INDUSTRY experts are slightly upbeat about commodity prices in the coming months despite the general air of economic gloom in much of the globe.
Their confidence is based on continuing growth in demand for commodities in emerging markets as foreign funds pour into these economies, in a spillover from government rescue packages in the West.
However, these experts also caution that the bright gains seen in commodity prices in 2010 and last year are over.
These were the key sentiments expressed by prominent industry participants at the London Metal Exchange's (LME) Asia Metals Seminar at the Marina Bay Sands convention centre yesterday.
The seminar was part of the inaugural LME Asia Week in Singapore. The event aims to provide metals market players in Asia with a regional platform to network and exchange information and perspectives.
Mr Paul Schulte, CCB International Securities global head of financial strategy and Asia banks, attributed the recent robustness of commodity prices despite a weak global economy to central bank intervention, particularly in Europe. 'The squishing out of leverage in the West is pushing up the leverage in the emerging world,' he noted.
'We have a tremendous amount of leverage depressing the system. And that's what's spilling out into the emerging world, and causing the emerging world to grow so fast. That's what's making commodity prices holding up so strong despite weak global growth.'
Mr Schulte is bullish on gold and copper but bearish on steel and aluminium.
Investment funds have stocked up on commodities since January, according to data compiled by ANZ Research. They have increased commodity index positions by US$70 billion (S$88 billion).
'The bullish setting appears to be pre-emptive buying for further China policy easing leading to improving data in the US,' noted ANZ senior commodities strategist Nick Trevethan.
London Metal Exchange chief executive Martin Abbott said: 'We don't believe there's a bubble. What we're seeing in Asia is structural growth. We believe this region is going to become more and more important for our business.'
ANZ forecast that commodity prices would fall 7per cent this year after growing 50 per cent in the last two years, tipping energy and precious metals as the markets with the best outlook.
Mr Trevethan added: 'Prices will struggle to breach the dizzy heights of 2010 and 2011. We think they're going to take a breather this year, stabilise or trend lower.'
He expects prices to bottom in the second quarter before recovering in the second half of the year.
Prices will be choppy in the first half of the year as investment funds price in too much upside and stronger US numbers are offset by weak European and mixed Chinese data.
However, they should bounce back in the second half as markets price in the ill-effects of the euro crisis and global demand shows better signs of a recovery.
At yesterday's LME dinner, Trade and Industry Minister Lim Hng Kiang noted that Singapore has a 10 per cent global market share of the trade for aluminium and copper intermediates.
He added: 'Aluminium and copper trade continue to contribute the strongest flows... This is expected to continue despite today's volatile global economic environment.'
Mr Lim also said that Singapore will continue to enhance its status as an international trading hub by anchoring new, high value-added trading clusters.