Commodities Outlook Is ‘Constructive,’ Barclays Says

Sept. 23 (Bloomberg) -- Commodities have a “constructive” outlook, with supply constraints set to become a more dominant theme in the fourth quarter, Barclays Capital said.

Demand for coal, aluminum, coffee, copper, crude oil, corn, sugar and soybeans probably will climb to a record this year, analyst Kevin Norrish said today at a presentation in London. The Reuters/Jefferies CRB Index of 19 raw materials is headed for its best performance in the current quarter since last year’s final three months.

“We are pretty positive on commodities for the rest of this year,” Norrish said. “Copper is looking very strong.”

The CRB Index fell in this year’s first six months on concern that the world economic recovery rebound might falter because of slower Chinese growth and budget deficits in Europe. The gauge has added 8.2 percent in the third quarter as gold climbed to a record, cotton rose to the highest price since 1995 and wheat surged.

“The current quarter has proved the strongest for commodity investments so far this year, and we expect further upside price risk in a number of markets heading into the fourth quarter, especially in oil and base metals, but in some agriculture markets as well,” Barclays Capital said in a global outlook report e-mailed today.

Chinese Economy

Raw materials slid in the second quarter as China, the world’s largest consumer of copper, energy and iron ore, took steps to curb its real-estate market. An index of the six main industrial metals traded on the London Metal Exchange dropped 16 percent in the period, the most since the fourth quarter of 2008.

“China’s policy-induced slowdown is showing signs of stabilizing,” Barclays Capital said in the report.

Supply limits will help industrial metals perform well for the rest of 2010, particularly copper and tin, as well as agricultural commodities, Norrish said. He also pointed to demand from emerging markets.

Copper for delivery in three months reached a five-month high on the LME today as inventories monitored by the exchange headed for a 31st weekly decline in a row. The ratio of stocks to consumption probably will fall to an all-time low in 2011’s second quarter, due mainly to Chinese demand, Norrish said.

Copper, Tin

Immediate-delivery copper’s discount to the three-month price, the so-called contango, shrank to $1 a metric ton today, according to LME figures. The spread was at $7.50 in the prior session. A near-term price higher than longer-dated contracts, known as a backwardation, may signal concern about scarcity.

“We are seeing these markets starting to really look quite tight,” Norrish said. “Contangos are starting to tighten up now and are moving into backwardation, which is a classic signal that physical supply and demand is starting to really make an impact.”

The market for tin is “probably as tight as copper,” Norrish said. He predicted an average price for immediate- delivery metal of almost $27,000 a ton in next year’s second quarter. Cash tin traded at $23,645 at 12:55 p.m. in London today. The CRB Index was last up 0.3 percent at 279.77 points.

--With assistance from Claudia Carpenter in London. Editors: Dan Weeks, Claudia Carpenter.

To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.