Commodities rally is intact, says Deutsche Bank

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Jan 15: Deutsche Bank AG, Europe’s biggest securities firm, said falling commodities prices in the past month don’t indicate the end of a rally that began five years ago, in contrast to a forecast from rival ABN Amro Holding NV.

Commodities prices are undergoing a “recurrent correction in a continuing bull run,” and could stay high for an extended period, the bank's Michael Lewis, Peter Richardson and other analysts said in a January 12 report. Prices of nickel, zinc, gold and grains could rise further this year, the bank said.

The Reuters/Jefferies CRB index of 19 commodities has fallen 9.6% since the end of November, and Dutch bank ABN Amro said on January 9 the slump was “the definitive end” of a rally in base metals.

Copper has declined 35% since reaching a record in May last year, and oil is down 32% since July. The supply-demand situation still provides “the basis for an extended period of margin expansion for producers as a result of elevated prices,” Deutsche's analysts said. Global economic growth will be “above trend,” and investors should favour metals such as nickel and zinc, which still face shortages.

Goldman Sachs JBWere Pty, the Australian affiliate of the world’s most profitable investment bank, last week also said the recent fall in metal prices was a “temporary correction.”

An adjustment to the weightings of the Dow Jones-AIG Commodity index had led funds to sell metals, and commodities would still benefit from Chinese demand and tight supplies, Goldman said.

Deutsche raised its price forecasts for nickel, used in stainless steel, by 62% for 2007 to $14.28 a pound, and by 110% for 2008 to $14.06 a pound.

Spot nickel prices averaged $10.96 a pound in London last year. The bank also increased its 2006 zinc forecast by 6.7% to $1.67 a pound. Rising demand from Chinese stainless-steel makers, and delays to the nickel projects of Cia. Vale do Rio Doce and BHP Billiton Ltd, the world’s largest and third-largest such mines under construction, means there will be a nickel deficit until 2009, the bank said.