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C.J. Punnathara

Kochi , Jan. 5

WITH the accelerating pace of industrialisation and sustained population growth, the prospects for the commodity futures market in 2006 seem bright.

"Many former developing nations are industrialising and joining the world economy, creating a massive middle class of consumers. Even as the demand for several commodities are accelerating, many of the supply lines are tightening," Mr Girish Kumar, Commodity In-charge, Peninsular Multi Comex Services Ltd, said.

Population growth and rapid industrialisation have ushered in a huge and growing middle class, which is competing for every additional barrel of crude oil sold in the international markets, and for every kilogram of wheat, sugar, rubber or gold. And the increasing purchasing power of the middle class has resulted in firm price trends.

Meanwhile, the rapid industrialisation is itself spurring a parallel demand for commodities: from copper for the burgeoning telecom industry, silver for electronics, gas and oil for running factories, electricity for heating, and iron and steel for cars and buses, Mr Kumar said.

To bridge any demand-supply mismatch, a new-generation commodity futures market has evolved that enables not only the trader to book profits, but also extends the same facility to the farmer and common man. To counter wild market fluctuations, the consumer has the facility to hedge against future price rises.

This recovery in the commodity prices is set to gain momentum after a 20-year downturn cycle. The last commodity market rally started in the 1970s and continued till the 1980s, when grain and metal producers enjoyed a decade of rising prices and fat profit margins, Mr Kumar said. This price surge triggered a worldwide expansion in commodity production, ultimately bridging the demand-supply divide.

The subsequent downturn cycle witnessed commodity prices plunging to their all-time lows. Taking into consideration the inflationary spiral, several commodity prices plunged to 100-year lows in real terms, during this period. But the conditions seem bright for a revival of a commodity upswing cycle now, he said.

India and China — accounting for 38 per cent of the global population — are well positioned to guide and influence the international commodity markets. And both these economies are accelerating fast, creating a huge demand for industrial raw materials as well as generating a massive middle class with their growing demands.

Citing the magnitude of the demand, Mr Kumar said that China's projected copper demand for the next year would be up 400,000 tonnes above its domestic production. Similar demand surges can be expected for gold, silver, platinum copper and zinc. The case for grains and commodity is expected to be no different.

In effect, the commodity prices are expected to firm up from the current year and the international commodity futures markets are likely to become far more active and buoyant.

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