Commodity prices are set to surge, driven by a weaker dollar and increased demand, according to Standard Chartered Plc, which plans to boost hiring in metals, agriculture and coal by 10 percent next year as revenue climbs.
“We’re still in a leg up,” Arun Murthy, global head of commodities, said in an interview. “You may have 10 percent, 15 percent retracement in prices, but that would offer a buying opportunity,” said Murthy, who spent 11 years at Goldman Sachs Group Inc.’s commodities team in Singapore and worked at Lehman Brothers Holdings Inc. before joining Standard Chartered.
Commodities as measured by the Thomson Reuters/Jefferies CRB Index have increased 18 percent in the second half as a China-led recovery boosted demand for raw materials. Over the next five years, Asian exchanges will start to set, not follow, commodity prices, Murthy said.
“The level of activity in Asia, Africa and the Middle East is increasing,” said Murthy, who joined the bank in October 2008 as global head of energy trading and later took on his current role. “The trend is set to continue, especially as economic power shifts from West to East.”
London-based Standard Chartered, which generates more than 90 percent of profit from Asia, Africa and the Middle East, reported record first-half net income of $2.15 billion. Revenue from energy, metals and agriculture, up 15 percent in the first 10 months, may gain 20 percent on year by the end of 2010, said Murthy, declining to say how much the commodities unit made.
Coal, Rubber
“We see opportunities in coal, palm oil, the platinum- group metals and rubber, and iron ore,” primarily in derivatives, Murthy said yesterday. The unit may increase headcount by about 10 percent next year from the current 80, he said. The team numbered 35 when Murthy started at the bank.
Among recent hires are Alan Koh, who spent 15 years at Morgan Stanley, and Guy Williams, previously with Citigroup Inc. Koh became global head of energy sales in Singapore, while Williams leads the agriculture-trading business in London.
Copper, which traded as high as $8,499 a metric ton today, has surged 29 percent over the past year on rising demand and a weaker U.S. currency. Cotton climbed to a record $1.3920 a pound this week; gold traded an all-time high of $1,387.35 an ounce last month; and New York crude has risen 7.9 percent this year.
Copper will extend a bull run as “mammoth demand” from China and supply constraints drive the market into a deficit from next year to 2014, Michael Haigh, Standard Chartered’s head of commodity research, said today at a seminar in Seoul.
‘Very Bullish’
The dollar’s weakness, inflationary pressure in the U.S. over the next 12 to 18 months, and stronger emerging-market demand, all “imply that commodities are going to be very bullish,” Murthy said.
Murthy’s forecast echoes that from APG Asset Management, which oversees investments for the world’s third-largest pension fund. Olav Houben, senior portfolio manager commodities at the Amsterdam-based company, said last month that commodities will extend gains on increased demand from emerging markets.
The Dollar Index has dropped 14 percent from this year’s high in June to yesterday’s close, boosting investment demand for metals and grains. The U.S. Federal Reserve said yesterday that it would buy an additional $600 billion of Treasuries in a bid to stimulate growth and cut unemployment.
Revenue Boost
Standard Chartered’s commodities revenue has been boosted by financing inventories of aluminum, fuel and agricultural products, Murthy said. The bank may also in future take delivery of metals from the mines that it finances and sell the product to consumers in China, he said.
China’s raw-material needs have increased over the past five years, accounting for about 41 percent of global copper demand and 39 percent of cotton sales, according to Morgan Stanley estimates. Manufacturing in the country expanded at the fastest in six months in October even after policy makers raised interest rates and boosted reserve requirements at banks.
Exchanges and banks are expanding into iron ore as China, the largest buyer of the key ingredient for steel, increased demand to a record last year. Singapore Exchange Ltd., operator of the city-state’s securities and derivatives markets, became the first bourse to clear swaps of the raw material last year, followed by LCH Clearnet Ltd. and Intercontinental Exchange Inc.
As China’s demand continues to expand, trade volumes on the Shanghai and Dalian commodity exchanges will increase, influencing prices on Western bourses, including the London Metal Exchange, he said.
“We can expect that in the next five years, Asia will set the benchmark,” subject to deregulation in China, including allowing overseas companies to trade on commodity exchanges, Murthy said.
(bloomberg.com)
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