Rubber rally to continue till '08

After escalating 45.9 per cent in 2006, rubber prices are forecast to increase by 16.3 per cent in 2007 and see a marginal rise of 2 per cent in 2008, a report from the Economist Intelligence Unit (EIU) projected.

Rubber prices will touch a high of $2,888 a tonne in 2008 from $2,830 a tonne in 2007. In 2006, prices of rubber averaged at $2,433 a tonne from $1,668 in 2005.

The EIU report further projected wool prices to gain 5.1 per cent this season to average at 738.3 Australian cent (A¢) a kg in 2006, a gain of 4.5 per cent from 706.3 A¢ a kg in 2005. Similarly, prices of wool are expected to gain further by 5 per cent in 2008 to touch the mark of 815 A¢ a kg.

Both fibres and rubber markets will remain in deficit over 2007-08, consequently leading to their prices continuing to escalate. Unlike base metals, the rally will persist into 2008, with each index rising by around 7 per cent a year as a whole.

However, the prices of Brent crude oil are forecast to decline marginally by 1 per cent and 2 per cent in 2007 and 2008, respectively, after a healthy gain of 19.3 per cent last year and 42 per cent a year before last.

With this decline, the prices are forecast to be quoted at $64.6 a barrel and $63.3 a barrel in 2007 and 2008, respectively. Brent crude oil settled at $65.3 a barrel in 2006 and $54.7 a barrel in 2005.

In the base metals section, almost all metals, including aluminium, copper and lead, are forecast to witness a decline, however, marginally by 5.9 per cent, 1.3 per cent and 4.2 per cent to average at $2,427 a tonne, US cents 303.8 per lb and US cents 55.5 per lb respectively in 2007, while the weakness would deepen in 2008 to 14.4 per cent, 22.6 per cent and 26.1 per cent respectively.

But, EIU remained optimistic over nickel, tin and zinc and projected a price gain of 11.9 per cent, 6.9 per cent and 15.7 per cent respectively in 2007. But, 2008 is expected to remain bleak for the three metals too with their prices forecast to decline steeply by 33.3 per cent, 13.6 per cent and 40.4 per cent respectively.

The year 2006 turned out to be one of the most remarkable ever in terms of commodity price strength. But, the bull run is not over yet. Although many commodities ended 2006 at record highs, stocks are critically low, suggesting that further upward movement is still likely.