Commodity analysts remain bullish

THE bulls were back out in force during the Commodity Outlook session on the first day of the 18th annual Investing in African Mining Indaba conference, with analysts casting an optimistic outlook on commodities for 2012.
Commodity analysts remain bullish Commodity analysts remain bullish Commodity analysts remain bullish Commodity analysts remain bullish Commodity analysts remain bullish

Barclays Capital research manager Kevin Norrish told a packed conference hall of delegates he was optimistic for commodity prices in 2012 but still warned of potential risks.

"It is fair to say there is a ghost stalking the commodities market still and that ghost is a fear of a return to the days of 2008 and 2009," he said.

"What's going on in Europe now looks like it might be getting a bit better but there is still a lot of uncertainty around."

However, he disagreed with the view that the commodities market had entered 2012 with downside risks on the back of the fall in prices towards the latter part of last year.

"Certainly our view is 2012 is going to be a good year for commodity prices," he said.

"It is going to be particularly good year for base and precious metals and in fact the risk is very much tilted to the upside.

"The reason I say that is that things have changed an awful lot in the commodities markets and metals markets over a relatively short space of time since 2008-09."

During his speech, Norrish predicted the downside for commodity prices would be far smaller in 2012 compared to the gloomy days in 2009-2010.

"It is of similar magnitude to what we saw in 2009 but what we found is because of changes in demand, because of higher cost levels, the downside in most commodities would be far less this time round," he said.

"For example, copper prices fell in 2008-09 by over 10 per cent in 2009 whereas this time round we only think it will fall by around 5 per cent.

"The same is true for other commodities. The downside looks much better protected."

Norrish said there had been a change in market psychology since 2009.

"Everybody knows how quickly commodity prices bounce back from those in 2009," he said.

"One of the main reasons that happened is that it quickly became clear that at copper prices of $US3000 per tonne, there simply wasn't going to be the investment in the industry in order to meet that rapidly growing demand from markets.

"We need now much higher sustained prices In order for producers to be profitable given the higher capital costs."

On the subject of China, Norrish tipped a soft landing for the economic powerhouse in 2012 rather than a hard landing as other analysts had predicted.

"People don't realise just how big China has become to statistics," he said.

"In 2010, on average across global commodities markets, China accounted for about 50 per cent of demand growth. Last year it accounted for two-thirds of demand growth."

"Now you could view that in two ways. If those in the audience are very bearish on China this year and you think it will have a hard landing then that would be very bad for commodities indeed.

"But if, as we expect, China does engineer a soft landing then the outlook has to be fairly positive."

This year, delegate numbers at Indaba hit a record 6500 with around 100 countries across six continents represented at the event.

First published earlier this week in sister publication

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