Commodity markets currently dwelling at multi-year lows are set for revival as global growth is seen to attain slow-but-steady pace in the coming year, a report said. According to a report by Edelweiss Professional Investor Research, commodity prices are expected to exit the "unexciting downward trend which had its roots in the 'Global Financial Crisis'. The report predicts commencement of a "commodity reflation cycle to begin in the next few months".
"Commodity prices including energy, metals and softs have been in a downtrend at least since 2011 with many trading at multi-year lows," the report said. "In fact the 'Core Commodity CRB Index' is trading close to the levels seen at the beginning of this century." Consequently, the NSE Metals Index which has moved very closely with the global trend, appears ripe for such an upmove.
The report points out three key drivers of the commodity reflation. "US Dollar is beginning to rollover. A weaker US Dollar is likely to ease global tightness and trigger a commodity rebound," the report noted. "Global growth which has been sliding slowly is beginning to stabilize and is likely to see a recovery in 2020." As per the report, commodity markets, especially 'Base Metals' appear cheap with low levels of inventory, poor growth in new discoveries and low capacity addition.
"Moreover, given the current tightness in demand and supply scenario for most metals, the deep contango indicates the markets pessimism is reaching an extreme," the report said. "Historically higher commodity prices have been accompanied by an uptick in global growth, especially for emerging markets, many of which are commodity exporters. Metals, Energy and Industrial (MEI) sectors tend to benefit during such phases. The 'Mining Clock' is indicating that some of these sectors are fully prepared to capitalise on a commodity reflation trend."
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