Commodities remain good investment

Commodities remain a good investment opportunity for 2010 on the back of strong growth in 2009, where commodity investors saw returns rise inline with significant price increases for key commodities, a senior executive from J P Morgan Asset Management said at a meeting of independent financial advisors in Dubai yesterday.

Last year saw the price of copper, zinc, base metals, and aluminium rise by 140 per cent, 112 per cent,104 per cent and 44 per cent respectively, as a result of growing global demand for commodities coupled with ongoing supply shortages.

This year, demand for commodities is set to continue to increase as emerging economies such as China, India, Brazil and Russia (Bric) buy up key building materials to meet massive infrastructure plans, fuelled by urban migration.

In the past nine years for example, China's demand for copper has quadrupled and it now buys up almost 50 per cent of the world's copper supplies – a trend that is predicted to grow as China invests billions in construction of railways, roads and structures to cater to its 1.3 billion population.

Meanwhile, the global recession has seen investment in the exploration and mining of commodities decline, leading to supply shortages that could last for another decade, until extraction catches up with demand.

"Commodities offered strong returns in 2009 and investors can expect to see further opportunities for growth in 2010 as demand continues to outstrip supply," said Simon Littmoden, Vice-President, Business Development, Middle East and North Africa at J P Morgan Asset Management.

"Looking at emerging economies we can see huge growth in demand for commodities to build new railways, expressways and structures. Commodities will continue to benefit from urbanisation, with the latest figures indicating that 180,000 people around the world move from a rural to an urban area every single day."

"At a time of rising demand for commodities, supply has slowed, mines have shut down and extraction has stopped. When it takes an average of eight years to extract commodities from the ground, after an initial investment in exploration has been made, you can see that the effects of the global recession will last for years to come in terms of commodities," Littmoden said.

Swift action taken by governments globally to tackle the financial crisis has also minimised the potential for a slowdown in demand for commodities from emerging markets. Forecasts for 2010 real GDP growth are positive for all four Briccountries, standing at 4.8 per cent for Brazil, 4.9 per cent for Russia, 7.3 per cent for India and 10.9 per cent for China.

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