Demand to increase strongly in next six months: Barclays

Director of commodities research at Barclays Capital in London, Kevin Norrish, was visiting Sydney this week.
Speaking to the investment community on June 10th he said that Barclays Capital believes China’s growth bottomed in the fourth quarter of 2008 and that demand will increase strongly in the coming six months.
He concentrated chiefly on demand for metals and other commodities by China and the implications for the world’s commodities producers.
Barclay’s view is that market participants overestimated the extent of the downturn in early 2009, and that the de-stocking which was responsible for the bulk of the demand decline is now over.
Norrish said that Government investment is promoting recovery; spending on new projects has increased sharply and credit growth is picking up strongly.
He told the ABC’s Lateline program on June 9th in regard to the bounce back in demand that has been seen in the past two months, “On the one hand you've got very, very weak demand store coming from the major OECD countries, the US, Europe, Japan. We've seen declines of 25, 30 per cent in terms of metal demand and fabricated output of metal products, and clearly that sector is still…weak.
“But I think what surprised everybody is just how incredibly strong China has been. China's been very, very active in lots of different markets.”
He said this is infrastructure related which has translated into demand for commodities such as steel, aluminium, copper and zinc. “The other thing is you've also seen the Chinese Government getting involved in strategic stockpiling of certain metals, copper in particular…but other metals as well.”
Apart from the huge underlying demand for metals from China, being the world’s biggest consumer, Norrish believes the stockpiling is about securing resources at a time when prices have been relatively low.
He sees this “extraordinary burst of activity” as temporary and followed by a slow down in metals demand, maybe lasting four or five months.
But broad OECD leading indicators and those specific to the metals sector are indicating the potential for a strong recover later on this year, according to Barclays Capital.
“Eventually demand does come back,” Norrish said, “whether or not metals prices continue to be as strong as they have, and gold prices, industrial metals prices like copper, aluminium…will now, I think, depend very much on what's happening in Europe, US and Japan.”
“And ultimately…I think it won't be too long - probably talking about three or four years here - before the prices of some commodities could well be challenging or exceeding the prices, the high price levels, the record price levels that we saw in the last cycle.”
Norrish believes this would be based on much higher growth rates for demand because of China, and higher costs to meet that demand, which would inevitably lead to higher prices for commodities.

Click here to download Barclay Capital's base metals price forecasts.