"Broad-based" commodities rally likely for early 2013, says Barclays

Thursday, December 13, 2012

A "strong and broad-based" commodities price rally is likely to occur in the first part of 2013 similar to that seen at the beginning of 2011 and 2012, particularly if a resolution to the fiscal cliff in the US comes soon, according to analysts with UK-based Barclays Capital.

"The similarities in current market conditions are striking and suggest that the likelihood of another strong start to the year for commodities is quite high," Barclays said in a note.

"Once again, commodities prices have fallen for most of Q4 and risk appetite is being constrained by fears that politicians will be unable to solve a pressing financial threat."

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The "exact timing" of a price rally will depend on advances on a deal regarding the fiscal cliff in the US, the bank added.

Base metals will not be left out of the picture, though risk out of China is also in the cards. Short covering is a major factor behind a recent recovery in base metals, which will probably speed up in the beginning of next year, though fundamentals - particularly for aluminum and copper - remain weak.

As 2013 begins, large excess copper stocks in China will likely lead to reduced import demand compared to a year earlier. Combined with the recent lifting of export taxes on tolled copper, China could see copper exports flow steadily early in the year, "which could turn market sentiment very negative," Barclays said.

Oversupply is likely to be the case in China's copper market in the short term, and the intensity of copper usage in the Asian country is now in a "long-term decline," the bank added.

However, Barclays noted that sustained labor issues at mines, such as in South Africa and Chile, could weigh on the supply side.

Copper soared rapidly in the first several weeks of 2012 from opening the year at US$3.475/lb to hitting its annual high (as of December 13) of US$3.928/lb on February 28.