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Commodities Corner
Feb. 4, 2011, 12:01 a.m. EST
View all Commodities Corner "º
"¹ Previous Column
Natural gas: the commodity world's "?ugly duckling'
First Take "º
Only thing we know is job crisis isn't over
By Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) "” Prices for industrial metals have been on an impressive run, with most posting sharp gains on bets of growing demand from emerging-market economies, but as China steps on its brakes and global inflation creeps in, metals traders may want to think twice.
Prices for aluminum and nickel have both gained in recent weeks. On the London Metal Exchange, aluminum prices rose 11% and nickel was up 31% last year.
Copper prices /quotes/comstock/21e!f1:hg\h11 (HGH11 459.20, +3.50, +0.77%) on Tuesday touched their highest level ever recorded on Comex in New York after ending 2010 with a 33% gain. Read about copper's recent record high.
Much of those gains came as data supported the idea that consumption from emerging market economies will continue to grow at a strong pace.
Commodity price inflation has sparked riots in resource poor developing countries, like Tunisia, Egypt and Yemen. This is bound to spread. What's particularly worrying here is that the world's two most populous countries, China and India, are reliant on commodity imports.
And as "emerging market demand has been the big driver behind industrial metals, these metals would also seem the most susceptible to any slowdown," said Chris Mayer, a managing editor for Agora Financial and contributor to the Daily Reckoning.
"There is too much hitting these countries too fast," he said, pointing out that emerging economies are getting hit by rising prices for food, oil and industrial metals, and the central banks of several big countries, including Brazil and China, are raising interest rates.
"The industrial metals as a group are unattractive simply because I believe that emerging market demand will slow," he said. Read his articles on commodities.
The HSBC Emerging Markets Index, which tracks purchasing managers' indexes in 16 emerging markets countries, accelerated in the final quarter of 2010 as manufacturing rebounded. The index rose to 55.7 from a five-quarter low of 54.2 in the preceding quarter. Read earlier Emerging Reports report on HSBC index.
"?We are concerned about the possibility of some overheating in growth economies.'
David Coffin, HRAAdvisory.com
But inflationary pressures are a key risk to future growth, HSBC said in a press release dated Jan. 10, with input cost inflation quickening in the fourth quarter to the fastest level since the second quarter of 2008.
That, in turn, clouds the outlook for industrial metals.
"We are concerned about the possibility of some overheating in growth economies," said David Coffin, editor of HRAAdvisory.com, which publishes newsletters dealing with the mining market. "China, but also India and a number of others, are seeing inflation start to become a factor."
"If moves to deal with this continue, it could slow growth enough to impact raw material prices," he said. "This will be all the more true if food prices also continue to rise since, obviously, funds go to that sector first."
That may have already started happening.
World food prices jumped to a new historic peak in January for a seventh-straight month, according to the Food and Agriculture Organization of the United Nations. Read the details on the food price surge.
A new middle class, with more disposable income to spend, has been developing in emerging market economies "” adding to assumptions that commodity demand is set to rise.
"?The classic economic trade off is guns versus butter. Now you are making it copper versus wheat.'
Christopher Ecclestone, Hallgarten & Company LLC
As people's "tastes" change and savings increase, the world will need more primary inputs, or "grass-roots commodities," to satisfy consumer demand for food and infrastructure needs, said Jonathan Barratt, managing director at Commodity Broking Services in Australia.
Myra P. Saefong is our assistant global markets editor based in Tokyo. She has been with MarketWatch since 1998 and holds a master's degree in English literature.
The only sure conclusion we can take from a very muddled January jobs report is that the crisis in unemployment is still with us, writes Rex Nutting.
12:49 p.m. Feb. 4, 2011
"The battle of "?copper versus wheat' http://on.mktw.net/fXfS5o" 12:06 a.m. EST, Feb. 4, 2011 from MktwSaefong
"#Gold settled with a loss of $8.20/oz in NY, but it's up almost $3 on Globex at the moment. Other #metals are regaining lost ground as well." 3:02 p.m. EST, Feb. 2, 2011 from MktwSaefong
"#Gold futures drop as much as $13 as the U.S. #dollar rallies. http://bit.ly/gMFJwo" 1:03 p.m. EST, Feb. 2, 2011 from MktwSaefong
"#Crude futures end lower! Investors are now less worried about supply disruptions in the #MiddleEast. http://bit.ly/fuQ4Mk" 3:22 p.m. EST, Feb. 1, 2011 from MktwSaefong
"#Gold rallies as the U.S. dollar weakens. #Copper sets a fresh record. http://bit.ly/eQ50Ub" 1:36 p.m. EST, Feb. 1, 2011 from MktwSaefong
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