A rally in base metals has lifted the copper price to over $8,000 a tonne for the first time since August 2008, with aluminium and nickel also reaching their highest levels since the financial crash.
Prices in the first quarter of the year reflected the ebbing and flowing of confidence in the global economic recovery. According to Carl Firman, metals analyst at research group Virtual Metals, late January and early February saw the base metals market fall over concerns of Chinese monetary tightening and fears of sovereign default risk in the EU, primarily surrounding Greece. "The most recent rally is due to improved US economic data (mainly housing and jobs), the perceived end to troubles in the EU and continued Chinese demand strength," he says.
Meanwhile, protracted wrangling between miners and steelmakers has seen the scrapping of the annual benchmark system of pricing iron ore contracts in favour of shorter term spot-based contracts. Mr Firman sees the move towards spot pricing as a natural progression after iron ore miners lost billions from 2007 to mid-2008 when much of their output was locked into annual contracts. Spot prices in the period exceeded contract prices by as much as a third, although the benchmark system afforded miners protection during the financial crisis.
The move towards spot pricing should give miners a greater share of profits, which would benefit BHP Billiton, Rio Tinto and Anglo American. The miners assume increased risk should spot prices fall, for example in a double-dip recession, but for now Chinese demand is managing to keep sentiment bullish.
