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Commodities Outlook : Rajesh Sharma Money Matters
Balaji Nadar | 25 May 2012

The flow of economic data over the past week sounded more positive than many who feared. US IP for April and European and Japanese 1Q GDP all surprised on the upside. One had to look just at the economic data and not focus on the risks emanating from Greece; it was clearly visible that growth in the G7 had continued to rebound from last year's. The Chinese data release last week raised fears of a hard landing while events in Europe reminded us that the economic data is no longer forward looking but backward looking. The growth in Europe was a relatively strong 0.7% in 1Q last year, which gave way to a 0.3% 4Q contraction as the panic took a strong footing.

THE FLOW of economic data over the past week sounded more positive than many who feared. US IP for April and European and Japanese 1Q GDP all surprised on the upside. One had to look just at the economic data and not focus on the risks emanating from Greece; it was clearly visible that growth in the G7 had continued to rebound from last year’s. The Chinese data release last week raised fears of a hard landing while events in Europe reminded us that the economic data is no longer forward looking but backward looking. The growth in Europe was a relatively strong 0.7% in 1Q last year, which gave way to a 0.3% 4Q contraction as the panic took a strong footing.

Base Metals: Despite the ongoing “mining boom”, most of the focus in the producing nation is currently on supply side issues. The key message was that the risks of supply have increased further, with Australian production of base metals, in particular, likely to have peaked unless prices move materially higher over coming years.

Petroleum: The slide in Brent oil prices in April looked like a small technical correction and then became a meander in May. Brent is losing ground as part of a much broader risk-off move. Nearby fundamentals continue to support but things might improve in 2H.

Natural Gas: US natural gas prices for June delivery continued to gain in the week, adding another approx 3.5% to the already 30% price increase. But these gains in power demand are near a tipping point and the volumes might shrinkage in the year end.

Thermal Coal: The gathering of many world coal market participants in Nice earlier this week provided a good opportunity to test current sentiment. Given the continuing slide in thermal coal prices the mood looks bearish.

Precious Metals: Gold has moved into dangerous territory over the past week, with the long-term trend now under threat. Notwithstanding the volatility of most asset prices over recent years, gold has moved in a really tight trend for the past decade, increasing at a consistent 16% per year.

Agriculture: Grain prices retreated this week, with corn, wheat, and soybean prices falling 4.4%, 2.3%, and 1.2% respectively. Although it is likely that the pullback in risk assets affected the agricultural market, but Rajesh Sharma CMD Money Matters Financial Services Ltd. believes fundamentals continue to play a strong role in keeping prices on a downward trend.