Commodity Blog

Commodity prices may shatter recent records and hit fresh peaks as buoyant demand for metals is little affected by any downturn in the United States, mining group Rio Tinto (RIO.AX) (RIO.L) said on Wednesday.
“Looking forward, it is entirely possible that some commodity prices have yet to reach their cyclical peaks,” Rio’s Chief Economist Vivek Tulpule said in a statement released along with the firm’s full-year results.
Many investors are cautious about the resources sector, concerned that commodity prices will stagnate or fall due to a possible recession in the United States and more supply from new mines coming on stream.
But Rio believes that strong demand from China and other developing nations will offset weakness in Western economies, Tulpule said.
“It is important to remain mindful of macro-economic risks relating to OECD growth,” he said.
“However, it is also important not to exaggerate these risks as our modelling suggests that they should not have a significant impact on the developing economies that have been the growth engines of commodity demand.”
Chinese economic growth is expected to remain strong at around 9–10 percent even amid a sharp U.S. recession, he said.
Global aluminium consumption rose last year at its fastest rate in recent history while higher costs and a stronger currency has boost marginal costs of production in China.
In copper, constrained supply conditions and above-average demand growth in 2008 mean that prices should hold well above trend levels. Growth in iron ore supplies from high-cost producers are expected to slow this year while steel output is seen growing strongly.
“In this environment of strong demand growth and constrained supply, the iron ore markets can be expected to remain and perhaps become increasingly tight,” Rio said.
Rio has rejected a sweetened but hostile takeover offer worth $147 billion from rival BHP Billiton.