LONDON: Raw materials may return more than financial assets for the first time in three years as the global economy rebounds, according to Bloomberg surveys and 2009’s most accurate commodity forecasters. Oil, corn, gold and palladium will advance as much as 17% this year, the analysts said. The S&P GSCI Enhanced Total Return Index of 24 commodities will gain 17.5%, Goldman Sachs Group estimates. That’ll beat the 11% jump in the Standard & Poor’s 500 Index and the 2.8% return on the benchmark US 10-year note, forecasts compiled by Bloomberg show.
“Demand is growing on a global basis,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Advisors in Cincinnati and predicted the collapse in prices in 2008. “Commodities are a great place to be to gain exposure to the growth that’s coming out of emerging markets.”
Sorrentino’s largest commodity holdings are in coal and natural gas. Commodities will keep rising after the Reuters/Jefferies CRB Index’s best year since 1979 because China is leading the world out of the first global recession since World War II.
Peoples’ Bank of China governor Zhou Xiaochuan said on December 31 the central bank will keep its monetary policy “moderately loose” after the government’s $586-billion stimulus increased demand for Australia’s coal, Brazil’s iron ore and Chile’s copper. The 3.1% global expansion forecast by the International Monetary Fund in October also means demand for food will rise. A United Nations index of 55 food commodities advanced for four consecutive months through November. Shortages sparked riots from Haiti to Egypt in 2008.
Curbing Inflation
Commodities are forecast to beat bonds and stocks this year as faster growth and higher prices stoke expectations that central banks will raise interest rates to curb inflation. Goldman forecast on December 3 that the S&P GSCI Enhanced Total Return Index would gain 17.5% in 12 months, led by advances of 25% in energy and 15% in metals.
The 10-year note will yield 3.97% in the fourth quarter, according to the Bloomberg weighted average of 61 analyst estimates.
That means a 2.8% return through the end of the year, Bloomberg data show. The note lost 9.7% last year, based on indexes from Bank of America Merrill Lynch. The S&P 500 Index will end 2010 at 1,238 points, after gaining 23% last year, according to the median estimate of 13 strategists compiled by Bloomberg. Equity investors may have already anticipated this year’s economic expansion, with the S&P 500 at 1,115.10, or 24.3 times earnings, the most since 2002, according to Bloomberg data.
‘Add Clout’
“The US recovery will add clout to commodity demand,” said Uday Narang, managing partner at Chichester Capital Management in London, whose fund returned 51% in the first 11 months of 2009 investing in metals, oil and agriculture. “The worst in the US is over and the Asian emerging markets will take us higher.”
Crude oil will rise 17% to $92.50 a barrel by the fourth quarter, according to Societe Generale’s Mike Wittner, whose estimates last year were within 7.7% of market levels. Global consumption will increase and the Organisation of Petroleum Exporting Countries is holding output flat, draining stockpiles, said Wittner, the bank’s London-based head of oil-market research. Corn will average $4.60 a bushel this year, 11% more than the closing price on December 31, said Emmanuel Jayet, head of agricultural research at Societe Generale in Paris and the most accurate forecaster based on estimates compiled by Bloomberg at the end of 2008. He expects the biggest shortfall in corn supply since the 2006-07 season after delays in the US harvest.
Platinum, Palladium Markets
Palladium will average $425 an ounce, for a 4% gain, according to Robin Bhar, an analyst at Calyon in London and the winner of the London Bullion Market Association’s 2009 price survey. Platinum will average $1,550, or 6% more, according to Rene Hochreiter, an analyst at Johannesburg-based Allan Hochreiter and the best forecaster in the LBMA’s survey. Faster economic growth will mean more sales of cars, which use the metals in their autocatalysts, they said. Not all commodities may repeat the gains of 2009. Copper, which rose 140%, will average $6,800 a metric ton in 2010, said Jochen Hitzfeld, an analyst at UniCredit in Munich and the best forecaster for the metal in a January 2009 survey by Bloomberg. While that’s 31% more than last year’s average, it’s 8% below the December 31 closing price.
