Commodity prices are expected to remain high supported by supply constraints, continuous strong demand as well as Japan's massive reconstruction after last week's earthquake and tsunami.
“The market is in a panic mode and the situation may continue in the short term.
“However, over the medium-term, Japan, after this terrible disaster, will need massive reconstruction and that will support demand for commodities for building, all kinds of commodities and specifically energy,” Amudi Asset Management product specialist, global resources, Sudeshna Andre told a media briefing organised by AmInvestment Bank yesterday.
She added that given all the questions on nuclear energy now, there might be a need for substitution.
“If there's a move away from nuclear energy there will be a boost for conventional energy,” Andre said. “All commodities used in construction, copper of course, should be in demand for the reconstruction efforts.”
She said the current environment was favourable for commodity equities.
“Global demand will continue to be strong for commodities, still supported mainly by urbanisation and industrialisation in emerging countries,” she said, adding that the top pick were copper, iron ore and gold.
Andre said the commodity inflation should also drive more investments into hard assets.
She expected interest rate to stay at reasonably low level for now in developed countries.
Over the past 10 years, commodities had experienced a “super cycle” and another leg of the “super cycle” ahead as supply constraints were evidently on a rising trend, she pointed out.
“While global demand for commodities is still increasing, the supply constraints are rising quicker to become a main price driver,” Andre said.
On copper, she said most of the copper mines were located in Africa which faced political uncertainty while rising cost of copper extraction was also causing a concern on supply.
“We think copper prices will continue to rise in the next few years. It is always difficult to do a specific forecast,” Andre said when asked on the target price for copper.
She said there were concerns that the 14 new iron ore projects in Australia could cause an oversupply but the risk was limited as iron ore production was controlled by four or five major producers that would keep prices from falling sharply.
“Gold is a different story. The driver for gold is different. The two main factors that will drive gold prices are rising inflation expectations and the support from central banks,” Andre said, adding that gold had always been perceived as a safe haven instrument.
On food prices, she said they would be supported because there were more people to feed.
Meanwhile, AmInvestment retail funds director, fund management division Ng Chze How said the bank liked commodities because of the growing global gross domestic products, increasing population resulting in growing demand and limited supply of commodities.
The AP mewnahile reported from New York Friday that wheat, corn and soybean prices jumped Thursday on speculation global demand will be strong even if Japan cuts purchases as it copes with its nuclear crisis and recovers from last week's earthquake and tsunami.
Wheat prices rose 7.3 percent Thursday, corn rose nearly 5 percent and soybeans rose nearly 4 percent.
They joined a broad rally in commodity prices just days after Japan's crisis sent most contracts reeling over fears about long-term demand.
Those concerns appeared to ease with expectations that other nations would buy products such as corn and wheat that normally would be shipped to Japan until that country's recovery is well under way, said Jason Ward, an analyst with Northstar Commodity.
Ward expects Japan's purchases of U.S. exports to decline for at least a month, in part because of infrastructure issues. Ships are being diverted to southern ports, which will slow their turnaround time, he said.
Corn and soybeans are in short supply globally. Traders have been concerned that global wheat stockpiles could tighten if the U.S. winter wheat crop has been damaged by a dry winter.
In contracts for May delivery, wheat gained 48.25 cents, or 7.3 percent, to settle at $7.1025 a bushel, corn added 30 cents, or 4.9 percent, to $6.465 a bushel and soybeans rose 48.25 cents, or 3.8 percent, to $13.3525 a bushel.
In other trading, metals used largely to manufacture products rose after a new report said factories produced more cars, appliances, computers and appliances last month. Manufacturers have increased production in 17 of the 21 months since the recession ended.
Copper, which is used in a number of products from construction materials to electronics, rose 14.65 cents, or 3.5 percent, to settle at $4.344 a pound.
April platinum added $6.40 to settle at $1,706.90 an ounce and June palladium gained $11.75 to $716.80 an ounce.
Gold for May delivery rose $8.10 to settle $1,404.20. Silver fell 21.4 cents to $34.258.
Oil prices rose sharply after a crackdown on protesters in Bahrain and as the United States pressed for United Nations action against Libya's Moammar Gadhafi.
Prices also benefited from expectations that Japan will increase fuel imports as it recovers.
Benchmark crude for April delivery added $3.44, or 3.5 percent, to settle at $101.42 per barrel on the New York Mercantile Exchange.
In other trading, heating oil added 6.77 cents to settle at $3.0649 a gallon and gasoline gained 10.69 cents to $2.9506 a gallon. Natural gas rose 22 cents, or 5.6 percent, to settle at $4.158 per 1,000 cubic feet.