Gloomy outlook for commodities Email Print Normal font Large font Advertisement Chris Zappone August 20, 2008 - 9:31AM
Commodities prices may drop faster next year, pressured by slumping global demand and a strengthening US dollar, according to ANZ Bank.
The speed of the recent price plunge in commodities has prompted ANZ Bank to downgrade its forecast on a host of resources by up to one-quarter by 2010.
ANZ sees the price of iron ore, Australia's principal export to booming China, falling 10% in 2009 and again in 2010. Nickel is set to fall by one-quarter this year, then 9% in 2009 and a further 19% in 2010.
"Sentiment in commodity markets has swung heavily negative in the past month as a firming US dollar is met with falling global demand conditions," said ANZ Bank senior commodity strategist Mark Pervan wrote in a note to clients.
"The extent and speed of the declines has prompted us to downgrade our 2008-2010 prices forecasts."
BHP Billiton announced record profits of $17.8 billion for the 2008 financial year yesterday with managing director Marius Kloppers blaming commodity price falls on "short-term sentiment" rather than slowing demand from China.
Asian steelmills agreed to pay a 85% jump in the contract price of iron ore to Australian ore producers, like BHP and Rio Tinto, in June.
Since then, a reading of Chinese growth sees it cooling to 9.5% from 11% amid slowing global demand and a stronger yuan, meaning the price increase next year may not be so strong.
Lower commodities prices affect the valuations of resource and mining companies whose profits have been crucial in driving Australian economic growth in the last five years.
For BHP, lower revenues and profits would have flow on effects to the resource sector and Australia's economy as a whole.
It's not just the giants the lower commodities prices will affect, either. Nickel's decline offers a glimpse of the sector's sensitivity to global prices.
After nickel rose as high as $US50,000 per tonne in May of 2007, it has since fallen to $US18,000 a tonne in recent weeks, taking with it the profits of Minara Resources.
The drop has cut the WA nickel miner's half-year profit to one-fifth of what it had been a year ago.
Similar price falls in commodities may hit profits in a number of other resource sectors including aluminium, platinum and copper.
Beyond demand and supply issues on prices, the Australian dollar's 12% plunge against the US dollar from a 25-year high a month ago has "compounded the negative mood" surrounding commodities, Mr Pervan said.
The Australian dollar now buys 86.8 US cents, down from near parity with the US dollar a month ago.
Global investment fund managers, seeing the decline in commodities, are moving money out of the asset class, which only adds momentum to commodities decline.
MRE Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
