Global mining giant Rio Tinto warned of the commodities markets slowing due to the health of the world’s leading economies after the company saw customers request for shipment delays of physical metals. Analysts believe this is a clear sign that the financial turmoil is beginning to affect the commodities sector.
The warning represents a shift in industry sentiment and investor confidence from last month, when most miners, commodities traders and oil groups forecasted record profits in a confident outlook for commodities demand and prices despite falling equity markets.
Volatility in financial markets
Rio Tinto expressed concerns over the health of the slow recovery of developed economies and the accompanying volatility in financial markets which have seen a rollercoaster summer of trading as the European sovereign debt crisis continues.
“It is noticeable that markets are somewhat weaker,” said Rio Tinto chief executive Tom Albanese in an interview. “In a few cases, customers are asking to reschedule deliveries. “This is consistent with customers being cautious about the current state of business.”
Last week, base metal copper prices hit a nearly 10 month low as demand weakened for the widely used and traded industrial metal. In addition, oil prices are beginning to decline as are prices of other commodities used in construction and industry around the world.
The decline comes as commodities prices slide with decreasing economic forecasts from the IMF and international banks, going against earlier predictions made this month by banks about investors seeking commodities as a hedge against the market crash.
IMF says commodity prices to decrease
On Tuesday, the International Monetary Fund revised and downgraded its growth forecasts for global economic activity for both 2011 and 2012. It forecasted a decline in prices of commodities in the last months of this year and remaining for the start of the next as slower economic growth has resulted to a lower demand for base metals.
The health of the natural resources sector, from oil to mining, is critical for London’s stock market, where it accounts for nearly a third of the blue-chip FTSE 100’s market capitalisation.