The Hindu Business Line : Outlook positive for major commodities

Zinc seems to have the most potential for a price rise
Nickel and tin prices are likely to reverse falling trend
Sugar prices have the potential to rise further

Mumbai Feb. 21

THE outlook for energy, base metals and precious metals market is positive; so is the case with sugar, coffee and grains market, according experts.

As for energy products, there is an upside risk in the oil market with geo-politics once again at the forefront of market concerns.

A combination of factors such as violence in Nigeria, Iranian issue and deteriorating relations between the US and Venezuela is expected to keep the market on the boil.

Expectations of continued chaos in Nigeria would provide a floor for prices above $60 a barrel, analysts assert.

The ongoing concerns would make holding aggressively short positions more difficult. In a tight demand-supply situation, even a small disruption to supply can have a disproportionately large impact on prices.

Trends may resume: The outlook for base metals remains extremely constructive. After sharp technically-driven price corrections in last two weeks, price up-trends are seen resuming.

Zinc seems to have the most potential for a price rise in 2006 followed by aluminium, copper and lead (compared with 2005 average price).

Nickel and tin prices are likely to reverse falling trend. Nickel market is likely to tighten from its current surplus, analysts asserted.

Investor interest: Amid a softer dollar, firming oil prices, ongoing geo-political tensions and rising threat of avian flu, prices of precious metals have recovered from recent lows, supported by healthy investor interest. Gold prices may consolidate in the wide range of $535-555 an ounce in the near term, though the underlying sentiment remains bullish and downside appears limited at present.

An ability to hold above $550/oz may encourage attempts above $560/oz.

Producer de-hedging fell significantly in the last quarter of 2005, while inflows into exchange traded funds have slowed in recent days, but remains an area to watch.

Sugar's potential: Among agricultural commodities, sugar prices remain firm, although lower from the 19 cents a pound level seen earlier this month. Sugar prices have the potential to rise further on the back of supportive global demand-supply alignment and positive investor sentiment. The grain markets were the biggest gainers in recent days, led by CBOT wheat prices.

Target prices (may be achieved in three months) as per latest report by Barclays Capital include over 20 per cent increase in zinc prices to $ 2500 a tonne; aluminium to $2800/t; sugar to 21 cents a pound; while gold may rise 8.8 per cent to $600/oz.