Emerging markets demand and high operational costs will hinder a slide in resources prices, according to Scotiabank economist and commodity market specialist Patricia Mohr.
The GFMS Base Metal Index, which measures price trends of resources, including copper and zinc, has fallen over 20 per cent since May.
Shares in major global miners, including Switzerland-based Xstrata, Canadian-based Teck Cominco, BHP Billiton and Rio Tinto, have fallen over 35 per cent since their peaks earlier this year.
“Base metal prices, especially zinc and nickel, have lost considerable ground in recent months, and will likely move irregularly lower over the next several years,” Mohr said in a statement.
However, Mohr said declines will be more limited than in past business cycles, as demand from emerging markets remained strong, while some companies found operational costs too high, possibly forcing them to cut or stop production.
She added the reason oil prices have fallen from a record US$147.90 on July 11 to as low as US$90.51 just over a fortnight ago, was partly due to investment and hedge funds repositioning their investments.
“A US dollar rally that began in June… encouraged funds to start reversing widely-held positions put in place earlier this year… dampening [New York Mercantile Exchange] oil futures even more,” Mohr said.
Platypus Asset Management portfolio manager Prasad Patkar, who manages the $1.8 billion Platypus Australian Equities fund, said it is mainly the large cap miners that can remain profitable amid falling base metals prices.
“What you will see suffering is high-cost operators who ramped up the mines when prices were going through the roof,” he said.
