It’s not just oil prices affected by unrest around the world …

April 6, 2011

The rate of change on base metal prices around the globe is as volatile as the world’s weather. The latest metal to drop, when in reality a world shortage is predicted, is copper. Those in the know expect a drop in purchases by Japan following the earthquake and tsunami on March 11 which closed factories and caused the worst nuclear accident in a quarter century. That trend should reverse because the country, the fourth-biggest copper user, will need to rebuild, draining stocks of copper as growth in mining output slows as no new mines are brought on stream this year.

China, which uses 39% of the world’s copper saw a drop in demand because of the week-long Lunar New Year holiday and although still predicted to grow at more than five times the pace of the euro region, the statistics for  next month will be crucial to copper prices. On the other hand the US economy is “getting better month by month,” according to Warren Buffett, with business activity growth in March at almost the fastest pace in two decades and consumer confidence rose for the first time in five weeks so now forecasters say the economy will expand 3.1% this year, compared with 2.9% last year.

While commodity prices beat stocks, bonds and the US dollar in the first quarter of 2011 the protests across northern Africa and the Middle East boosted crude prices to their highest in more than two years. And, as both copper and zinc were among the worst performers of 24 raw materials, it was somewhat surprising that sugar, wheat and cocoa were also among the losers, (even though food prices in the UK are still on the rise).

The impact of events in Japan and the Middle East may mean that metals prices stall in the next several months before rebounding but the world economy is still expanding. Gross domestic product growth will accelerate to 4.4% in the third quarter and 4.5% in the following three months, compared with 3.8% this quarter and this means demand for all commodities and metals will rise …. Or so says the experts – but who knows what other natural disasters are round the corner and which other countries will experience social unrest.

So the question for anyone involved in mining remains what, by when and by how much, next week, next month, next year?  Post your answers below …..