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Thursday, 13 May 10
CHINA CONCERNS TO TEST RAW MINERALS - THE AUSTRALIAN


The Australian reported that, COMMODITY prices will remain volatile and drop from recent highs as China's appetite for raw materials softens. James Clarke, regional head of commodities, metals and mining research at BNP Paribas, said China was going through a tough period, which would result in commodity price volatility.

"China is heading into a bad patch but the government has the policy flexibility and resources to soften the tightening they are doing now and to sustain growth," he said. "The tightening is going to happen but it will be softer than most market participants expect and demand will hold up."

The pricing environment had dramatically changed over the past few months as China absorbed slightly less than might have been expected a couple of months ago, Mr Clarke said.

"The whole complexion . . . has recently changed, so as traders liquidate their positions, prices come down," he said.

"The rest of the world is cautious towards China, as they lose confidence that the powerhouse is going to continue to suck up absolutely everything that is thrown at it and prices are going to go down."

Concerns about the strength of Europe have weighed on commodity prices but the impact is not as severe as a slowdown in the US would be. "It is the US that has been driving the recovery, so the US slowing is far more important than the EU slowing some more," Mr Clarke said.

"Australia is on the right end of the equation, because you are selling to everybody else what they desperately want -- but the rest of the world is far more pessimistic.

"The issue isn't what happens but what people are worried about will happen, which is driving equities and commodity prices."

The risk to pricing is expected to be across commodities, but coal is tipped to maintain the best price support.

Interest in Australian coal has been growing and Thailand's biggest coal producer, Banpu, emerged last week on Centennial Coal's register with a 14.9 per cent stake.

Iron ore prices are also expected to remain strong and Rio Tinto has flagged that prices are now above pre-global crisis levels.

Rio iron ore boss Sam Walsh said last week strong steel demand, higher Indian export taxes and Chinese restrictions on low-grade ore had pushed prices sharply higher.

Mr Clarke said a future risk to long-term pricing was China's increasing global expansion.

"China's investment in overseas projects won't be done on a profit-driven basis, it is more for securing the resource," he said.

"As they invest more overseas, you will see more pressure on prices, but that will take several years."
Source:
The Australian - Sarah-Jane Tasker



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