Higher metals prices on tap for 2012: Barclays

CAPE TOWN, South Africa -- Commodity price risk that is now to the upside and Barclays Capital analysts believe that 2012 is going to be a good one for producers of industrial metals and precious metals, Kevin Norrish, the bank’s managing director of commodities research told the Investing in African Mining Indaba on Monday.

The result will be gold trading above $2,000 an ounce, copper trading consistently above $9,000 a tonne by the second half of the year and platinum by the four quarter averaging somewhere around $1,800 an ounce, he said.

Norrish kicked off a series of metals and commodities presentations to an estimated 7,000 mining industry stakeholder by noting that the Mining Indaba was gathering in a reasonably optimistic mood but added “that it is fair to say that there is a ghost stoking the commodities market still and that ghost is a fear of return to the days of 2008 and 2009.”

He added, “If you look at what's happened to prices since the second half of last year you can see that they were dragged down right across the commodities complex by concerns about Europe and contagion of the sovereign debt crises.”

The speed with which prices fell in the latter part of 2011 was very reminiscent of the speed at which prices were falling in 2008 and 2009,” he says. “So a lot of people say we’re coming into 2012 with the risks very clearly to the downside. I would disagree with that. Certainly our view is that 2012 is going to be a good year for commodities prices and it’s going to be a particularly good year for base and precious metals, In fact the risks are very much tilted to the upside.”

He noted that a number of thing have changed considerably in the commodities market and in the metals markets over a relatively short space of time since 2008-2009.

“First of all, what’s changed?” he says. “You don’t need me to tell you how important China is in commodities markets these days. The world is getting more commodity intensive and that is mainly because of the emerging markets and particularly because of China moving up the development curve.”

Norrish emphasized how important China has become to the global commodity markets. “But I'm not sure if even people in this room realize just how important China has become. Two statistics for you: In 2010 on average across global commodities markets looking industrial metals and energy and agricultural commodities markets, China accounted for 50% of demand growth. Last year it accounted for almost two-thirds of demand growth.”

The speed at which China is increasing in importance can be viewed in two ways, he noted. “If you in the audience are bearish on China this year and you think China is going to have a hard landing, then that will be very, very bad for commodities indeed. But if, as we expect, China does engineer a soft landing, then the outlook has to be fairly positive.”

Industrial metals markets and increasingly precious metals markets are being linked much more strongly to the long-term structural growth trends in emerging markets involving elements like urbanization and rising living standards than had been experienced in cyclical trends in the last 20 or so years in industrial mature markets,” Norrish says.

“The next change is that costs are continuing to soar,” he added. “I'm sure many of you in the audience, the miners among you, are aware that costs are actually getting ratcheted higher all the time. So what this means is that the floor for prices is that much higher as well.”

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