Commodity price drop unlikely

NEW YORK – Commodities prices have had some hiccups lately, seeing some down days after flitting near record highs for more than a year. Don’t count on a big price drop to stick anytime soon: Some analysts say energy prices and supply constraints could bolster commodity prices for months.

“Load up your gasoline tank!” Merrill Lynch & Co. commodity strategist Francisco Blanch warned in a research note. He argues that while gasoline demand is dramatically higher, the United States has failed to increase gas storage capacity.

High energy prices worldwide affect other commodities, especially those that can only be processed using a lot of energy, like aluminum.

Of course, increasing global demand is helping drive commodities prices higher.

A series of strikes has also constrained supply for some commodities. A zinc smelter strike in Mexico, a copper mine strike in Chile and a gold mine strike in Peru have all chipped away at production.

Further constraining commodities production – and in turn driving up their prices – is the lack of investment during the 1990s. It generally takes 10 years following the discovery of oil or a mine before it’s online, Holmes said, and if investment slows, the results can be felt the next decade.