When you consider the value of the resource on a ship v the...

When you consider the value of the resource on a ship v the current value placed on it in the ground the differential is mind blowing. Sentiment on Fe is on the rise, yet we appear stuck at $2.

Today's Courier Mail

Commodities demand to grow

November 16, 2009 11:00pm

THE world's biggest resources fund manager has painted a strong outlook for global commodities demand as China continues to experience "powerful growth".

Evy Hambro, who manages about $US11.6 billion ($A12.4 billion) in resources investments for Britain's Blackrock Investment Management, said that the key institutional investor in BHP Billiton and Rio Tinto would support the mining giants' $US114 billion iron ore joint venture when shareholders voted on the proposal next year.

His comments came as the latest positive data out of China and gains in global commodity markets helped lift the share prices of locally listed mining companies.

But they were not echoed by local commodity-watchers, who warn resources prices may soften again in coming months if the global economy's tentative recovery starts to falter.

Blackrock's Mr Hambro told journalists he did not see too many risks attached to a short-term pause in commodities demand.

"If you're looking for a W-shaped correction from the lows that we came to last year, I don't think we'll see the scale of that," said UK-based Mr Hambro, who is visiting Australia.

"If it does happen, I think it will be very short-lived. If anything, I think there will be a lot of buying on the dips, and we're certainly seeing that sort of attitude from many of our clients invested in funds around the world."

Mr Hambro added that Chinese demand continued to experience "powerful growth" across all commodities, while the rest of the global economy also appeared to have "turned the corner".

Mr Hambro's upbeat assessment helped whet investors' appetites for local mining stocks, which were higher across the board during trading on the ASX yesterday.

The gains were also kicked along by news that foreign direct investment in China climbed for the third month in a row and an article in the China Securities Journal forecasting that the world's third largest economy will grow by a robust 8.5 per cent next year.

Expectations that prices for iron ore supplied under contract will rise by at least one-fifth next year provided further buying support for local producers of the steel ingredient, with BHP up more than 2 per cent, Rio gaining more than 4 per cent and Fortescue Metals Group by nearly 5 per cent.

Mr Hambro pledged his support for the BHP-Rio iron ore joint venture in Western Australia's Pilbara, which is expected to create about $US10 billion in cost savings a year if it goes ahead.

"The two companies have outlined huge potential synergies between the asset bases," he said.

"Obviously, it would be a hugely wasted opportunity if the money that is expected to be saved couldn't be saved."

BHP and Rio will submit their application for the joint venture to the European Competition Commission by December 5.

Some observers have voiced concerns the regulator will block the deal due to steel industry fears the combined Rio-BHP will control so much of the world's iron ore production that it will be able to push up prices by cutting back supplies.

Despite Mr Hambro's bullish outlook, other experts are still cautious on whether global commodity markets can sustain their momentum following a sharp recovery this year from their biggest price rout in more than 50 years.

EL&C Baillieu resources analyst Adrian Prendergast said he expected prices for key commodities – including most base metals – to stage a W-shaped recovery.

"The short-term outlook for commodities will depend on how much restocking will occur across more advanced economies. If that doesn't happen or if it unrolls more slowly than we're hoping then there won't be a great deal of support in commodity prices," he said.