‘Commodity prices likely to rebound later this year'

The Japanese crisis and the unrest in West Asia and North Africa may lead to softer commodity prices over the next three to six months, as logistical disruptions and lower-than-expected demand from these regions affect prices.

However, a rebound is expected in commodity prices by the second half of this year, running into 2012, as Japanese reconstruction, Chinese and Indian demand, and a US revival lift demand for raw materials such as steel and coal, said Mr Peter Hickson, Global Basic Materials Strategist- UBS, at the UBS Asia-Pacific Journalists Forum 2011 in Hong Kong on Thursday.

Crude oil, precious metals, fertiliser materials are UBS's preferred commodities for the next three to six months, as political and economic uncertainty lead to greater interest in these “haven” commodities. However, over the medium to long term, commodities, such as coal, uranium and natural gas, are likely to benefit as fundamental factors, such as persisting supply deficits and rising energy demand from China and India, were likely to re-assert themselves. Japanese reconstruction, too, would lift demand over the second half of 2011 and in 2012, Mr Hickson told reporters invited by UBS for the forum.

Nuclear imperative

UBS strategists also predicted that nuclear energy would remain a critical part of the energy mix for developing nations despite the Japanese disaster, given their need to ramp up energy production. “What's happening in Japan is horrendous. However, problems such as those being faced by the failure of cooling systems in Fukushima can be solved through better design and technology.

Indeed, the new breed of reactors do take care of such risks,” said Mr Andrew Ferguson, chief executive of UBS APAC Resources. Mr Ferguson predicted that with nations such as China looking to increase the nuclear component in their energy mix, and few new uranium mines explored in the last two decades, prices of uranium were likely to firm up, hotting up the race for high quality assets.

Both the strategists pointed out that while there was a lot of hysteria about nuclear energy, the mining of coal has a lot of economic, national and environmental costs. The demand for uranium driven by nuclear energy would remain strong over the medium term, as countries such as China do need to alter their energy mix in favour of nuclear power in order to meet the rising requirements.

About 80 per cent of China's energy needs are met by coal, and given that much of China's coal reserves are of a low grade, both the economic and environmental costs of mining coal were rising steeply, Mr Hickson pointed out.

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