A SURGE in the price of basic commodities like copper, nickel and alumina on predictions of a global economic recovery has sent resource company prices soaring – so much so that a little-knowncompany like Antofagasta, owner of a couple of Chilean copper mines, is on the brink of entry to the FTSE 100 index of Britain’s biggest companies.<\/p>\n
The surge – Antofagasta’s shares have jumped by 50 per cent over the last three months alone, giving it a market value of more than pounds 1.8 billion – has led some commentators to warn that a bubble is inflating in commodity markets. Analysts at Merrill Lynch say that the price of copper has risen by just 8 per cent over the same period and, unlike metals like nickel and gold, there is no shortage of supply. ‘The market has been enthusiastically buying these kind of highly leveraged, single-commodity players,’ said one analyst.<\/p>\n
Hedge funds have been buying futures contracts for copper and other metals – some estimate that such contracts account for as much as a quarter of the annual gold production. That has sparked concern about what will happen to prices when these positions are unwound.<\/p>\n
Gold rose to almost $400 a troy ounce last week, its highest level for seven years, driven mainly by concern about the weakness of the dollar after last weekend’s G7 meeting. Other metals are rising because of demand from China, which is buying more than a fifth of many basic commodities as preparations for the Olympics and growing industrialisation has sent the economy – and demand for consumer goods – soaring.<\/p>\n
Ian Henderson, manager of JP Morgan Fleming’s Natural Resources Fund, dismissed suggestions this was a bubble. ‘Prices have rebounded from their lows but they are miles from the peak, except for nickel and palladium.’<\/p>\n
Graham French, who runs M&G’s Global Basics fund, points out that, unlike previous commodity bear markets, there is little new mining capacity coming on stream.<\/p>\n
Cash, page 15<\/p>\n","protected":false},"excerpt":{"rendered":"
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