Third world commodities rise

Press, 7 June 1983, Page 20

Third world commodities rise

By

JONATHON CLAYTON,

of Reuters

Late spring fever is sweeping London’s commodity exchanges where investors are spending lavishly and prices are hitting their highest levels for years. Bad weather in northern Europe and Ghana has boosted the prices of sugar and cocoa to two-year and three-year peaks while metals prices have also risen sharply, fuelled by hefty purchases particularly from China. The markets, which just a year ago were gloomily coping with the lowest prices for years in the midst of world recession, have suddenly become buoyant. “I don’t know if the rises signal an end to world recession, I just don’t want to miss out on the action,” one trader said. Several analysts said there was a new-found confidence on London’s exchanges, historically key centres in the world’s commodity trade, that future price trends would go upwards as the world

economy picked up. The price advances have been welcomed by developing countries, which have seen vital foreign exchange earnings from commodities choked off because of slow demand. Commodity prices slumped in recent years as industrial production braked and living standards fell leading to huge stockpiles of soft commodities — rubber, cocoa, coffee and sugar; and hard commodities — metals. However, a gradual whittlingdown of surplus stocks and a growing belief of an upturn in the world economy this year have been major factors in sparking off the recent rally. A key factor in the advance in metals prices has been buying by China. The London Metal Exchange has buzzed with rumours about industrial expansion in China. So far this year Peking is estimated by dealers to have pur-

chased more than 300,000 tonnes of copper, 100,000 tonnes of zinc, and several thousand tonnes of aluminium. Cooper soared to a three-year high recently when it traded at £llB5 (SNZ2B7O) a tonne, some £2O ($4B) above its last three-year high in February. Last week aluminium, pushed by speculator confidence, hit £977 ($2366) a tonne, approaching double its record low of £561 ( $1358) a tonne only 18 months ago. China could add nickel and other metals to its shopping list, metal dealers believe. Peking has already returned as a buyer on the Far East rubber market. Metal prices fell back slightly at the end of the week as some speculators took their profits, but dealers said the underlying trend was strong and they were expected to rise again shortly. Recent forecasts appeared to support this view. Amalgamated Metal Trading (A.M.T.), in its latest review of prices, predicted that

during the year prices for most metals would increase. “Instead of talking about how far prices will go down most major trading houses are now charting just how far they think prices will go up,” one leading trader said. A.M.T. said prices for copper could climb as high as £1350 ($3270) a tonne and aluminium may well hit £lOOO ($2420) a tonne by the end of the year. Analysts cautiously predicted firmer trends in the soft commodities as well. Sugar, boosted by problems with the rain-hit European beet crop, should stay buoyant and some analysts believed 1984 could see demand outstrip supply for the first time in three years. Cuba is struggling to meet export commitments as wet weather has seriously damaged its crop. If this year’s Soviet crop also fails, then Moscow could be forced on to the world market causing prices to rocket, some traders forecast. Others were more cautious and

said that big sugar stocks would halt any dramatic price surge. Prices have even spiralled on the potato futures market to their highest-ever levels in busy trading after the wettest British April on record. Cocoa prices have been spurred by crop damage mainly due to bushfires in West Africa and Brazil, the world’s main cocoagrowing areas. Bushfires have already led to estimates of Ghana’s crop being cut from near 200,000 tonnes to 80,000. Last week already-buoyant prices were pushed higher on reports that demonstrations in Ghana by students and workers against a recent severe Budget could destabilise the regime. Speculative and trade buying flooded into the market and prices staged several leaps of £4O ($96) a tonne, soaring to a 39-month high for July delivery of £1428 ($3458) a tonne.