Commodities are flying too high
Nov 27, 2009
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The CRB Commodity Index is close to a one-year high. Copper prices have doubled over the past 12 months and exceeded $7,000 a tonne for the first time since September 2008. Nickel is up by more than 50% over the same period.
Raw-materials prices may have soared, says Lex in the FT, but "the fundamentals do not stack up". Global industrial production, a proxy for demand, is 14% lower than a year ago, and won't be back to last year's peak level for a few years.
Meanwhile, Chinese stockpiling is tailing off, according to BHP Billiton chief executive Marius Kloppers. And the recovery in OECD industrial demand that many hope will fill the gap is "slow" and lethargic".
There's no shortage of raw materials either. Oil inventories are at record high, notes Nouriel Roubini of New York University, while copper inventories are at their highest since April. Barclays Capital reckons the aluminium surplus could jump by 29% in 2010.
"Apparently, the absence of physical demand is being compensated for by investors" rushing into commodities, says Eugen Weinberg of Commerzbank. The risk of a correction is growing by the day.
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