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ScotiaBank says that commodity prices have ended their exceptional run in 2009 with a bang, but will be susceptible to increased volatility in 2010. Values are expected to trend higher however.
There is growing interest by funds and speculators in commodities, as a way to profit from China's growth and the "emerging Asia story," as ScotiaBank's Patricia Mohr says.
Investment funds pumped $60B into resource investments in 2009. From under $10B in year 2000, global commodity assets under management have now risen to about US$235B.
Not copper.
Aluminum, posted even bigger increases than copper in December (from US88¢ to US99¢ a pound) despite inventories reaching record levels on major futures exchanges. However, prices of several commodities have since pulled back after a run-up that continued into early January.
She says: " I think actual fundamentals will be better this year than last, but you get big shifts in money from time to time. That's why I think there'll be more price volatility."
China's recent moves to tighten credit and slow its economy will hurt global growth and demand for commodities. China's economy is still growing at an advertised 9.5% rate. Ms Mohr says this will "underpin prices in the first half of the year" "as will recovering demand from Group of Seven countries".
Fertilizers
However there may be another pullback in prices if and when when the U.S. Federal Reserve begins to lift the Fed funds rate. "I think that for investors the best place to put your money in 2010 is probably in fertilizers, iron ore and coking coal,".
She adds that farmers in the United States are now buying again, setting up prices for a rebound from their current bottom of US$345 a tonne,
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