Commodities will overcome a setback to extend their rebound from the record plunge in 2008 as an advance in oil and gold helps to compensate for a retreat in base metal prices, according to JPMorgan Chase & Co.
“In the short-term, the macro landscape seems to have taken a turn in recent weeks,” Ray Eyles, chief executive officer of the bank’s commodities business in Asia, said in an interview.
“Ultimately the long-term fundamental supply and demand of commodities is still pointing to higher prices.”
The Standard & Poor’s GSCI Index of 24 commodities climbed 20 percent through April, extending its advance from a 43 percent slump in 2008. The index fell 11 percent this month as signs of an economic slowdown spurred sales. Commodities beat stocks, bonds and the dollar for five months through April, the longest run in at least 14 years, on expectations of shortages in everything from oil to copper and corn.
JPMorgan, the second-biggest US bank by assets, is among banks that have increased hiring and expanded business in Asia in the past couple of years to profit from growing investment and hedging demand for commodities. The number of clients the bank serves in Asia has grown 50 percent after the acquisition of RBS Sempra Commodities in 2010, it said.
“We see Asia becoming more and more significant in the commodities market in coming years,” Singapore-based Eyles said. “A large amount of demand is driven by Asia, primarily by China, and we see this expanding to India and other parts of Asia.”
Eyles, 41, who joined JPMorgan in 1988, said the bank is looking to expand its physical trading of copper, aluminum and zinc to include gold in China, a country that it considers an important priority in the next few years. It will also expand in “areas of gas, coal, power, financing and physical activities” in Asia, he said.
Goldman Sachs Group in reports on April 11 and April 15 told investors to be “underweight” commodities in the next three to six months. The bank still expects commodities to advance about 10 percent over the next 12 months. Barclays Capital, which told investors in a report May 6 to use the slump to buy, is forecasting shortfalls in production this year for copper, nickel, tin, lead, platinum and palladium.
Unrest in the Middle East, coupled with the impact from Japan’s worst nuclear crisis, will have a “significant” effect on long-term energy prices, while base metals such as copper and zinc may succumb to short-term selling, Eyles said.
“The commodities that have the best underlying fundamental stories at the moment are in the energy sector,” he said, while “the negative macroeconomic factors are weighing on industrial metals.”
Crude for June delivery traded at $97.65 a barrel on the New York Mercantile Exchange after the most active contract touched $114.83 this month, the highest level since 2008. Copper for three-month delivery fell 7.1 percent this year after a 30 percent advance last year and a 140 percent jump in 2009.
Immediate-delivery gold, which touched an all-time high of $1,577.57 an ounce on May 2, is up 4.7 percent this year after a 30 percent rally in 2010. Precious metals will remain the main beneficiary of a “strong interest” in investor diversification, inflation and currency hedges, Eyles said.
“What people tend to underestimate is how strong and how far the market can go when there is a limited supply to match a very heavy demand,” he said. Volume of gold stored in the bank’s vault in Singapore is “rapidly increasing,” he said.
Eyles, who was formerly chief executive of commodities for Europe, Middle East and Africa, plans to grow JPMorgan’s Asian operations that have about 100 employees across sales, trading, research, warehousing and physical business. The bank won the top spot in the 2011 rankings by Asia Risk magazine of energy and commodity derivatives brokers and dealers in the region.
“‘We continue to build our gas, coal and power franchises in the region as well as physical oil and investor businesses,” he said.
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