BASE AND PRECIOUS METALS OUTLOOK : Commodity prices still expected to rise on demand growth - Investec
Development and urbanisation in Asia and under-investment in the West will drive further growth in commodity demand.
Author: Tessa Kruger
Posted: Tuesday , 19 Feb 2008
mineweb.com
JOHANNESBURG -
Commodity prices will continue to climb in both the short and longer term as demand continues to grow on the back of development in Asia and infrastructure spending in the first world, says Investec Asset Management.
Short term commodity demand growth will remain stronger than expected because development in Asia and general infrastructure spend will remain high, even if consumer spending did slow down in the US, said George Cheveley, portfolio manager of Investec Asset Management's commodity investment team today.
Cheveley said commodity prices will also continue to move upwards over the longer term as high average rates of demand growth is expected over the next 15 years.
The high growth in demand will be driven by the development and urbanisation of economies such as China and India. The first world's underinvestment in infrastructure from the mid-1970's to mid-1990's has necessitated the rebuilding of existing, "crumbling" infrastructure, and investment in new infrastructure for alternative energy sources is increasing.
"Massive investment is also needed to conserve energy for environmental reasons," added Cheveley.
Supply of commodities will respond to the higher prices currently prevalent in various commodity sectors, but high rates of demand growth imply that periods of surplus output and weaker prices will be short-lived.
Outlook by commodity:
Base metal prices are expected to remain flat or to fall in the short term. This comes as rapid supply increases have been forecast at a time of weaker demand growth in the developed world.
However, copper, lead, tin and aluminium prices will recover before the end of the year on the back of continued strong demand growth from the Middle East, China and other Asian countries and delays to new supply as well as disruption to existing supply.
Bulk metals prices are expected to remain "robust" as demand for steel and raw materials for steelmaking is dominated by China and the developing world.
"In addition, destocking of steel in 2007 has left markets tight in North America and Europe. Iron ore and coking coal spot prices are up to 100% higher than current contract prices forecast to rise at least 50% for the year starting April 2008," said Cheveley.
The outlook for gold continues to look strong with dollar weakness, inflation concerns, falling mine supply and political and financial instability supporting "the case for higher prices".
The key driver for platinum in the short term is supply, which is being squeezed in an already tight market by safety and cost issues in South Africa. Car production is likely to decline in the Western world, but will be offset by growth in developing economies and higher emissions standards. |
