COMMODITY markets have started 2011 strongly, with support from investors banking on continuing China-inspired growth, supply concerns.
Copper, a bellwether for the manufacturing sector, is up 16 per cent since the start of December and crude oil futures breached $US92 a barrel yesterday.
Wheat closed above $US8 a bushel, its highest level in two years.
Analysts are widely tipping the record runs of last year to continue this year, with demand from China and India underpinning price increases amid caution over the recovery in the US and Europe.
Ben Westmore, a minerals and energy economist at National Australia Bank, said the strength in the last four months of 2010 was due to markets pricing in an expected recovery in 2011, and shortages of certain commodities.
"The demand story is the one to pay closer attention to this year," Mr Westmore said.
"We don't think there will be a sharp recovery in the US economy. There are a lot of structural problems that are still hampering them. It is something that the markets are paying close attention to and any change in fortunes in the developed world will be reflected in commodity prices."
The Reserve Bank of Australia reported yesterday that its Index of Commodity Prices rose by 3.2 per cent in December, after a 1.2 per cent rise in November.
The index rose 48 per cent throughout 2010, largely due to increases in iron ore, coking coal and thermal coal export prices.
The RBA said the largest contributor to the rise in December was an increase in the estimated price of iron ore, with strong Chinese demand and weak Indian export supply supporting higher spot prices.
"Increases in the price of wheat and the estimated price of coal also contributed to the rise, partly reflecting recent unfavourable weather conditions in Australia," the RBA said.
Analysts expect a significant increase in the coal price over the next quarter after unseasonable rains in Queensland in November and December, which has caused widespread flooding and forced coalmine closures.
Mr Westmore said the floods had already affected the price.
"Most official forecasters had expected the bulk prices to come off in the last couple of months of 2010, but they held up well, and a lot of that is because of the questions around the supply side, and especially in coal on the back of the floods in Australia," he said.
"In the bulk commodities, if you combine a strong cycle in China with the supply-side issues, prices have been well supported. For the first six months of 2011, prices for bulks are likely to hold up."
London Metal Exchange three-month copper is at $US9705 a tonne, up $US105 from Friday's price, after hitting a record high of $US9725 earlier.
Mr Westmore said prices in the copper market had run hard recently and, while there might not be strong price growth this year, the high prices would be maintained.
He said it was similar for gold.
The spot price of gold in Sydney late yesterday was $US1416.3 per ounce, up $US7.50 from Friday's local close of $US1408.80.
"The prices they are both at do factor in continued strong growth in China and some supply issues in copper," he said.
"For the gold market, it does factor in further volatility in financial markets and further strong central bank buying."
