Sunday, Aug 02, 2015

Dubai:

In the backdrop of expectations of rising rates in the United States, precious metals have been on the backfoot, and so also is crude oil, which has been facing a supply overhang amid weak demand.

However, experts feel that there still exist trading opportunities for traders and investors.

“We need to note that the word commodities’ goes beyond gold, silver and oil. There are industrial metals like copper, aluminium, zinc, lead, time and nickel and the entire gamut of agricultural commodities viz., soybean, corn, sugar, wheat, coffee, cocoa, etc that has much better potential,” Pradeep Unni, senior relationship manager, Richcomm Global Services told Gulf News.

Even though there could be limited investment opportunities, but there could be good trading opportunities given the expectations of massive volatility.

“With the recovery in the United States, we are expecting a recovery in copper, nickel and other industrial metals. Also moderate growth in China, India would also help positive sentiment. We have come to a level where we are near the mining costs in many of the industrial metals like copper and nickel. Industrial metals should go higher from here,” said Unni.

Three month London copper on the London Metal Exchange has been trading near their lowest level in six years, and most of the mines are still profitable at current levels.

“There is a clear possibility that increased optimism on US growth and the beginning of the US rate hike cycle in the next couple of months could drive commodity prices lower, so we would certainly recommend caution. But recovery in one of the world’s largest economy also means increased demand for commodities,” Unni said.

For example, Unni pointed out that rising US home sales on the back of the resurgent US economy directly means increased consumption of industrial metals, primarily copper. An average single-family home uses 200kg of copper. This itself is likely to compensate for the lower demand from China

Even Citigroup has a bullish outlook on prices.

Citigroup expects copper prices could rally 33 per cent to $7,050 (Dh25.895) in the next 12 months because of disappointing production from mining companies. The metal is still down 16 per cent this year. That would be the biggest decline for the first seven months of the year since 1996.

Silver:

Silver, which is also considered to be an industrial metal at the same time, has dropped 70 per cent from its high compared to a 40 per cent fall in gold.

Expectations of a surge in demand from the United States due to focus on solar energy, which could equal or exceed the silver volumes previously used in the photographic film industry.

“So, our call would be to buy Silver from here and on dips till $12 with targets near $18-20 in the medium-term and $25-30 in the long-term,” said Gnanasekar Thiagarajan, director at Commtrendz Research.

Bearish on agri commodities:

The USDA’s (United States Department of Agriculture) initial crop forecasts for 2015/16 suggest that the world corn, wheat and soybean markets will remain well-supplied. Among these three crops, “soybeans are more bearish considering the increasing glut of soybeans on the world market,” Unni said.

Analysts estimate suggests that supply will outstrip demand for the fourth consecutive year, by 13.5 million tonnes and this means that global soybean inventories will jump by almost 14 per cent in 2015/16 to a record 97 million tonne equivalent to almost one-third of global consumption. The weather over the next few months will, ofcourse, play an important role in determining the overall level of crop supply this year.

“In the absence of a major supply shock, we continue to forecast the prices of all three crops to fall further this year,” Unni added.

Negative correlation:

“I believe that commodities could provide investors the yield they were looking for but, more importantly it’s the negative price correlation to bonds and equities that helps investors to diversify their portfolios through hedging,” Unni said.

Commodity trading is a separate asset class with good growth potential, and with global interest in commodity trading far exceeding those of equities, investing in commodities simply cannot be ignored.

“Unlike the stock markets, there is a is an opportunity in commodities at every stage of markets,” Unni said.

By Siddesh Suresh ?Mayenkar Staff Reporter

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