Demand of commodities has reduced considerably in the third and fourth quarter of year 2008.
Base metals prices have shown a steep fall from high levels and tumbled to below mining costs.
Meantime precious metals also fell considerably but comparatively performed well in bearish second half of the year 2008.
Silver fell about 60% from its all time high, same time gold fell about 30% before recovering.
As we know commodity markets are driven by demand and supply configurations rather than speculations.
Hence nosedive in commodity prices is a formidable upshot of demand reduction.
The world GDP growth fell (estimates) considerably that caused significant damage to the demand of the commodity and in result we are evidencing unprecedented fall in the commodity prices globally.
Ongoing recession is playing the biggest spoil in the prices of base metals.
The spread of recession from America to Europe and slow down in developing world economies has strangulated the demand of the base metals across the world.
This recession, ignited with subprime crisis, has engulfed financial institutions and undermined the housing sector and now automobile industry.
Mining sector is already on toe and reeling under threat.
Mining has become unviable because the prices of products in the markets have tumbled below cost of production.
Share value of Mining companies dropped sharply in recent past.
Prices of copper, zinc, nickel, lead and aluminium fell noticeably in the same period.
Mining economies such as Peru, Zambia, Australia and Chile are a few among the worst sufferer.
But the prices of the commodities especially base metals cannot be suppressed for the longer time.
Prices of the base metals are likely to bounce back in the first half of the year 2009.
There are several fundamental, psychological and technical factors plays important role in the demand and prices of base metals.
Developing world countries have to maintain their growth rate.
Countries like China, India, South Africa and Brazil are under pressure and require performing well especially in the area of infrastructure development and more job creation to keep social unrest at bay.
China and India are highly populated countries; hence they have to generate millions of jobs every year.
Recent job cuts by the banking sector, mining companies and other corporate giants for cost cutting already set a challenge for the governments across the world.
Recently United States' jobless claims rose to 16 year high and left unemployment rate 6.
5%, mining sector contributes considerable number of it.
The input cost in mining has also been reduced considerably since 3rd quarter of the year 2008 because of reduction in energy prices and full stop on wage inflation.
This will enhance the mining activities in the regions.
Higher energy prices and rising wage inflation increased the cost of production earlier this year.
Experts still believe that the overstated recession will over very soon and demand of commodities will increase in coming year an.
The demand of base metals largely governed by the china, India, developing and developed countries but ongoing financial crisis and global slowdown reduced the demand of base metals especially copper and aluminium and prices of both metals hit the three year lows in October and continued down ward journey.
Most of the base metals prices are below critical averages and technical indicators continue to show oversold signals.
This entire situation looks like a roll spring weighed by recession and once the weight will get lighter spring will come in actual shape and size.
Housing and infrastructure sector are likely to regain momentum in middle of next year.
Recently fall in new home sales (hit 26 year low in US) and prices across the world affected a lot copper prices.
Drop in manufacturing and industrial output led the fall in prices of aluminium, lead, zinc and nickel.
But this negative sentiment is likely to change in next year and slowly situation will improve coordinated efforts across the world will yield fruits.
Governments all over the world pouring required money and fighting tooth and nail against the crisis.
Therefore base metals prices are cannot be suppressed for the longer period.
Prices will come up as soon as fog of financial crisis disappear which is likely to improve in middle of next year.
Utilization of metals will increase in the near future and so as prices.
Ongoing financial crisis is set to shed severity and the economic indicators will improve all over the world and that will spur the demand of base metals.
This whole process will take some time but ultimately the price of commodities will go up especially base metals.
Write to author for feedback at madan_stac@yahoo.
com