Prices for a swathe of metals surged to fresh record highs on Thursday as equities retreated amid news of falling productivity and rising labour costs in the US.
Zinc, copper, lead and platinum all hit record highs while aluminium rose to its highest level since August 1988. Copper broke $5,000 a tonne for the first time.
Gold also struck a new 25-year peak of $574.60 an ounce amid tensions over Iran’s nuclear programme. It later slipped back to $570 an ounce, but many traders were looking for the precious metal to rise towards $600.
Ingrid Sternby, analyst at Barclays Capital, said the rises in metal prices continued to be driven by investor interest rather than consumer buying.
However, she said investor buying was supported by strong fundamental factors – high demand, low inventories and constrained supply. These should continue to put upward pressure on prices.
This view was backed by comments from Rio Tinto, the world’s third largest miner, which reported a 58 per cent jump in annual net profit to a record US$5.2bn, on the back of rising demand from Japan and China.
The company said prices for iron ore, coking coal, alumina and aluminum would rise “well above their historical trend’’ this year as global economic growth drove demand higher.
“It is still too early to suggest that the broad commodity cycle has peaked,’’ said Vivek Tulpule, chief economist at Rio Tinto.
US share prices fell following news that US productivity fell in the fourth-quarter for the first time since the recession of 2001. Other data showed new claims for US unemployment benefits fell to 273,000 last week from 284,000 the previous week.
“There has been a step decline in the pace of gross layoffs (in recent weeks),” said Ian Shepherdson, chief US economist at High Frequency Economics. “Great news for the employees, who ought to see their share of GDP rising this year, not so great for companies, the inflation-fearing Fed, or the Treasury market.”
US Treasuries and the dollar weakened only slightly as traders waited for the release of key employment figures on Friday/
However, US shares fell heavily. The Dow Jones Industrial Average was off 0.9 per cent by the close, the S&P 500 lost 0.9 per cent and the Nasdaq Composite was 1.2 per cent lower.
In Europe, attention focused on the European Central Bank’s decision to hold its benchmark interest rate at 2.25 per cent, as expected. Jean-Claude Trichet, ECB president, appeared to clear the way for a rate rise at the next meeting of the governing council on March 2 by pledging to exercise “vigilance” to anchor long-term inflation expectations.
The ECB had used the “vigilance” word before its last rise in rates in December. Mr Trichet added that market expectations on interest rate policy were “reasonable”.
Rainer Gunterman, economist at Dresdner Kleinwort Wasserstein, said the market was pricing in more than a 90 per cent probability of a rate rise in March.
“There is now a bias. It would take very poor economic numbers to prevent rates being raised in March,” he said. Mr Gunterman forecast the ECB would lift its benchmark rate to 3 per cent this year.
Eurozone bonds were marginally weaker following the ECB news while shares dropped in line with the global trend. The FTSE Eurofirst 300 index closed 1 per cent lower at 1,319.80.
Get alerts on Europe when a new story is published