China plan, G-20 send commodity prices up

Written by Commodities Bureau | Agencies | New Delhi, Nov 10 | Updated: Nov 11 2008, 07:11am hrs
Commodity markets across the globe surged on Monday on hopes that demand for key base metals, iron ore and also some agricultural products would re-surface after China, the world fastest growing major economy, unveiled an around $600-billion package to boost spending. Assurances by major countries of the G-20 to take all action to fight global recession, also boosted sentiment in the commodity markets. Oil leapt 6.1%, gold rose 2.6% and copper 9.7%, helped by a weaker dollar and optimism that plans to lift growth in the worlds largest economies could avert recession.

Experts said that although the Chinese spending plan would support commodities in the short-to-medium term, its capability to adequately offset the general weakness in other markets still remains unclear. Meanwhile, finance ministers and central bankers representing 90% of the global economy gathered at the G20 groups annual meeting in Brazil and promised to take all steps needed to revive financial markets and defuse the credit crisis. This sent European share prices up, as commodity stocks soared. At 1202 GMT, the FTSEurofirst 300 index of top European shares was up 2.6% at 938.34 points. The DJ Stoxx European basic resources index jumped 13%. Shares of all major metal companies like Rio Tinto, Anglo American, Xstrata and BHP Billiton who have a big stake in a booming Chinese economy rose 14%-15% on news of the Chinese package. At 1810 IST, spot gold in international markets stood at $753.80 an ounce, after touching a high of $754.70 up 2.6% from $734.80 in New York on Friday, as a fall in the dollar against the euro increased its appeal as an alternative asset. Hopes of rising demand triggered by Chinas stimulus plan helped to boost prices of oil, base metals and grains.

Some of the key commodities likely to be supported are steel, iron ore, copper and oil. At 1815 IST, US light crude for December delivery was up at $64.60 a barrel, after rising to a high of $64.74, up 6.1% against Fridays close. But prices are down 30%. Demand for petro products has declined across all major regions, said Michael Lewis, head of commodities research at Deutsche Bank.