Commodity prices less volatile in 2009

Analysts have come up with varying target prices for oil next year, but they do agree on one thing: price movements will be less volatile than this year.

Thanks to declining oil prices, metals - including steel and cement - will also enjoy greater stability.

This was a roller-coaster year for prices of oil, other non-agricultural commodities and agricultural goods.

The Dubai crude oil price in January averaged US$87.17 (Bt3,100) per barrel, against $92.98 for West Texas crude. In July, Dubai exceeded $140, while West Texas futures on the New York Mercantile Exchange hit a historic high of $147.27 amid expectations it would climb further, to $200.

Prices started to nosedive in August as consumers began saving energy. The breakout of the sub-prime crisis in the US, which was expected to spill over to the rest of the globe, further sank the price to under $40 a barrel.

Yesterday, West Texas crude for February delivery ended at $42.20 a barrel, up $4.49, or 11.91 per cent, on fears the air strikes in the Gaza Strip would disrupt oil supplies from the Middle East.

Notably, the price - which is near the level of almost five years ago - has plunged 71 per cent from its peak on July 11.

Local oil expert Manoon Siriwan expects the price to decline further in next year's first quarter, possibly to $30 a barrell before gradually rising to $60 in the fourth quarter. On average, oil next year should sell for $50 to $55 a barrel.

"The price should further weaken in line with the global economic outlook. Economic recovery, as a result of stimulus packages, will be the only factor driving oil prices," he said.

However, it will take some time for domestic retail oil prices truly to reflect global prices, he said. Retailers must maintain the marketing margin at Bt1.50 a litre to break even, but to make up for the delayed increases earlier this year, they will have to restrain decreases in pump prices, in order to pull up the average annual margin. The average marketing margin of retailers this year is between Bt1.30 and Bt1.40.

Due to the recession in several parts of the world, the Energy Information Administration expects global oil consumption to decline 450,000 barrels per day next year. Investment bank JPMorgan forecasts oil demand dropping 400,000bpd next year, from 85 million bpd now.

Following the 500,000bpd drop this year, this is the first time in three decades world consumption has softened in two consecutive years.

In both years, growth was concentrated in countries outside of the Organisation for Economic Cooperation and Development, especially in China, the Middle East and Latin America.

An analyst from Thai Oil said oil prices would be steadier next year, with the company forecasting Dubai crude at $60 a barrel and West Texas at $65 to $70.

He believes the Organisation of Petroleum Exporting Countries will try its best to push the price to the target of between $70 and $80.

While demand in China is expected to remain strong, global demand could rise if the US economic package, including measures to help giant auto-makers, works as expected, he said.

Sahaviriya Steel Industries president Win Viriyaprapaikit expects steel prices to stabilise throughout the year in line with oil prices as well as the slowdown in real-estate development. Steel prices have fallen in the past four months, as demand has been shrinking both domestically and internationally.

Win expects global steel supply to drop 35 per cent next year from 1.3 billion tonnes in 2008. Domestic demand would fall 20-25 per cent from 12 million tonnes per year, if the government's economic stimulus package is not as effective as expected.

"I'm quite sure steel consumption will fall significantly in the first six months as the number of new construction projects drops and the automobile industry slows down," he said.

About 60 per cent of total steel consumption comes from the construction industry and 20 per cent from the automobile industry.

The Real Estate Information Centre said new housing registrations fell to 77,000 units this year, from 80,000 last year.

The number is expected to fall another 20 per cent next year.

Auto production was also revised downwards 14 per cent from 1.4 million units this year, in line with the drop in local demand and export markets. "The government's stimulus package is a key factor in improving the steel situation, because steelmakers cannot only rely on foreign markets. The government's mega-projects should be endorsed as soon as possible," Win said.

Since demand has been slipping in the cement industry for three years, the competition has been very tough.

Therefore, there's only a slim chance that cement prices will increase despite production costs rising.

On the other hand, cement prices are unlikely to decline to stimulate consumption, because energy accounts for 60 per cent of production costs.

Pramote Techasupatkul, president of the Siam Cement Group's cement operations, the country's largest cement manufacturer, said cement consumption would drop 10-20 per cent next year, from some 25 million tonnes this year.

"Demand is affected by external factors like the US sub-prime mortgage fiasco and internal factors like the political turmoil and drop in consumption," he said.

The Kasikorn Research Centre (KResearch) said cement exports would fade by 6.5-7 per cent, which is less than the 10.2-per-cent slide seen this year.

Although a global recession may materialise next year, KResearch believes Asia and Africa, which have become the main destinations

for cement exporters, will still need supplies to improve their infrastructure.

Tomorrow: Bonus payments.