The Hindu Business Line : No fear of commodity bubble: Barclays

Mumbai, Sept. 25 The recent financial crisis in the US has hit sentiments in the commodity markets with open interest reducing drastically in the last few months, said Mr Paul Horsnell, Managing Director-Head (Commodities), Barclays Capital, the third largest commodity player after Goldman Sachs and Morgan Stanley.

Allaying fears of a commodity bubble, Mr Horsnell said the rise in commodity prices had been orderly and s not that steep to warrant a bubble.

A bubble can happen if, say, the commodity prices have risen by 500 per cent over a short period of time without any fundamental reasons. “Commodity prices have just corrected, not collapsed,” he said.

Taking a call on crude oil, Mr Horsnell sees crude prices averaging at about $115 a barrel in 2009, while it should end 2008 at about $90 a barrel.

The volatility in crude prices should bring in more hedgers on the platform, but unfortunately, some of them have backed out. However, “there has been positive news flowing in of late and we have a positive outlook on crude in the long term”.

Crude seems to have peaked for the year unless and until there is a geopolitical tension or over tightening of supply by the producers, he said.

Barclays is also positive on cotton and power.

“The acreage under cotton has fallen drastically and production is expected to go down. As far as power is concerned, it is region-specific, but on the whole, power is in great demand,” he added.

Dollar

Forecasting that the dollar has to weaken substantially for gold to reach the historic high it has seen, Mr Horsnell said “gold is a funny commodity. It is neither a currency nor a commodity. It is somewhere in between.”

The recent correction in gold prices has brought in some fabrication demand. However, investor interest is the key and we are reasonably positive on gold, he said.

Among base metals, Barclays seems to be negative on zinc, lead, nickel and copper in the short term.

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