Charlotte Mathews
2 June 2008
Johannesburg — BASE and precious metals prices firmed slightly on Friday after tracking downwards for several days on a range of factors.
Industry analysts said the recent downward trend was likely to be short-term and did not indicate the end of the commodities bull run was in sight.
Copper, nickel, zinc, gold and platinum prices were all trading well below recent peaks on Friday. The 30-day Shanghai metals index slipped 5,5% to 30369 and the 30-day GFMS base metals index fell 12% to 315. The FTSE/JSE Africa resources 20 index has shed 7% since May 22 to about 72144 , reflecting BHP Billiton down 10,2% to R288,43 and Anglo American 5,3% softer at R507,38.
Basemetals.com analyst William Adams said on Thursday he expected prices to migrate from bull market to bear market some time in the June quarter, so he was not surprised by recent trends. "That said, any major disruption could still lead to a spike, so there is still upside risk."
But other commentators were more optimistic. Rio Tinto CE Tom Albanese said world demand for metals and minerals was expected to double by 2022, driven by China and India, and supply was struggling to meet it.
Nedcor Securities analyst Johan Pretorius said on Friday base metal prices had been surprisingly low over the past couple of weeks, with the exception of copper. Zinc and nickel had been weakening over the past month. Nickel has dropped 20% in the past month on fears of waning stainless steel demand. Pretorius said the copper price last week was reacting to the usual fears of global economic slowdown and rising inventories, although stocks in Shanghai and London fell slightly, causing the price to strengthen.
He said markets were ready to take profits in base metals and there was no structural reason for prices to fall. Last week's upward revision in US gross domestic product growth in the first quarter could have improved sentiment towards other equities, causing fund managers to switch from resources to financial and industrial shares. Index tracker funds, which invest in physical metal, have to sell physical stocks when the market turns, which makes short-term price movements more volatile.
Pretorius said Nedcor Securities remained bullish on the longer-term outlook for commodities, but expected a slowing global economy in the next 18 months to two years to affect prices. But in the longer term, Nedcor Securities believed miners would return to the healthy margins achieved in 2004.
Marc Elliott, an analyst at Fairfax, said the recent weakness in metals prices showed negative investor sentiment, with fears of a worsening US economic outlook and a slowdown elsewhere.
Growth in China and India remained strong, steel prices were high and a shortage of supply was driving coking coal prices "through the roof".
Heraeus's weekly report said platinum prices spiked two weeks ago on Johnson Matthey's estimate of a supply deficit this year but had since fallen on profit-taking. It expected demand for diesel cars in Europe, which require platinum converters, to fall this year because of high diesel prices.
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