Business Standard

Industrial commodities to stay subdued till Sept-Oct

But, in near term, however, the price fall would continue due to falling demand from consumer industries

Related News

A subdued trend is likely to continue in until the third quarter of the current calendar year, due to weak global economic sentiment which has reduced their demand from consumer industries.

After a robust start at the beginning of this year, industrial commodities fell substantially due to lack of a clear direction from the US, the world’s largest economy. The average price of Brent crude oil, for example, is expected to fall from $113.19 a bbl in the first quarter of 2013 to $110 in the second and third quarters. Similarly, the average iron ore price is set to decline from $148 a tonne in Q1 to $125 a tonne in Q2 and further to $115 and $110 a tonne in Q3 and Q4, respectively.

The price of copper on the London Metal Exchange (LME) might decline from $7,927 a tonne in Q1 to $7,700 a tonne in Q2 and further to $7,300 a tonne and $7,000 in Q3 and Q4, respectively.

“From the point of view of developed countries, both stimulus and disinflation depends almost entirely on the behaviour of oil and energy prices. On the contrary, commodity exporters are likely to face a combination of deteriorating trade balances and potentially weaker currencies, and relatively high inflation because of rising food prices. Indeed, even if the jury is still out on the trajectory of oil prices, the outlook for base metals and other non-oil-related commodities is soft. However, food inflation, which is a larger component of the consumer price index baskets in poorer commodity exporters, is driven in part by frequent weather and supply shocks, and in part by increasing demand from wealthier consumers in China and other emerging markets,” said Igor Arsenin, an analyst with  Barclays Capital.

With a rise and fall in the employment and household data, respectively, in the United States, the $85-billion monthly economic booster is likely to continue to support the country’s economy from a possible fallout. This indicates weak industrial activity, resulting in lower demand for global commodities.

The commodity outlook is likely to be important to forecasting the dynamics of interest rates and currencies in the second half of 2013. Low commodity prices would provide stimulus to consumers in industrialised counties. At the same time, these would contribute to the current disinflationary environment caused by low global demand, allowing central banks to continue to pursue stimulative monetary policy, adding another lever to growth.

Importantly, almost 50 per cent of the increase in oil demand in recent years has been generated by China and India. The net demand increase in the US is now close to zero and is likely to stay low in the future because of increases of energy efficiency. While global demand is likely to grow at approximately a one per cent annual rate, it can be comfortably met by increases in supply.

With many commodity prices in retreat over the past six months, the newly elevated base will prevent further substantial falls in prices for most industrial commodities, said Ric Deverell, an analyst with Credit Suisse.

Historically, cost factors appear to have been highly dynamic, with the marginal cost of production (and consensus long-term forecasts) tending to move up with spot prices and then falling as the cycle turns down. Costs (like all market prices) are endogenous to the broader economic environment.

Perhaps the largest driver of costs remains the value of exchange rates in the big producing countries.

For iron ore, a concentrated industry structure could induce a different cost-price response as supply surpluses grow in the second of 2013 and 2014. This is especially so as Australia is supplying a growing share of seaborne iron ore – the depreciation of the local currency is likely to trim back production costs rapidly.

Read more on:   
|
|
|
|

Read More

Aluminium down 0.04%

Aluminium futures prices fell by 0.04% to Rs 110.55 per kg today as speculators trimmed positions amid a weak trend in metal at the London Metal ...

Quick Links

 

Market News

Sebi looking into share price spike ahead of Kotak-ING deal

Inquiry preliminary, based on system-generated alert

Investor awareness drives must focus on quality: Sebi chief

U K Sinha says 'just completing' numbers not good enough to address needs of investors

Gold edges up on improved demand amid overseas support

Standard gold adds Rs 30 to end at Rs 26,405 per 10 grams, silver adds Rs 200 to Rs 37,160 per kg

Kotak-ING Vysya merger: Old pvt banks get thumbs up

Many were up between 3-6%, even as an index tracking banking sector hit an all-time high

Sebi rebukes HSBC Securities, India Star in Global Offshore case

Securites and Exchange Board of India (Sebi) on Friday 'reprimanded' HSBC Securities and Capital Markets Pvt Ltd for failing to make adequate ...

Back to Top