BASE METALS

2009 best year for commodities since 1973

The Reuters/Jefferies CRB index is on track for a 24% increase, withbase metals strong, gold recording its ninth straight year of gains and soft commodities increasing too, 2009 has been a strong year for commodity prices.

Author: Nick Trevethan
Posted: Thursday , 31 Dec 2009

SINGAPORE (Reuters) - 

Commodity markets are on course for their strongest year since 1973, lifted by oil's biggest annual gains in a decade and a 140 percent surge in copper prices.

With the Reuters/Jefferies CRB index .CRB on track for a 24 percent rally in 2009, gold heading for its ninth increase in as many years, sugar near record highs and cocoa headed for its fourth annual rise, traders are describing 2009 as "the year of commodities".

But the strategies that worked this year may fail in 2010 as the market switches from picking up bargains left in the wake of the financial market meltdown that started in 2008 to a strategy based on macro economic data and fundamentals. "The year 2009 was really a value proposition, it was about momentum buying on value, which was buying on cheapness in the market," Mark Pervan, Head of Commodity Research at ANZ, said.

"2010 is going to be much more macro driven, more fundamentally driven. You won't see so much influence from the dollar. It will be more closely aligned with supply and demand."

First amongst CRB constituents is copper HGc1, which is heading for a rally of nearly 140 percent this year.

Unprecedented levels of Chinese imports, speculative fervour and more lately, threats to supply, have pushed London copper MCU3 from a 50-month low of $2,825 in December last year to a 16-month peak of $7,415 on New Year's Eve.

Injecting a little extra fizz into copper bulls' New Year celebrations is the imminent strike by workers at Chile's giant Chuquicamata mine, who are preparing to down tools within days after owner Codelco, the world's No. 1 copper miner, refused to back down in a wage negotiation spat. [ID:nN30198207]

Even the arrival of 10,000 tonnes of copper in LME warehouses on Wednesday, the biggest increase in percentage terms since September, bringing stocks to just shy of half a million tonnes, wasn't enough to cool investor ardour.

Peng Qiang, an analyst at COFCO Futures said: "The upward trend in the market remains, despite the jump in LME copper stocks yesterday and the firm dollar."

Sugar SBc1 is another standout in 2009 -- up the best part of 130 percent.

"2010 may be the year of the tiger, but 2009 was the year of commodities," a trader in Sydney said.

"I am a little surprised markets haven't given back more for the end of the year. Given that, I reckon 2010 will see us off to the races. Precious metals in particular should chase higher,"

He said gold, currently at $1,197.7 and up a quarter this year and having touched a record high of $1,226.10 earlier this month, would find support down to $1,070, with investors targeting a move towards $1,300 or higher.

But he doubted sugar would repeat its sweet 2009 performance.

"The thing with sugar is that it can fix itself in a year. It's not like the eight years it takes to build a copper mine or 25 years an oil refinery can take."

Oil prices have also surged, up nearly 80 percent in the year, but the market would need to rally an additional more than 80 percent to top its record high of last year near $150 a barrel.

U.S. crude for February delivery CLc1 rose 37 cents, or 0.5 percent, to $79.65 a barrel by 0506 GMT, after touching a five-week high of $79.85 in quiet pre-holiday trade, just shy of the psychologically key $80 mark. Prices have risen 14 percent in just over two weeks.

On the downside, grains failed to inspire this year -- wheat Wc1 has tumbled 11 percent while corn Cc1 managed a paltry 1.5 percent rise.

Soy Sc1 rose 6.5 percent for the year, with strong demand led by top buyer China and poor supplies from Latin America countered by a record U.S. harvest.

Analysts said expectations of bumper soy production in South America will likely weigh on soy's 2010 outlook. (Additional reporting by Naveen Thukral; Editing by Michael Urquhart)

© Thomson Reuters 2009. All rights reserved.