Commodity prices to fall

MELBOURNE - Commodity prices may fall as much as 49 per cent during the next two years, led by alumina and cobalt, as miners increase supply, according to a poll of brokerages and research companies by Australia's Access Economics.

Of 20 metals and minerals analysed, only ilmenite is likely to rise between now and June 2007, and the rest would fall, said Canberra-based Access Economics, which polled 11 analysts from firms including Citigroup and Deutsche Bank.

BHP Billiton, Rio Tinto Group and Anglo American plan to spend US$20.9 billion ($30.8 billion) over the next three years on expansion after prices of copper and iron ore rose to a record. The Reuters-CRB Futures Index, which tracks commodities such as oil, copper and soybeans, in March rose to its highest since 1980 as China's economic growth fuelled consumption.

"The fundamentals now seem to point to modestly weakening commodity demand growth and rather more importantly for prices, strengthening supply growth," said Access Economics.

"The consensus forecast is therefore for prices to fall for most commodities between now and mid-2007."

Demand may slow because of weaker economic expansion in Europe, Japan and South America, the report says.

The price of alumina, a semi-finished material used to make aluminium, will lead declines with a 49 per cent plunge to US$221.08 a tonne in the next two years, according to the average estimate from the Access poll.

The price of nickel, used to make stainless steel, may drop 34.6 per cent to US$10,768.37 a tonne. Copper, used to make pipes and wires, may drop 31.4 per cent to US$2326.75 a ton. Oil may fall 23.4 per cent to US$40.72 a barrel.

Ilmenite, a titanium dioxide mineral used to whiten paints and textiles, may rise 3.7 per cent. The price of uranium may have the smallest decline, falling 1.8 per cent to June 2007.

Most 2007 metals and minerals prices will still be as much as 50 per cent higher than their long-term average, suggesting further declines, Access says. Long-term oil prices may average US$35.94 a barrel, the survey shows.

Commodity demand will likely stay higher, or in a so-called "super-cycle" because of China's emergence as an industrial giant, says the report. China is the world's largest consumer of iron ore, steel and copper.

- BLOOMBERG