Copper, nickel prices may fall further: Harrington
2007-02-05 13:35:34 Source : Moneycontrol.com
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Andrew Harrington of Australia and New Zealand Banking Group (ANZ) comments on base metals and Red Kite.
Harrington says that the news that Red Kite had negative returns caused a lot of consternation among investors. He fears that it might lead to withdrawal from investment funds or hedge funds from the commodity space.
Harrington believes that copper prices will drop even further and the activity around nickel is a great concern.He anticipates a sharp fall in nickel if funds withdraw.
Excerpts from CNBC-TV18's exclusive interview with Andrew Harrington:
Q: Red Kite was the major catalyst in the markets here. How do you think the markets are now reacting to that news?
A: The news that they had negative returns last year has caused a lot of consternation in investors. I fear that perhaps we will see a lot more withdrawal from investment funds or hedge funds from the commodity space.
There is something that I have suggested over the last few months that most of the major movements in commodities have been due to sentiment from investment vehicles, hedge funds or mutual funds and its just that they have driven the price up, I suggest that they will also be driving the price down.
Q: What kind of lows are you looking at for the base metals space in particular copper and zinc?
A: For copper it?s about USD 550,0000 per tonne and down about 37% from its previous highs. I think going forward we will probably see copper dropping even further, but I think at the moment the greatest concern would probably be around be the activity around nickel.
Yes, inventories are very low and prices are only just below the records of USD 40,000 a tonne. But if sentiments were to change and funds were to withdraw, I think we will see many sharp falls in nickel and some of those low inventories numbers maybe reversed if sentiments were to change.
Q: Would you look at this fall as a buying opportunity after all the data that has come out from the United States is not all that weak barring the ISM?
A: I would be very cautious about that. I think looking forward we will probably see prices returning to lot lower levels than what they are today. Yes, they will be much higher than previous averages probably due to much higher cost prices. Also not to overstate the point that there is fairly a broad scale demand.
So prices are not going to fall to historic lows but we are probably going to see prices fall little bit further from where they are including things like Aluminium and copper which have already fallen fairly from their peaks in the middle of last year. But I wouldn?t say that these are buying opportunities if my thesis holds true.
Q: Zinc prices, which gained 126% in 2006, are down 27% in 2007 just in the month of January itself. You think 50% of retracement is what we are going to look here because China, which has been a major user, is a net exporter now?
A: That?s part of the reason for lot of the view in terms of declining prices. China is consuming a lot of these things but it also is producing a lot of these things at a much greater rate and inventory situation the zinc has improved markedly in the last month up about 10% or so and consequently you have seen prices fall in just about 23-24% in the past month.
So in the short-term things look a bit brighter but we are going to see a lot of volatility because of the large amount of money that?s been invested in commodities and its sentiments is maybe in the markets. It?s difficult to say in the short-term how the sentiment balances out.
Q: You said you might see further out flows from hedge funds. Do you have any specific examples as to which geographies or which particular funds might be close to redemption at this point of time apart Red Kite aside?
A: I do not have any specific examples. A part of my thinking is a lot of the money that?s flown into commodities, we have seen sentiments towards commodities as investible vehicle change remarkably over last three years or so up to the point we are even seeing Calpus,the world?s largest mutual fund dedicate a proportion of its invested fund into commodities and I think some of that will reverse and we will see the next sector attract funds and we see fund flows out of commodities. |
