Raw material prices recover tentatively as firms cut capex

London

SHARP cutbacks in mining and energy corporate capital expenditure and lower supplies have brought about a tentative recovery in raw material prices.

Indeed, despite exceedingly poor results of Shell, Rio Tinto, Anglo American and other major raw materials companies, their share prices have surged. Brent oil is up by 25 per cent from its depressed low while copper, aluminium, zinc, lead, nickel and tin have risen between 6 and 20 per cent, depending on the metal. Iron ore prices have also risen by 4 per cent.

The revival follows a severe slump from heady bubble levels in 2011 and 2012 (see table), when the majority of analysts, fund managers and other commodity market participants were so bullish that they recommended that retail investors should put their money in commodities. Such was the promotion of commodities as an investment by Goldman Sachs, Barclays Bank, JP Morgan and others that commodity assets under management by the financial industry soared from US$50 billion in 2005 to a whopping US$450 billion in April 2011, according to the Institute of International Finance. The massive increase in investment…