The Hindu Business Line : Energy, metals may hit new peaks in Q4

High and volatile price environment will persist for commodities in the last quarter of the year; but as the growth outlook continues to remain positive, energy will recover and industrial markets will hit new peaks, according to Barclays Capital.

False signals

In its latest report titled: "Commodities: Pausing, not peaking", Barclays Capital Commodities Research team says investment flows into commodities are new, though small in relation to the commodity market size.

Suggesting that recent price movements are false signals that do not herald an end to the bull market, the report says fundamentals are the key price drivers and they are pointing higher.

Despite risk, growth expectations in the global economy are getting pushed higher, while industrial outlook is positive as the phase marks correction, and not slowdown.

An additional positive factor is that China's commodity demand is getting stronger again.

No reversal seen

Interestingly, despite some price setback, there has been no reversal of investment interest in commodities.

There is strong expectation of continued fund flow, even as institutional investors are under-invested in commodities, the report observed.

Supply constraints are expected to persist for many years in energy and industrial metals.

According to Barclays Capital, income elasticity of demand is proving much more important than price elasticity, especially for oil. By necessity, price is now the balancing factor in many commodity sectors and there is little evidence that markets have discovered the appropriate levels, it argued.

Fresh peaks

A recovery in energy markets and fresh peaks in a number of industrial metals looks likely in the fourth quarter. Longer term, average commodity prices are reversing their long-term downtrends and consumers face much higher average prices in future, the report forecast. Commodity investment products are evolving to reflect a more volatile and diverse performance between different markets.

More Stories on : Commodity Markets | Petroleum | Metals

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