Equity markets need to get used to considerably more volatilty in global metals price cycles as the “norm” rather than presume sudden movements are the end or start of bull or bear runs, according to a senior resources financier. They were also told that the positions of hedge funds within the resources boom and the emergence of developing countries as major new bidders for developed resources assets globally, will increasingly impact metals market movements.
The advice was issued at the Paydirt Asia Pacific Downunder Conference in Perth by German-based global project finance bank, WestLB’s Head of Metals and Mining for Asia Pacific, Rod Hill. “We have to be conscious of a number of factors now adding to the jitters in metals pricing even though I believe the demand fundamentals of the resources industry and metals prices remain extremely strong,” he said. “No doubt China is the largest influence but it also poses the biggest risk in that the Chinese economy is export led and potentially remains exposed to any shocks that arise on the broader economic picture elsewhere. Some of the mixed or uncertain economic data currently coming out of the United States is exacerbating the jitters so a consequence is that we are all watching to see how the China economy continues to build.
“I expect to it to become more isolated from major external factors such as the US. I see no stoppage in its urbanisation which is gradually moving inland as everything is getting so expensive on the coast. “The final jigsaw in the metal price jitters is the current role of hedge funds,” Hill said. Their entry into the resources sector has pushed prices higher over the past several months.
“However, there remains the risk that if they encounter problems in other parts of their portfolios, cash may be pulled from metals commodities quite dramatically. This is however, volatility, not necessarily the end of bulls runs and we need to get used to it.”
Hill told delegates the metals sector was enjoying unprecedented times, with the 27 month copper price of around $6,000 some 150% higher than the average price over the past 20 years.
He observed that recent globalisation had resulted in several major Asia Pacific projects now being held by new players. “We have seen emerging country companies, CVRD, taking over developed country companies and we can expect this trend to continue.
“Within this environment, Australian equity markets are not giving as much value for their resources investments in the Asia Pacific as other overseas markets are – yet Australia is on the region’s doorstep and should be a major supporter.”