Metal supply to tighten on credit crunch: Citi analyst

GLOOM IN METAL SPACE

Global metal supplies will be “tighter than ever” as a deepening financial crisis constrains development of new mines and pushes prices lower, Alan Heap, a commodity analyst at Citigroup Inc., said.

“Projects are going to get cancelled or at least delayed so a lot of the potential increases in supply are not going to eventuate,” Heap said at the Australia Mining

Congress in Sydney On Thursday. “Eventually demand will recover.”

Mining companies may defer $50 billion worth of development projects next year as credit tightens and metal prices tumble, Credit Suisse Group AG said last month, commodities are headed for their worst annual drop in more than a quarter-century as economies in Asia, Europe and North America move into recession.

“We are facing a difficult year in the metals markets and from the point of view of the real economy, particularly in the US and Europe, the worst is yet to come,” David Moore, commodity strategist at Commonwealth Bank of Australia, told the conference. “We will probably have to wait until 2010 or possibly even 2011” before demand and prices rebound, he said.

Metals prices have slumped 49 per cent this half and analysts at Goldman Sachs JBWere Pty, UBS AG, and Macquarie Group Ltd. slashed forecasts this week on concerns demand from China, the world’s biggest consumer, has slumped.

The United States, the world’s biggest consumer of oil, has slipped into a recession, along with Japan, Germany and the 15 European nations that use the Euro. The UK is probably in recession, Bank of England governor Mervyn King said last week.

“As ugly as the international economic outlook appears right now, it would look a whole lot worse if it wasn’t for the fact the world had developed more diverse growth sources such as China and other developing economies,” Commonwealth’s Moore said.