  | |
| |
 |
|
| ||
Commodities correcting, not melting Posted: Tue, 23 May 2006 [miningmx.com] -- THE gyrations in commodity markets lately suggest that the end isn’t quite nigh for metals and the companies that produce them – though corrections are certainly in the offing. That’s the prevailing wisdom among metal traders, company executives and commentators in London, a terminal market for many outperforming metals. The reason that metal prices have been so volatile lately is related to exogenous factors, including the US interest rate hike and lower than expected growth of the Japanese economy. Supply and demand fundamentals that kick-started metal price improvements several years ago remain in place, analysts say. “While mining equities moved lower in recent days, we saw that as more profit taking and sentiment than for a fundamental shift in the fortunes of the major mining companies,” says John Meyer, an analyst at Numis Securities in London. On 15 May the gold price suffered its largest fall since 1993 after it was felt that its 39% surge this year had been overdone. Two days later the metal was looking to record its best one-day gains since the Twin Towers collapsed. Copper, which reached an all-time record high of $8,800/t on 11 May, was swept to below $8,000/t in a day, but was back up to $8,500/t last week. Still, banks remain positive despite the volatility. “While there’s some speculation involved – and some correction likely from current levels – prices will consolidate at a high level as fundamentals are also supportive,” says Helen Henton, head of commodity research at Standard Chartered Bank. Standard Chartered has consequently forecast an average platinum price of $1,090/oz in 2006, rising to $1,100/oz in 2007. Silver is forecast to average $11,68/oz in 2006, rising to $12/oz in 2007. In all three cases the bank echoes best estimates that commodities are due to retreat – but not massively so. In the current enthusiasm it’s not even clear if general investors – who are, in many cases, entering the market for the first time in years – differentiate between the separate business cases of each metal. “They don’t buy copper, nickel, aluminium. They just buy commodities,” says Anton Berlin, a marketing director at Norilsk Nickel, the Russian base-metals company. But metals do have their own fortunes, especially gold, which forced its way back above $700/oz last week. According to JP Morgan gold analyst Steve Shepherd the interest in gold is being driven by fear of oil-induced inflation, geopolitical fears of turmoil in Iran and fear that the US dollar will resume its downward track. In that context gold comes into its own as a marker of tangible wealth. Shepherd says: “If gold stays in favour as a risk-diversifying asset class, we believe there could be far more upside – so much money, so little gold.” For general investors in South African mining shares it’s worth remembering that professional investors buy the equities several months before the metal prices run. So at the current level of market enthusiasm it would be foolish to buy mining shares – but equally foolish for owners to sell them anticipating a meltdown.
| ||||
