The Hindu Business Line : Strong upward trend seen in commodities

Tactical positioning by non-commercial market participants in several major commodity markets during the early weeks of 2007 has been dominated by the shorting of systems-based technical traders.

High and volatile price levels and concerns relating to macro-economic environment have kept many discretionary traders and consumers on the sidelines, analysts said.

In energy markets, sentiment has been weakened by the warm US weather until recently, while in metals some big shipments into LME warehouses — notably copper — have also served to weaken sentiment.

The result has been a big push into net short territory for the non-commercial categories in both energy and copper futures, heightening the potential for short-covering to add upward price momentum, should market sentiment start to improve, as is already evident in oil markets, a recent report pointed out.

In contrast to copper and oil, funds have significantly increased net length in precious metals, posing the risk of price correction, especially if the dollar and oil prices fail to provide support.

In agriculture, the same is true with the net length position in corn.

Although a strong upward price trend is expected, the risk of profit-taking setbacks does exist, according to experts.

No-commercial exposure to commodities is still heavily weighted to agriculture, according to the latest CFTC data.