Hears a relevant article. Really just another opinion in the sea of them though.
Metals prices to fall on higher supply: ANZ
Friday, 2 February 2007
GLOBAL demand for commodities is expected to remain strong in 2007 but increased supply of most commodities is likely to result in a more balanced market, with a corresponding reduction in metals prices, according to the latest ANZ Natural Resources Commodity Outlook.
TABLE: A summary of ANZ's price forecasts are tabled above:
The report highlighted falls in commodity prices were likely to be exacerbated by speculative spending, with increased levels of volatility associated with any uncertainties in prices.
ANZ's forecasts show that there will be a gradual fall in commodity prices over the next four years following all-time highs in 2006 for commodities including iron ore, copper, lead, zinc and nickel.
ANZ said its long-term price forecasts were well above long-term averages, saying higher prices would be required to provide incentives for the development of new resource projects following increases in marginal costs of production over the last three years.
The report also expected Chinese demand for commodities would remain robust in 2007, with an expected weakening in 2008.
"The magnitude of consumption growth is the subject of considerable debate," ANZ said. "What is certain is that there are significant growth differences for individual commodities, which means that GDP or IP growth in China does not directly translate into growth for specific metals."
The report also emphasised that while China's demand continues to remain strong, there is a corresponding growth in supply which in some cases is surpassing demand growth with Chinese production of refined aluminium, lead and copper increasing by around 20% in 2004 and 2005.
Another reason behind the strong commodity prices, according to the report, has been the growth in speculative investment with the prices of some LME-traded commodities, including zinc and copper, increasing three to four times over the past three years, which ANZ believes is due to a speculative investment element built into their prices.
"Some may be genuine long-term investment, but due to the cyclical nature of the metals industry, the bulk is likely to be of a short to medium term speculative nature," the bank's report said.
ANZ said the 40% price fall in copper from its most recent high was triggered by an increase in its LME stockpiles.
"This is likely to be the trigger for other metals as well," said ANZ.
"The sell-off of base metals in the first few weeks of 2007 may also give some indication of the level of investment funds speculating in the metals market.
"There is a theory that some speculators locked in profits during this period while deferring taxes for a period of three to 12 months."
ANZ believes that metals other than copper were also likely to be caught up in similar sell offs, at least in the short term.
(20min delay)