Global Metal Prices Surge As Demand Exceeds Supply

Source : The Strait Times, Nov 23, 2007

SOARING world metal prices are having a shock and ore effect in Singapore, with manufacturers caught between a rock and a hard place, while canny investors sense a silver lining.

The rocketing gold price - up 26 per cent this year - has been hogging the headlines but copper, iron, silver, platinum and palladium have also been rising steadily, as demand continues to outstrip supply.

Manufacturing companies in Singapore are feeling the squeeze.

Mr James Wong, managing director of OE Manufacturing, said: 'Metal prices have affected our profit margin.'

OE Manufacturing, which makes hydraulic cylinders, mainly of steel, has resorted to buying semi-finished spare parts from lower-cost countries instead of just the raw material.

'Price increases in metals are much more than any offsets possible from productivity or efficiency gains in an already tight margin industry,' said Mr C.Y. Gan, managing director of Interplex Singapore, a custom metal manufacturer producing precision metal stampings.

But one man's pain can be another's gain with investors eyeing new opportunities - and safer places for their cash.

Mr Phillip Lai, head of commodity derivatives at Phillip Futures, said a combination of factors, including a weakening US dollar, inflationary pressures and terrorism threats, has bolstered the appeal of metal as an alternative investment to the greenback.

Platinum has long been touted as a better bet than gold, with looming supply shortages making it white-hot.

The metal, used to make catalytic converters in cars as well as a range of jewellery, has soared 29 per cent this year on the London Metal Exchange, outpacing gold's 26 per cent climb.

Gold and silver have both reached landmark levels in recent weeks; gold touched a record US$845.84 an ounce, while silver hit a 27-year-high of US$16.22 an ounce.

Local investors have generally favoured gold as a hedge against uncertainty. It is also easily traded, a key factor.

'Platinum investment is attractive from the standpoint of its shortage, but it is not easy to access it here as the market is not as sophisticated,' said the general manager of Standard Chartered's wealth management division, Mr Dennis Khoo.

He added that a platinum futures exchange-traded fund, similar to the Street Tracks Gold fund listed in Singapore, could be an option.

A major factor bolstering metals as an investment is the seemingly insatiable demand across the world. Emerging markets - especially industrialising powerhouses China and India - are driving demand.

Supply disruptions, with mining giants such as Rio Tinto battling rising costs and production delays at iron ore mines, are also putting pressure on price. Iron ore has trebled in the past five years and its price is set to soar by as much as 50 per cent next year.

Copper has trebled over the past five years and analysts expect the metal, mainly used in electrical conductors, to reach new highs next year.

Singapore firms are bracing themselves for more price pain. Mr Alan Tan, general manager of metal manufacturer CPM Pacific, said: 'Prices will increase down the road because energy costs continue to escalate.' He said his firm has responded by passing on the cost to its clients to cover the rise in production expenses.