UK-based financial institution Barclays Capital expects that, while the commodities outlook for 2009 is inauspicious, there are signs that the market has begun to bottom out.
Addressing delegates at the 2009 Mining Indaba, in Cape Town, Barclays capital director of commodities research Kevin Norrish states that the last five months has been exceptionally tough for the mining industry in terms of decreased demand for commodities, which has depressed prices.
The speed of the commodities price decline has been unprecedented and he adds that this is evidenced by the fact that industrial and energy commodity stocks have lost 60% of their value in the last five months.
However, he believes that the commodities market is begin- ning to bottom out and the price of industrial commodities is starting to stabilise.
Indicators reveal that the markets are transitioning into the latter stage of recession and that the low point of growth will be in the second quarter of this year.
Norrish expects the first quarter to prove the bottom of the price cycle, and expects growth to improve in the second half of the year.
However, conditions are unlikely to be in play for a sustained recovery until late 2009.
Norrish lists three factors that encourage the belief that the commodities sector will begin to improve later this year. These include the fact that Chinese business confidence is bottoming out, dry-bulk rates are moving up and the decline in US home loan applications has stalled.
In addition, he argues that China’s spending package will support economic growth and increased demand for metals, particularly copper, aluminium and zinc.
There are also tentative signs that investors are returning, albeit cautiously, to commodity investment, he adds.
“It will be a difficult year but there is reason to believe that we have seen the worst,” enthuses Norrish.