JOHANNESBURG (miningweekly.com) − The world seems set to enter a period of slower growth and higher inflation and investors would do well to gain some direct exposure to commodity markets, said Barclays Capital MD Kevin Norrish on Wednesday.
Speaking at a Barclays commodities outlook media briefing, Norrish said that commodities had a different risk/reward profile to other asset classes and tend to be a good hedge for inflation.
Looking at supply and demand fundamentals, Norrish favoured copper, oil, gold and corn as commodity investment decisions.
Barclays Capital currently has the most bullish outlook on copper, predicting that the metal could rise to $12 000/t by the fourth quarter of this year.
Three-month copper traded at $9 194/t on the London Metal Exchange on Wednesday.
Copper imports from China have been low in recent times, which have seen some advisories revise their copper price prediction downwards for the year.
However, Norrish said that imports were on the up again, as China's copper inventory levels was getting lower.
Adding to this was the fact that copper companies had experienced significant fall-offs in output in recent months.
“We expect a big deficit in copper as all these factors come into play,” he stated.
On oil, Barclays, in line with other market opinions, expected that global oil demand would pick up during the second half of the year. Market predictions indicate that supply from countries belonging to the Organisation of Petroleum Exporting Countries would have to grow from 29-million barrels a day to 32-million barrels a day.
Longer-term supply fundamentals for the oil industry would also be increasingly tight, boding well for oil in an investor’s portfolio, Norrish indicated.
Further, he warned that the world has not heard the last of food inflation. Playing into this was the fact that the global corn market had been hit by bad weather over the past couple of years and stocks were depleting, while harvest expectations had once again been revised down this year owing to another year of bad weather in the US.
Norrish indicated that the global inflationary fears, the re-emergence of worries about sovereign debt and ongoing political crises in the Middle East and North Africa also made a good case for gold, even though he was not very bullish on prices.
Barclays predicted a gold price of between $1 600/oz and $1 650/oz for the second half of the year.
The bank preferred palladium to platinum, as the metal was more directly linked to the Asian automobile market, which comprised largely petroleum cars, which the metal is used in. The Asian automobile market was set for growth in the second half of the year, as the Japanese economy started to recover.
Norrish said that in the longer term, demand fundamentals were positive for most commodities, driven by rising needs from emerging markets.
He added that it was becoming increasingly difficult to increase and sustain supply of most commodities, as resources were getting less and increasingly difficult and expensive to mine or extract.
Norrish expected that Barclays would prioritise commodities at the forefront of its asset allocation in financial markets for “quite some time”.