Rio warns of commodity price volatility
Global miner Rio Tinto warned on Thursday of high levels of volatility in commodity markets, pointing to risks to robust prices from monetary tightening in the developing world and European sovereign debt crises. The warning, in a report published alongside its first-half results, comes as worries over the strength of global demand battered base metals prices and equity markets. The UK mining sector was down 4.3% at 13:20 GMT, hitting its lowest levels since September last year, and copper hit its lowest price in almost a month. Rio, which forecasts Chinese GDP growth of 9.5% this year, said strong demand for metals, combined with supply constraints, suggested high prices for the rest of 2011 and into 2012. But it highlighted two key risks – the pace of credit tightening and the potential for European and US debt troubles to destabilise the broader global economy.
“Given this range of risks, it seems likely that news or rumours affecting expectations about monetary, credit and fiscal settings as well as the broader health of the financial sector will induce ongoing volatility in commodity markets, albeit around an elevated price trend,” Rio chief economist Vivek Tulpule wrote.
Tulpule said he expected increasing prosperity in China, India and other developing economies to drive demand growth and pointed to economic imbalances being resolved, including high debt levels in developed countries and a reduced dependence on exports in China.
“We expect that real long-run prices and margins for almost all minerals and metals will average significantly higher going forward than in the decade preceding the most recent six-year boom, but price volatility is also expected to be elevated — a pattern we have dubbed as the ‘saw tooth economy’,” he said.
“Given this range of risks, it seems likely that news or rumours affecting expectations about monetary, credit and fiscal settings as well as the broader health of the financial sector will induce ongoing volatility in commodity markets, albeit around an elevated price trend,” Rio chief economist Vivek Tulpule wrote.
Tulpule said he expected increasing prosperity in China, India and other developing economies to drive demand growth and pointed to economic imbalances being resolved, including high debt levels in developed countries and a reduced dependence on exports in China.
“We expect that real long-run prices and margins for almost all minerals and metals will average significantly higher going forward than in the decade preceding the most recent six-year boom, but price volatility is also expected to be elevated — a pattern we have dubbed as the ‘saw tooth economy’,” he said.
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