Analysts recommend reducing position in commodities market; say copper likely to hit new highs

Metal prices have gone through the roof. Nickel is currently trading at USD 50,200 per tonne, which is a 100 percent rise from its year-ago levels. Aluminium is trading 60 percent higher, whereas zinc is trading nearly 40 percent higher than its year-ago levels. The only exception to the metals pack is copper, which is flat as compared to its year-ago levels because it started rising one year ago itself.

To understand how long these levels can last and what can be an average for the year, CNBC-TV18 caught up with Mark To, Head of Research, Wing Fung Financial Group, and Juerg Kiener, MD & CIO, Swiss Asia Capital.

To explained that it is difficult to put a number on levels. He recommended that reducing position in the commodities market to a comfortable level will be the best approach. He based his advice on the volatility that is clear in the commodities space currently, which he believes needs to be taken into account.

“If you are looking for close demand comparison between oil and gas as well as metals, whether precious or other kinds of metals, we have to accept that they move in tandem and that’s why even though if you can avoid a certain portion of market exposure, you cannot avoid all kinds of exposure – that’s why I think the best way is to reduce the whole position to a certain level that you feel comfortable at,” said To.

Meanwhile, Kiener believes that metals like copper could hit new highs. With respect to nickel, he is of the opinion that leverage on it is what has been driving the price. Going ahead, he expects demand to expand and supplies to contract.

He said, “Everybody would like to have some inventories back home and this puts even more pressure on the exchanges, which are heading massive leverage in there and that’s what we have on the nickel side; it has been leveraging there which has been driving the price, not necessarily the offtake.”

On energy prices, he mentioned that they could differ in North America, the EU and China. He expects average crude prices to be above USD 100 per barrel this year.

For the entire discussion, watch the accompanying video