All metals contracts are denominated in dollars

The collapse of Amaranth, Fund American Arbitration trapped by a wrong bet on the American rating places natural gas futures contracts, has restored body to a debate that mobilizes for several years the operators in the markets for natural resources, on the influence of speculation and investment funds on commodity prices more generally. A topic which is at the heart of the debates this week for the "LME Week" the week of the London Metal Exchange, the main world market of non-ferrous metals.

Proponents of the theory of a sustainable impact prevails clearly today. They based this view on the view widely shared by many economists that the rising prices of natural resources is intended to endure long despite the increasing price volatility ensued for these commodities. But that's the problem, it is extremely difficult to support and, especially, to encrypt the new power investment funds on commodity prices. Few specialists are set to work. Among them, Peter Hollands, guru of the market for copper, Director General of the Bloomsbury Minerals Economics (BME). September 14, this renowned expert is delivered to a perilous exercise. An exercise in which he passed master but which this time was to disrupt his well consolidated vision of base metals markets. On the occasion of the annual Conference of GFMS Limited on non-ferrous and precious metals held in London this day there, this Economist delivered a detailed analysis of the structure of the prices of base metals. His conclusion is clear cut: investment funds that build on indices of raw materials have become an essential structural element and dedicated to this role for long of the training courses of the main metals quoted by the London Metal Exchange (LME), world place of reference for the negotiation of these mineral resources.

This factor will thus join the three conventional determinants of this category of raw material prices: the cycle of official stocks of physical metal from the LME, hardware consideration for futures contracts, the production cycle industrial, highly correlated to the evolution of the demand for metals, and the variable exchange rate. All metals contracts are denominated in dollars. The effect of the intervention of the funds in these markets is amplified in the months from 2005. But his booming date of the last quarter of last year. Today, aluminum, this "speculative" component weighs more than parity the greenback and the cycle of the application. Only changes in the physical metal reservations expressed in equivalent of weeks of global consumption harder have an impact on the market price of the non-ferrous main. In the formation of copper and nickel prices, index funds rely as much as the dollar. In setting the course of the lead, they are involved in the last place. But its market is much less funded than the three previous ones. Only Tin completely escape the grip of the Fund. But his market shows modest negotiated volumes of the LME.

The complex analytical model developed by the ear shows that, as soon as indices of raw exceed $ 75 billion invested on them by the Fund are (today they nearly 130 billion), ability to condition the metal prices increased sharply. Between 25 and 75 billion, the impact is gradually feel and it is just below the 25 billion that it is virtually non-existent. "The increase in raw material stimulates purchases of index funds." These purchases contribute in turn to grow more courses. "It is thus a circular causal relation", summarizes Peter Hollands. Underestimation of this element leads analysts to strongly sous-apprécier price forecasts.

Examples Analysts expect on a course of long-term aluminum to 1,800 dollars per tonne, $ 250 only more than the average price observed on the last ten years. Today, aluminum scheduled for delivery in three months to addresses in London around $ 2,500. The price is higher than some 700 $ in the consensus of specialists! And this despite the diving carried out by the non-ferrous since its Summit in 2006, registered in mid-May, of 3.185 dollars per tonne. For zinc, experts anticipate 1,300 dollars per tonne, while current prices exceed $ 3,300. For copper and nickel, this gap is infinitely more important. The average estimate of analysts is below 4,400 dollars for the first and the second $ 18,000.

The intervention sustainable and massive funds in the base metals markets thus produces a first significant effect: it may not disrupt the evolution of the courses but significantly alter the level. Finally, stressed Peter Hollands, "additional purchases that it generates represent a new form of the claim to offset the signals emitted by the inventory levels." Funds thus play an increasing role in the relationship between supply and demand of the non-ferrous dramatizing, as is still the case these days, any drop in physical metal kept in the warehouses of the London place. There, the investments of the Fund contribute actively to the price support.