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Commodity prices in ‘no man's land’ – Barclays
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13th June 2012
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JOHANNESBURG (miningweekly.com) – Commodity prices were currently situated in “no man’s land” with the prices not yet low enough to reflect near recessionary conditions, while being too low for producers to continue growth, said Barclays research MD Kevin Norrish on Wednesday.

Much volatility was being seen in the commodities market, with a fast and hard fall in prices – possibly the fastest since the 2008 global financial crisis – as markets price commodities with a pessimistic outlook for the global economy.

Speaking at a commodities outlook media briefing, in Sandton, he noted that the copper price had fallen about $1 500/t over the past few months, while oil fell $25 a barrel and gold dropped $200/oz.

Norrish believed that the price action was the result of many industry players anticipating a bleak economic outlook on the back of nervousness surrounding the eurozone, a possible dip back into recession and Chinese data reigniting fears of a hard landing.

However, he commented that it was difficult to see any signs that the fundamentals of the commodity industry were as bad as the price action suggested.

Fundamentals were a lot stronger and supportive than the prices would suggest, he added, noting that, besides others, the supply and demand balance was still fairly tight and the Chinese import demand was still strong.

Norrish stated that the current prices were “just not sustainable” and would start a slow rise during the third quarter of 2012, with base and precious metals showing the largest gains, as growth concerns ease and reflationary concerns rise.

Uncertainty in Europe should recede over the next few months and fundamentals were anticipated to return to playing a bigger role in driving prices, he added.

Copper should rise from second-quarter prices of $ 8 600/t to $9 300/t by the end of the fourth quarter. Palladium was expected to jump from $650/oz to $775/oz, while gold would experience a rise from $1 665/oz to $1 790/oz.

However, platinum prices, which were forecast to increase slightly from $1 580/oz to $1 690/oz by the fourth quarter, were not anticipated to rise dramatically in the next two years.

Platinum prices have fallen a long way, and were now at the level where it was adding strain to platinum producers, which have had to implement production cutbacks.

“If we continue to get these low prices, and producers continue have to cut back, eventually you would have to see a move back to higher prices,” he said.

Further, should the global economy avoid slipping back into a recession, platinum demand would rebound and the producers could struggle to keep up with demand growth.

Norrish pointed out that the South Africa platinum industry has been in a challenging and difficult position over the last few months, with uncertainty surrounding energy and power, disappointing production, labour issues and declining ore grades.

He believed that investors seemed to have lost interest in the industry, as demand for platinum dropped. Demand in the jewellery industry has fallen, while demand in the slow-growing European diesel autocatalyst industry was falling as a result of growing preference for palladium within the Chinese gasoline autocatalyst industry.

Edited by: Mariaan Webb

 

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Barclays research MD Kevin Norrish discusses the bank's outlook for commodities. Cameraperson: Nicholas Boyd. Editing: Darlene Creamer. Recorded 13.06.2012
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