of the non-exchange traded minor metals markets," said the bank's commodity analyst, Kevin Norrish.
"These metals cannot be invested in, but prices are being driven higher by the same structural changes in fundamental demand as copper, increasingly classed as a speculative bubble."
Tungsten, used in drills and light bulbs, is up 330 per cent; while iridium, used for compasses and pen tips, has soared 328 per cent. Molybdenum is up eightfold; ruthenium fivefold; and cadmium and antimony have more than tripled.
The US fund giant Pimco also disputed claims that a dotcom-style bubble had developed in commodities, insisting hard demand was driving the boom.
"To have a speculative bubble, you need to lose all concept of an objective measure of value. That doesn't hold for commodities," said Bob Greer, vice-president in charge of commodities.
He doubted that the amount of money pension funds and big institutions were pouring into commodity tracker funds - thought to be $US100-$US200 billion ($133-$266 billion) - was causing prices to lose touch with economic reality.
"I do not believe that index investors are driving prices. Pimco is the largest manager of commodity index mandates in the world.
"Yet Pimco does not own one barrel of crude oil, one bushel of soybeans, one ounce of gold. We do not consume any of those commodities."
However, economists warn that a sharp slowdown in the US housing market and a looming credit crunch imposed by the Chinese authorities could remove two main props of the commodity rally.
China is a big importer of rhodium, partly for use in catalysts to convert crude oil into petrol at its new high-tech refineries. It is also used as a fission product absorber in nuclear energy.
Refiner Johnson Matthey said demand for the metal had grown at more than twice the rate of supply in 2005.
The Telegraph, London
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