Product category:
Manufacturing industry news
News Release from: Economist Intelligence Unit | Subject: Industrial commodity prices - Economist
Edited by the Manufacturingtalk Editorial
Team on 30 March 2006
Industrial commodity prices to rise by
12% in 2006
The Economist Intelligence Unit's Industrial Raw Materials price index is set to rise by a further 12% in 2006 and reflects prospects of continued shortage in most commodities.
Having risen by over 10% in 2005, the Economist Intelligence Unit's Industrial Raw Materials (IRM) price index is set to rise by a further 12% in 2006 This represents a sharp upward revision from the previous minimal change expectation, and reflects prospects of continued shortage in most commodities and a renewed bull trend in the futures market
This article was originally published on Manufacturingtalk on 28 Apr 2006 at 8.00am (UK)
Related stories
The world in 2006 is ever more 'e-ready'
The world in 2006 is ever more 'e-ready' - there are over 1bn Internet users and 2bn mobile-phone users worldwide, and most countries continue to make steady progress.
Search for right skills in offshore race
The future of offshoring is not a race to the bottom on costs but a search for the right skills at the right price, an Economist Intelligence Unit report finds.
However, the downturn in 2007 will also be sharper than previously forecast: the IRM index will fall by 17% next year, compared with the 11% decline expected three months ago.
* Base metals - the biggest upward revision has been in base metals: prices are now expected to rise by over 11% this year, following a rise of almost 17% in 2005.
According to Kona Haque, the Economist Intelligence Unit's Senior Commodities Editor, "With the exception of lead and tin, stocks of most metals remain uncomfortably low and supply is taking longer than expected to help ease the situation." Anticipating persistent tightness in the markets, traders and funds have gone long again, contributing to the renewed price strength.
Further reading
Communication more important than tech ability?
Knowledge workers will be companies' most valuable source of competitive advantage in 2020, says the Economist Intelligence Unit
Give more control to local managers
To understand overseas customers better, get local, new report tells multinationals
Collaboration key to corporate survival
Collaborative partnerships will be key to corporate survival, reveals a new survey from the Economist Intelligence Unit
Despite the prolonged bull-run, demand in most markets outside China is showing signs of slowing and, at some point, this will help reduce the upward pressure in prices.
A cyclical dip in industrial demand is forecast for the second half of 2006.
Combined with an upsurge in supply, this will push metal prices down by over 25% in 2007.
* Natural rubber - the Economist Intelligence Unit has also raised projections for natural rubber, whose prices will soar by a quarter in 2006 against 11% expected previously.
Consumption growth remains strong in China and is recovering elsewhere; but with political and weather factors affecting production in most parts of the world, the market will remain in serious deficit.
* Fibres - the fibres index has undergone a minor upward revision.
Prices are now expected to rise by up to 5% this year and 6% in 2007.
The markets for both cotton and wool are finely balanced, and modest declines in production will tend to reduce stocks and support prices.
The IRM index contributes to about 44% of the Economist Intelligence Unit's world commodity forecasts (WCF) index, the remainder being accounted for by soft commodities.
As a result of our latest changes to the industrial commodities index, the WCF index will now rise by 5% in 2006, but fall by over 9% in 2007.
* Crude oil - forecasts for crude oil prices have also been revised upwards.
"Compared with our previous expectations of unchanged prices in 2006, we now see a rise of 10%, following the 43% increase in 2005", said Haque.
The changes reflect an increase in political tensions-mainly in relation to Iran's nuclear ambitions, destabilisation in Iraq and unrest in Nigeria-against a backdrop of continued shortage of spare crude oil capacity and a modest revival in demand.
Additional OPEC production should take some 'steam' off the market in 2007, and prices will ease by 10%.
For specific commodities, the Economist Intelligence Unit's current forecasts are as follows: * Overview - price forecasts for most commodities have been revised upwards amid low levels of inventories, some supply-side constraints and still-healthy demand.
The continued influx of investment funds into the markets is supporting prices, but an easing of supply/demand tightness from 2007 will see this support disappear.
* Aluminium - closure of smelters amid soaring energy and alumina costs are keeping the market tight.
With stocks low and demand remaining strong, prices will remain high for longer.
* Copper - critically low stock levels continue to make the market attractive to investment funds, with prices reaching new highs.
Demand is responding, however, and as supply expansions start hitting the markets, we expect prices to dip from 2007.
* Crude oil - amid low global spare capacity and a pick-up in demand, oil prices are very vulnerable to supply-side risks.
Growing geopolitical tension in Iraq, Iran and Nigeria will add a risk premium to prices in 2006-07, somewhat offsetting the impact of additional supplies from OPEC.
* Fibres - global supply and demand for cotton are forecast to be broadly in balance, but with stocks at low levels in China, prices will rise modestly over the next two years.
Similar prospects are seen for wool, although stocks remain plentiful in Australia, curbing the potential growth in prices.
* Lead - recent high prices are unsustainable.
Stocks are building up as capacity continues to rise.
Demand prospects outside of China remain subdued and will put pressure on prices from the second half of 2006.
* Natural rubber - recent trends have more than fulfilled our expectation of higher prices, and the global shortage is likely to prove even bigger and more persistent than expected.
* Nickel - the revival in stainless steel markets, combined with the tight stock situation and renewed speculative interest in nickel, will support prices for much of 2006.
But supply additions will push the market into surplus in 2007.
* Tin - while the market remains in surplus, tin stocks will continue to climb.
A pick up in seasonal demand will assist prices in the first half of 2006, but supply increases thereafter will put the market under pressure.
* Zinc - a recovery in the galvanised steel sector is boosting demand, but structural shortages in supply continue.
The underlying supply/demand factors are overwhelmingly positive, and prices will rise so long as the market remains in deficit.
* About the Economist Intelligence Unit - the Economist Intelligence Unit, the business information arm of The Economist Group, publisher of The Economist, is the world's leading provider of country intelligence, with over 500,000 customers in corporations, banks, universities and government institutions.
Our mission is to help companies do better business by providing timely, reliable and impartial analysis on market trends and business strategies.
• Economist Intelligence Unit: contact details and other news
• Email this article to a colleague
• Register for the free Manufacturingtalk email newsletter
• Manufacturingtalk Home Page
Search the Pro-Talk network of sites
