Prices for aluminum and nickel have both gained in recent weeks. On the London Metal Exchange, aluminum prices rose 11% and nickel was up 31% last year.
Copper prices /quotes/comstock/21e!f1:hg\h11 (HGH11 454.80, +0.35, +0.08%) on Tuesday touched their highest level ever recorded on Comex in New York after ending 2010 with a 33% gain. Read about copper’s recent record high.
Much of those gains came as data supported the idea that consumption from emerging market economies will continue to grow at a strong pace.
And as “emerging market demand has been the big driver behind industrial metals, these metals would also seem the most susceptible to any slowdown,” said Chris Mayer, a managing editor for Agora Financial and contributor to the Daily Reckoning.
“There is too much hitting these countries too fast,” he said, pointing out that emerging economies are getting hit by rising prices for food, oil and industrial metals, and the central banks of several big countries, including Brazil and China, are raising interest rates.
“The industrial metals as a group are unattractive simply because I believe that emerging market demand will slow,” he said.
The HSBC Emerging Markets Index, which tracks purchasing managers’ indexes in 16 emerging markets countries, accelerated in the final quarter of 2010 as manufacturing rebounded. The index rose to 55.7 from a five-quarter low of 54.2 in the preceding quarter. Read earlier Emerging Reports report on HSBC index.
But inflationary pressures are a key risk to future growth, HSBC said in a press release dated Jan. 10, with input cost inflation quickening in the fourth quarter to the fastest level since the second quarter of 2008.
That, in turn, clouds the outlook for industrial metals.
“We are concerned about the possibility of some overheating in growth economies,” said David Coffin, editor of HRAAdvisory.com, which publishes newsletters dealing with the mining market. “China, but also India and a number of others, are seeing inflation start to become a factor.”
“If moves to deal with this continue, it could slow growth enough to impact raw material prices,” he said. “This will be all the more true if food prices also continue to rise since, obviously, funds go to that sector first.”
That may have already started happening.
World food prices jumped to a new historic peak in January for a seventh-straight month, according to the Food and Agriculture Organization of the United Nations. Read the details on the food price surge.
Inflation ‘fire storm’
A new middle class, with more disposable income to spend, has been developing in emerging market economies — adding to assumptions that commodity demand is set to rise.
As people’s “tastes” change and savings increase, the world will need more primary inputs, or “grass-roots commodities,” to satisfy consumer demand for food and infrastructure needs, said Jonathan Barratt, managing director at Commodity Broking Services in Australia.[..]
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