Message: Raw Materials rises feul hedging
 Raw materials rises fuel hedgingBy Javier Blas in London Published: May 7 2009 20:52The sharp rise in commodity prices in recent weeks is spurring unnerved corporate consumers to hedge their exposure to raw materials and rebuild depleted inventories.  As commodities prices rose to their highest level in six months on Thursday, traders said there were signs of widespread activity among consumers – airlines hedging their exposure to rising oil prices, car manufactures buying cheap aluminium, and food companies securing supplies. Investors betting on a quick recovery boosted prices. “Consumers are getting more active,” said Kevin Norrish, a commodities analyst at Barclays Capital in London. “Inventories are low and the prospects in some industries have improved recently.” The head of metals trading at a bank in London said: “Consumers are being dragged to hedge, even if their demand is not strong, because they are afraid of the rapid price increase in some markets.” Bankers pointed to hedge examples such as Delta, the world’s largest airline, which has boosted its fuel hedge to 75 per cent of this year’s needs, from less than a third late last year. Cargill and Louis Dreyfus, two of the world’s largest agricultural trading houses, last week secured a hefty position in the sugar market, pushing prices higher, to supply India, the world’s largest consumer. The surge in oil, metals, agricultural and soft commodities prices pushed the spot S&P GSCI commodity index, a basket of raw materials, above 400 points, the highest level since mid-November, 32 per cent higher than in late December. Oil has led the jump, with US benchmark West Texas Intermediate rising to an intraday high of $58.57 a barrel, well above February’s low of $32.7 a barrel, and the highest in six months. But the rally is widespread. In metals, copper is near a six-month high; in soft commodities, sugar has hit a 2¾-year peak; and in agriculture, soyabean prices have rallied 22 per cent this year. Jennie Byun, an analyst at JPMorgan in London, said economic “green shoots” seemed to be a reality. “This positive sentiment, combined with supply adjustments, US dollar weakness and inflation concerns over the long term, has played a key role in bidding up commodity prices,” he said. But in spite of commodities’ recent strength, prices are still low compared with their mid-2008 levels, when the S&P GSCI index hit an all-time high of almost 900 points. No analyst predicts a return to those levels. Traders also warned that the price recovery appeared fragile and demand outside China and some other Asian countries was still weak. Investors are betting that a quicker-than-expected recovery in global growth will support commodities demand, just when supplies could be lower because oil groups, miners and farmers have cut investment. Kurt Nelson, managing director of commodity indices at UBS in New York, said: “We have seen a pick-up in investors interest across commodities.” Copyright The Financial Times Limited 2009 |
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