Commodities | May 29 2008
By Chris Shaw
The last few sessions have been volatile for commodities with oil falling from above US$135 per barrel to less than US$130 per barrel for a short time, gold slipping from US$930 per ounce to briefly below US$900 and base metal prices struggling.
ANZ Bank commodity analyst Mark Pervan believes risks have now turned in favour of lower prices for crude oil. Prices now appear to be at a pinch point for consumers, he says. Evidence this is the case in the US comes from a 4.3% fall year-on-year in miles travelled in March, the first such fall since 1979 and suggestive of a weak upcoming US driving season.
Talk of lower fuel subsidies in Asia and protest campaigns by transport companies in Europe also suggest non-US demand may be weak in coming months, while scope for a correction in the recent weakness in the US dollar leads Pervan to suggest some profit taking may be likely.
Assuming oil performs as expected Pervan sees gold prices also trending lower, as any fall in the oil price would likely be a positive for equity markets and so reduce the attraction of gold as a hedge against risk. As well Pervan suggests any easing in inflationary concerns would likely trigger some profit taking in the yellow metal.
He sees a similar trend in base metals, which should also ease on the back of falling gold and oil prices. There is also scope for some selling on the back of weaker economic data in Europe given business and consumer confidence data are upcoming.
Of the base metals he expects copper could be the best performed given new threats of strike action at mines in Peru, while nickel should also do reasonably given prices have fallen to near break-even levels for most of China’s pig iron producers.
Coal should be the exception in Pervan’s view as he sees scope for prices to continue to rise above last week’s record levels of $145 per tonne for Newcastle spot as buyers increasingly look to secure supply ahead of an expected strong increase in seasonal demand.
At the same time Pervan expects Asian coal markets will be boosted by reports the Chinese coal power industry is currently operating on just three days supply, while European markets should gain support from reports Poland moved from being an exporter to an importer of coal last month.