Metals & Mining
Chartbook
Q2 2008

 

Natural Resources and Energy
Global Metals & Mining

Metals to peak as supply catches up to
slowing demand, copper remains tight
􀀗 Iron ore and coal tightness to ease as
new capacity and swing producers arrive
􀀗 Steel shortage remains but spot prices
to peak in 3Q

 

Cycle peaking
Commodity price review: Metals peaking, Bulks to ease
Following a ‘perfect storm’ to start off the year, the commodities rally is
now facing its biggest challenge yet. Firstly, global demand conditions
are easing at a time of accelerating inflation, particularly in emerging
market countries. Secondly, the USD is now regaining strength as the
highest levels of the US administration voice their support. This could
derail funds flows from the ‘short dollar/long commodities’ trade that has
underpinned the commodities rally for some time now. Finally, our
supply / demand analysis indicates recent tightness easing as supply
responds to elevated prices and demand recedes.
In metals, easing supply constraints have already hit nickel and zinc
markets, where we cut price assumptions by 7-15% in 2008 and 2009. For
copper and aluminium, higher energy costs have caused us to upgrade
prices by 7-10% in forecast years but emerging surpluses should see 2008
as the peak of the current cycle. In bulk commodities, we expect record
contract iron ore and coal prices to attract new capacity and swing
producers into the market, thereby easing current market tightness.