A ‘last hurrah’ is what Paul Walker of metals and mining consultants, GFMS, expects across a range of hard commodities – a final surge upwards in prices as the credit crisis lurches towards its conclusion, to be followed by a severe retrenchment of prices as the financial markets recover.
Mr Walker believes that investors fleeing meltdown in other asset classes have pushed prices to current record levels across many commodities. He uses the phrase ‘non-linear’ to describe the effect such investors have – entering the market in already stretched supply situations and inflating prices significantly beyond what overall demand would otherwise suggest.
For example, in platinum, Mr Walker ascribes some $400-$500 of the current price of around $2,000 per oz as a legitimate premium reflecting physical market concern over ongoing supply problems in South Africa. But he feels there is a further $400-$500 premium in the current price which is due solely to financial speculation rather than market fundamentals, and which will evaporate rapidly as normality returns.
He also disagrees with forecasts for an almost indefinite physical platinum supply-demand deficit citing anecdotal evidence from auto-catalyst manufacturers who expect nanotechnology to halve their platinum use in the foreseeable future. (see )
Mr Walker is most pessimistic about gold – when the dollar bottoms, inflation fears are calmed and equity markets regain their allure, he expects it to return to an equilibrium supply-demand price somewhere below $700 per oz compared to the prevailing $800-$1,000 range seen so far this year. (see ). Copper is the one metal that he feels could possibly escape the impending price collapse.
Speculative price effects can also be seen in that most talked-about commodity right now – crude oil. You do not have to agree with the Goldman Sachs thesis that current prices reflect the real cost of marginal new oil supplies, to disagree with the argument that it is financial investor pressure at the long (five-year) end of the futures curve dragging up spot prices. Paul Horsnell of Barclays Capital believes that the five-year oil futures market is deep enough not to be swayed by financial investors. He thinks that the market is seeking a price high enough to moderate demand sufficiently for some headroom to emerge in the current finely-balanced supply-demand situation.
BP chief economist Christof Ruhl says that demand moderation is already happening in developed countries, and that only price subsidies have prevented it from happening in developing countries,. These are now giving way in many places. As for the fundamental question – is it running out – the answer is an emphatic ‘no’. “There is no shortage of oil, it is a well-supplied market in the short-term,” says Mr Ruhl (see and )
