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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Enigma who wrote (25501)	1/6/1999 12:52:00 PM
From: Alex	Read Replies (1) \| Respond to of 116753

I.D.E.A. Global Focus Jan 6 1999 9:35AM CSTArchives... Commodities 1999 -- Recovery in sight Commodity prices will start to creep up in the second-half of 1999, with metals leading the way. Latin American markets especially should benefit. Commodities were slammed in 1998. None of them finished the year unscathed from the global economic slowdown. 'Commodity prices across the board have really been suffering in the last year,' says IDEA Latam analyst Santiago Millan. 'From minerals and oil to food products, everything has been hit.' The sharp decline in prices was sparked by the collapse of Asian economies in 1997. Asia was the biggest consumer of commodities so when demand plunged so did prices. Since late 1997 the price of oil has fallen 45% while copper has dived 30%. As the slowdown in Asia spread across the globe, demand for commodities declined even more. IMF figures show global GDP growth dropped to 2.2% in 1998 from 4.2% in 1997. The IMF says that world GDP growth in 1999 should stay stable at 2.2%. 'So if we are to believe the IMF's global-growth estimates for 1999, then the downside for commodity prices is limited,' says Millan. Most likely, prices will slide a little before seeing recovery. A continuing strong US economy and stabilising global economies later in 1999 should support commodities. Asian and Latin American economies should start recovering in the second half of the year. Asian banks have stopped lending as they recapitilise huge stocks of sour loans. By mid-year, they should be able to start lending again. Companies will be able to expand, spurring growth and increasing demand for commodities. The US economy will slow but won't head into recession. Consumers, who are largely fuelling the economy, base their spending habits on stock market performance. And with the stock market continuing to climb, consumption should stay strong. 'The Dow Jones industrial average should reach new highs as will the Nasdaq,' says IDEA US equity analyst Terry Gabriel. The Federal Reserve will probably continue to cut interest rates which would also should support growth in the US. InterMoney expects the Fed to cut the key Fed Funds rate 25 basis points at its March 30 meeting, leaving it at 4.50%. If the global economy stabilises, there is little reason for commodity prices to fall further. 'The only thing that could push commodity prices down sharply is if some Asian economies collapse,' says Gabriel. But a slow global recovery and accumulated stockpiles in 1998, increasing supply, will cap any rally. Commodities like silver and copper will be particularly sensitive to any unexpectedly economic strength. 'Metals are very sensitive to industrial strength and very closely tied to resurgent world growth,' says Gabriel. 'A turnaround in the economy would spark a sharp turn to the upside in metal prices.' InterMoney thinks copper could fall below 60 cents a pound from 65 cents and then surge to around a dollar late in 1999. InterMoney sees oil falling below $10 from $12.19 a barrel before rally to between $13 and $15 in the second half of 1999. Fears about the millennium bug problem will also help support commodities in 1999. Soft-drink maker Coca-Cola announced last week that it would start stock piling packaging and base materials used in production. The company fears the supply of such goods could be interrupted by computer glitches at the new year. InterMoney thinks other companies could follow suit and there could be a surprise demand for some commodities in the first half of the year. The stockpiling would make only a small difference but 'it could buoy some commodities off their lows,' says Gabriel. The decline in commodity prices has hurt developing countries which heavily depend on commodity exports as a source of government revenue and economic growth. The Venezuelan government receives 50% of its government revenue from oil exports -- Mexico 30%, Ecuador 25%. 60% of Russia's export earnings come from oil, natural gas and precious and base metals. In Chile 40% of its export earnings come from copper. It has lost $1.5bn in export earnings in the first ten months of 1998. With lower prices and less demand, the countries' trade deficits are growing and the government has less revenue to spend, hampering growth. In Chile, for example, growth in 1998 slowed by 3% in 1998 compared to 1997. If commodity prices turnaround or at least stabilise, these countries would feel relief. 'A turnaround in commodity prices would help a lot,' says Millan. "And I mean a lot.' Government bonds from in oil-producing countries would see a big rally. Low oil prices have sparked fears that the countries won't have enough revenue to service debt. Because of the higher risk, market players have demanded high rates, driving prices down. With oil prices higher, revenue would be larger and fears would subside that the government would default on their debt. The bolsas of oil-producing countries like Venezuela and Ecuador would be relatively unaffected since there are no oil companies listed on their stock markets. But their debt markets could see big gains as the countries begin to look less risky. JP Morgan's Embi index of emerging market bond yields could tighten to 5.45 percentage points over Treasuries from 10.33. Bolsas of countries highly dependent on metal prices could see big rallies. Higher metal prices would help the Chilean and Peruvian indices, for example, since mining companies are listed on the Ipsa and Igra. The Peruvian Igra could climb to 1,673 from 1,033 by the end of 1999 while the Ipsa could climb to 119 from 101. In fact, Peruvian mining companies could be Latin America's hidden gem. November exports were up due to larger exports in gold, zinc, and lead. Exports increased a total of 9.8% -- while Chile's are suffering. Throughout the 1990's, Peru invested large amounts of money into its mining sector. The investment hasn't paid off until now --El Ni±o destroyed the country and an economic boom from recovery efforts was hampered by the global slowdown in 1998. The US is a different story. Low oil prices in the US are fuelling the US economy. Consumers are using the money they save on gasoline and natural gas to buy other goods. The low commodity prices are at the same time spurring the economy and keeping inflation low. Weak commodity prices keep the price of goods down. That, along with low wage increases and a strong dollar, is keeping inflation in check. But a rise in oil prices could hurt the US economy. Growth would slow because consumers would have less money to spend and inflation would increase. Still, 'It wouldn't be the end of the world if oil prices went up to $15 a barrel,' says IDEA US analyst Harvinder Kalirai. 'If they went up past that level, it could begin to hurt the economy.' InterMoney thinks that oil prices won't skyrocket -- but they will eventually begin to creep up, along with other commodities. I.D.E.A. : Wed Jan 6 14:57:06 1999 [GMT] wallstreetcity.com