Commodities | Jun 26 2008
By Chris Shaw
While signs emerged last week of a strengthening in Chinese demand, which in turn pushed up base metals prices, ANZ Bank senior commodity strategist Mark Pervan questions whether the rally will be sustained in coming days by pointing out softer economic data and reduced concerns about supply side issues are likely to see some profit taking.
Price action among the metals markets is expected to remain choppy in coming weeks but any downside is likely to be limited in Pervan’s view as the US dollar is expected to continue to struggle given the US Federal Reserve last night kept official interest rates on hold, an outcome expected to support commodity prices generally.
Among the base metals Pervan sees copper at risk from a quick resolution of the labour unrest in Peru, while any significant fall in the oil price would likely prove a negative for aluminium prices in his view.
Any further US dollar weakness following the Fed’s decision should also provide a boost for the gold price similar to that provided by rising food inflation in recent weeks. With US economic data still poor and with equity markets in the US and globally quite weak of late there may be additional buying for the precious metals according to Pervan as gold in particular becomes a hedge against financial risk in such times.
Taking a medium-term view he expects the gold price will drift lower as the signs are increasing the US dollar has found or is finding its lows in the current cycle, though he suggests any weakness should be limited by what to date have been modest central bank sales.
Sentiment in the oil market remains finely balanced, he believes, following a disappointing OPEC meeting last weekend and amid signs demand is beginning to falter. While this leads him to suggest prices could ease both this week and in coming months any downside should again be limited by strong Chinese demand and the upcoming US hurricane season.
Assuming oil prices don’t fall significantly in coming days coal prices are also tipped to remain firm, as falling freight rates may spur additional buying out of Asia at the same time as weather and other factors have combined to marginally restrict supply.
On the back of forecast lower oil prices in coming months Pervan expects coal prices will also ease slightly, though the infrastructure restraints in the Australian market and strengthening demand throughout Asia will likely keep any falls to a minimum.