Latest commodity prices fall worst in recent memory - Barclays

According to Barclays Capital, the short term outlook remains positive for commodities as the recent decline has been overdone.

JOHANNESBURG (MINEWEB) -

Barclays managing director for research, Kevin Norrish, says the latest fall in commodity prices in aggregate for quarter two is the worst in recent memory.

The rapid decrease has outstripped numbers recorded since 2007 and Norrish is of the opinion that the decline has been overdone, which bodes well for the second half of 2012.

"Markets are pricing in a very, very pessimistic outlook for the global economy...and if we look at the extent of the decline in prices...the speed of that price decline is the fastest that we've seen since the depth of the financial crisis, post Lehman's" said Norrish.

Norrish pointed to copper as a leading indicator for sentiment, with that market experiencing aggressive shorting despite fairly positive fundamentals.

"Stocks [inventories] in copper have been falling consistently over the year and that hasn't stopped prices from falling pretty sharply and there has been aggressive shorting on copper in the last few weeks or so" said Norrish.

This activity Norrish believes is representative of the pessimism surrounding the outlook for the economy due to the wide use of copper in different aspects of industrial activity.

No one is pricing in a major global recession yet, Norrish says but, the growth outlook remains bleak and includes further significant slowing in China and a very depressed outlook for Europe.

Addressing the concerns around China, Norrish said that if one looked at the import trends in the country, one can see that there has been a massively strong upward trend across most of the main commodities that China imports with crude oil jumping significantly.

"From our point of view, as analysts, we spend our time looking at the supply and demand data, the fundamentals, it is difficult for us yet to see any signs that things are quite as bad as the price action would suggest" said Norrish.

In fact, Barclays are quite optimistic as far as their commodity price forecast for the second half of the year indicates below.