Copper and goldWatch gold, copper in 2008
StephanieTong
Monday, December 31, 2007
Commodities, especially gold and copper, are expected to outperform the market next year as production lags behind rising demand in Asian countries.
"We are still at the early stage of a secular bull market in the commodities sector. There is ample upside potential for all commodities, especially gold," United Overseas Bank Kay Hian analyst Zhang Xi wrote in a report.
A weakening US dollar, growing inflationary concerns and increasing market turmoil have spurred strong demand for gold as investors diversify their portfolios out of US dollar assets for hedging, Zhang said.
"As the oil price will continue to increase next year, the gold price, as usual, will follow the uptrend, triggering large countries like China and India to have more gold reserves," Sun Hung Kai Financial strategist Castor Pang Wai- sun said.
In 2008 the average gold price is likely to be US$800 (HK$6,240) an ounce, compared with US$696 this past year, according to the median estimate of 37 traders, analysts and investors surveyed by Bloomberg.
The gold price hit US$830 an ounce on Friday.
Pang expects it to pass US$850 an ounce in the first half of 2008 - its previous historical high in January 1980.
As for the second half, Pang said it will hinge on the speed of decline in the US economy.
The London Metal Exchange copper price soared 18.5 percent this year, reaching US$6,715 per ton on Friday.
"Global copper supply is still unable to keep up with the pace of demand. Copper output is crippled not only by labor disputes and mine accidents, but also the mining of lower-grade copper ores as high-grade ores are gradually being exhausted," Zhang said.
According to International Copper Study Group figures, in September global refined copper production was 265,000 metric tons less than the usage volume compared to a surplus of 210,000 tons a year ago.
Jiangxi Copper (0358) is tipped as the best copper play for 2008. Its shares closed at HK$18.90 on Friday, up 138 percent from a year ago.
The steel price will also rise next year on the back of significant increases in the cost of iron ore.
"China is in talks with countries like Brazil to discuss the iron ore purchase price," Pang said.
"Though negotiation is still in progress, it is likely that the import price of iron ore will climb 50 percent from a year ago."
Aluminum is expected to continue its downward trend as the first half will see a growing surplus on the Shanghai and London markets.
"Inventories in Shanghai and London market have been increasing. Yet the weakened US economy tightened credit facility, pushing traders out of the futures market," Daiwa Institute of Research (HK) analyst Geoffrey Cheng Bik-hoi said.