The bottom line is that commodity prices are moving on up

To the editor,

Hard commodity prices were boosted in 2010 by strong Chinese buying and some restocking in the OECD, where inventories were typically at historical lows. Stimulatory fiscal and monetary policies across worldwide boosted consumption generally and investor interest was strong. Prices rose particularly strongly in the fourth quarter of the year, owing to U.S. dollar weakness and the announcement of further monetary and fiscal easing in the U.S. Prices have continued to soar in the first six weeks of 2011, boosted by optimism about economic growth in the U.S. and European Union, some weakness of the U.S. dollar and persistently loose global liquidity conditions.

It is expected China will remain the primary source of demand growth in 2011. Expect Chinese consumption growth to ease as a result of government efforts to cool the property market as well as efforts to curb emissions. Unless an individual commodity has an especially tight market balance or negative supply developments, such as copper or tin, prices will struggle to improve further from current levels.

In the medium to longer term, expect prices for base metals to be supported by robust growth in the developing world and ongoing urbanization, and the fact that the supply profiles for many metals tend to be volatile. Mining output can easily be hampered by inclement weather, energy shortages, transport bottlenecks, union activity or a difficult regulatory environment. Prices generally are still expected to slip from the record highs witnessed in the first six weeks of 2011.

Bottom line hard commodity prices are moving on up. The line will not be straight up but easing of monetary and inflation mean prices will rise.

Marc Abear

Meredith