Commodities yet to scale fresh peaks, says Barclays

While most commodities are marching towards new highs "� gold is at a 25-year high, silver at 24-year peaks and copper at an all-time high "� a Barclays Capital analysis suggests there is possibility of further spike in prices.

The analysis was done by comparing current commodity price levels with their all-time highs, with adjustments for inflation.

For instance, it shows that while the April average sugar price at the New York Board of Trade (NYBOT) at 17.2 cents a pound was less than 10 per cent of the inflation-adjusted peak of $1.80 a pound hit in November 1974, the average platinum price in April of $1,099 an ounce represented an all-time high.

In the case of copper, while its spot price on the London Metal Exchange (LME) touched a high of $7,800 a tonne on Friday last, it remains less than 80 per cent of the inflation-adjusted peak.

Relative to the real historical values of energy prices, that of crude oil and key refined products are getting close to the inflation-adjusted highs that coincided with a sharp reduction in demand growth during the 1980s.

Crude oil prices are now less than $20 a barrel from the monthly peak of $89 a barrel reached in November 1979.

New York Mercantile Exchange (NYMEX) refined product futures are even closer than that, with April's average heating oil price only 26 cents a gallon lower than the peak of 224 cents a gallon reached in June 1979.

Globally, demand-supply of commodities is skewed tightly in favour of the latter, with the demand fast outpacing supply.

According to Barclays, demand for commodities is growing at its fastest for over 30 years. "Prices in many commodity sectors are being pushed ever higher as markets seek out the levels at which consumers are forced to find substitutes or to economise in their usage," said the analysis.

Consequently, the prices of commodities as diverse as oil, copper, zinc and platinum have moved to all-time highs in nominal terms, "taking these markets into uncharted territory where meaningful reference points for traders, producers and consumer are non-existent," said the Barcap note.

According to the analysis, inflation adjusted prices do provide some yardstick and thus, suggest that there is considerable further upside in a number of commodity markets before long-term historical benchmarks are reached.