Commodity price boom to continue

EXPERTS are predicting that an unprecedented commodity price boom that has seen metal, energy and some agricultural prices - including orange juice and refined sugar - hit record highs, is set to continue.

Copper yesterday rose to a record for a fourth consecutive day, leading a rally in metals as investors bet returns will beat those on stocks and bonds. Zinc climbed to an all-time high and nickel jumped to a level not seen in 17 years.

And according to investors, mining groups and sector analysts, instead of signalling a top of the market, hedge funds and some mining executives believe prices have further to rise because they remain far from their highs in real price terms.

Yesterday gold also reached a 25-year high of $598 a troy ounce, silver a 23-year high of $12.50, copper and zinc hitting new highs of $5,930 and $2,917.5 a tonne respectively, and Brent crude futures 61 cents higher at $67.90 a barrel and within $1 of their record high. Zinc has more than doubled in price and analyst forecasts copper could rise to as high as $7,000 a metric ton this year.

The surge is being fuelled by global economic growth, tight supply and rising inflows of investment, compounded by conservative planning prices among mining companies which have held back mining investment, say analysts and hedge fund managers.

Production stoppages and rising demand in China and throughout Asia are also exacerbating shortages of industrial and precious metals, prompting mutual and hedge funds to buy.

Fund investments in commodities are now forecast by Barclays Capital to climb by more than a third to $140 billion this year, evidenced by mining stocks enjoying unequalled sectorial growth.

In the case of copper, global inventories have fallen because, even though demand is outpacing supply, many mining companies remain sceptical that current prices will last.

Most copper miners base investment decisions on a long-term planning price of 80-90 cents a pound. However, the price has quadrupled in the past four years to about $2.70 a pound.

Commodity prices are also drawing attention from European pension funds seeking to diversify away from equities and bonds. The move signals longer-term investor interest and, as a result, some in the commodities industry believe prices are set for an upward re-rating.

The Goldman Sachs Commodity Index, which includes copper, zinc and gold, has grown 20 per cent in the past year, double the gain in the Standard & Poor's 500 Index of stocks.

The booming economies of China and India are stoking demand for the raw materials needed for factories, cars and appliances. China's economy expanded 9.9 per cent last year and is headed for similar growth this year. Copper has risen 78 per cent in the past 12 months.