Commodities: Modest recovery on the cards

The biggest losers as a result of China's changing growth model, Barclays believes, will be silver, platinum and lead. (Reuters)

The biggest losers as a result of China's changing growth model, Barclays believes, will be silver, platinum and lead. (Reuters)

Kevin Norrish, managing director of Barclays commodity research, said on Thursday that he did not see reports by the International Monetary Fund, in which it lowered growth forecasts for China as a serious problem for commodities.

He said the prevailing weak sentiment is probably driven more by cyclical factors than the structural issues like those being cited, such as China's economic shift. He said commodities have always done poorly when growth and interest rates are low.

"Commodities do best in the final stage of a recovery when interest rates are high because it is seen as a sign of recovery," he said. 

With regard to demand from China, the country – "which continues to grow off a high base" – would remain high but there would be a need for specific commodities like nickel, aluminium and gasoline, rather than demand across the board. 

In late May, the International Monetary Fund lowered its forecasts for China's growth to 7.75% for 2013, having previously forecast growth of 8% this year, sparking concern about the possible impact of the economic giant's slow down. 

Modest losers
The biggest losers as a result of China's changing growth model, Barclays believes, will be silver, platinum and lead. Modest losers were palladium, steel, coal, crude oil, petchem and zinc and copper down 8% and 9% respectively. 

Gold was expected to see 22% growth over the 2011-2015 period; gasoline 29% and nuclear 200%.
Nickel was expected to see a 12% growth and Aluminium 8%. 

While he said that the bank held a positive view on platinum, demand from the diesel sector was not strong enough, as that sector was not growing and demand for jewellery was weak, particularly in China. 

Another problem is that the diesel sector is using more of palladium in converters for motor vehicles, so that would have an impact. 

Norrish and his team believe that a modest and differentiated recovery for commodities will be seen in 2013. 

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