Crude oil is not the only commodity seeing a price correction on fears of an economic slowdown. The same sentiment is driving prices of a range of important industrial metals like copper, zinc, aluminum and the precious metal gold. As a result, prices are now below what they were three months ago.
Even steel, which has played a key role in all-round inflation, has softened from July levels, though current prices are still higher than in May. For instance, the ex-factory price of hot-rolled coil, which is used in automobiles and consumer durables, in South Europe, has come down from $1,262 a tonne last month to $1,228 a tonne now, but it is still double the August-2007 price.
An exception is coal. The export price of coking coal from Australia, one of the world's largest suppliers, has jumped almost 15 per cent since May to $405 a tonne. "Coke as well as coking coal supplies are very tight and inventories continue to be low," said Essar Steel Chief Economist Ishwar Hegde.
This fall in most key commodity prices comes after a relentless climb in prices for over two years. Western economists have said fast-growing Chinese and Indian economies were largely responsible for this unprecedented rise in commodity prices. With both the countries battling record inflation levels, the demand for commodities is expected to see some moderation.
Sector analysts said there was an inventory pile-up of base metals like aluminum, copper and zinc in anticipation of a slowdown in the demand and this had led to a fall in prices. "The outlook for most base metals is weak," said an analyst at Karvy Commodities.
Still, others said metal prices had softened owing to the decline in crude oil prices and strengthening of the US dollar against most currencies, particularly the Euro. "It is good that crude oil prices have come down. Therefore, coal prices should also come down. This is a positive development but we do not know if this would last," said Ambuja Cements Managing Director AL Kapur.
Although most user industries (such as battery makers in case of zinc, copper in case of electrical equipment manufacturers and so on) would claim that they are still paying higher than prices a year ago, the recent decline is good news and some entrepreneurs expect prices to cool further.
However, some analysts said prices could shoot up again after the Beijing Olympics, when China re-opens the factories it had closed to reduce pollution levels during the event.
