Commodity Strategists: Commodity Rally to Resume, Lehman Says
2006-03-16 09:26 (New York)
By Stephen Voss
March 16 (Bloomberg) -- Commodity prices will resume a four-
year rally after falling since January, bolstered by purchases
from pension funds and individual investors, Lehman Brothers
Holdings Inc. strategist Jack Malvey said.
Commodities including natural gas, lead, sugar, oil, zinc and
gold have fallen over the past two months, sending the broader
Reuters/Jefferies CRB Index down 7 percent since Jan. 30. It
gained about 17 percent in 2005 and 71 percent since 2001.
``Growth, geopolitical risk and potentially higher energy
prices point to the possibility of another rise in commodity
prices,'' Malvey, Lehman's New York-based chief global fixed-
income strategist, said today in an interview. ``It's too early to
conclude that the upward ascent has ended -- we are more likely in
the midst of a pause.''
Natural gas futures have fallen the most, dropping 37 percent
this year to less than half the value of records reached in
December. Reduced demand for heating during a mild U.S. winter
allowed inventories to rise. Gas soared 83 percent last year.
Gas in New York today was at $7.170 per million British
thermal units at 2:20 p.m. London time. That's down about 55
percent from a Dec. 13 peak of $15.78. The price in 2004 averaged
about $6.18 per million Btu.
Prices for commodities, as measured by the CRB index, have
rallied for six of the past seven years. The measure fell in 2001.
``The first quarter of 2006 will more likely be recalled as
merely a deceleration along a multiyear commodity expansion, one
that's already demonstrated stops and starts during a broad upward
trajectory,'' Lehman said in a report, dated yesterday.
Gold Rally
Lehman isn't alone in predicting a rebound in the commodity.
Merrill Lynch & Co. commodity strategist Francisco Blanch said in
a March 10 report that gas futures will rebound to $10 in December
as U.S. economic growth spurs demand from industrial users.
Gold futures prices sank 4.7 percent last week, the biggest
decline for a calendar week in 15 months, as a strengthening U.S.
dollar eroded the appeal of the precious metal as an alternative
investment to U.S. assets. The metal has risen this week, with the
April contract at $554.20 an ounce at 12:45 p.m. London time.
The precious metal may rally in coming months as central
banks reduce sales of bullion reserves, New York commodity
researcher CPM Group said last month in its annual outlook report.
Gold reached a 25-year high of $579.50 on Feb. 2.
Renewed interest in commodity-based returns will underpin the
next stage of the rally, the Lehman note said.
Lead `Bubble'
``With pension funds and individual investors keen to address
the lack of commodity exposure in their portfolios, the re-
discovery of this ancient and not-so-alternative asset class
should help sustain the first great commodity uplift in three
decades,'' Malvey, 54, and the Lehman analysts wrote.
Malvey, a Chartered Financial Analyst, who received a
bachelor's degree from Georgetown University, also worked for
Kidder Peabody and Moody's Investors Service.
The price for lead, used to make rechargeable batteries, has
dropped amid forecasts supply will catch and surpass demand this
year. World production may rise 5.7 percent to 7.73 million tons
in 2006, while consumption may increase 4 percent to 7.71
million tons, Stephen Briggs, an analyst in London at Societe
Generale SA, said last month. Production grew 7 percent last year,
compared with a 3.3 percent expansion in demand.
Lead has fallen 18 percent since reaching a record on Feb. 3.
Buying by investment funds had boosted lead prices earlier
this year, Briggs said in a Feb. 10 interview. ``We are seeing
huge amounts of new money being invested in commodities,
distorting the fundamentals,'' he said. ``It's a bubble, in my
view.''
--With reporting by Simon Casey and Danielle Rossingh in London.
Editor: Tilles |
