Emerging economies strain tight commodity supplies: Glencore

Reuters

By Denny Thomas

HONG KONG (Reuters) - Buoyant commodities demand from emerging economies is straining tight supplies and putting more pressure on producers to ramp up output, Glencore's chief executive said on Wednesday.

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A sell-off in commodities in the first half of May took some speculative froth out of the market but did not mean weakening fundamentals, said Ivan Glasenberg, chief executive of the world's largest diversified commodities trader.

Asian demand should underpin growth in commodities as global producers strive to keep pace with booming appetite from the region, he added.

"Commodities have just come off on the back of the China tightening, the Greek crisis and funds have liquidated part of their commodities portfolio," Glasenberg said after the company's shares debuted in Hong Kong.

"A lot of it, as I said before, has been funds creating a bit of froth in the market, but the underlying fundamentals of the commodities market is relatively strong because of the tightening of supply."

Mining companies face a challenge keeping up with robust Asian demand, he said.

"Asia's demand is still strong," Glasenberg said. "The big question is will mining companies around the world be able to continue increasing production to match the demand which is occurring in Asia?

"It's getting harder to produce more commodities in various parts of the world."

Glasenberg's comments came a day after Goldman Sachs and Morgan Stanley raised their price forecasts for oil, the world's largest commodity market.

Goldman increased its Brent crude price forecast to $120 per barrel for 2011 and to $140 for 2012, saying fuel demand growth will sap global inventories and strain OPEC's spare oil output capacity.

Barclays Capital said oil market fundamentals were intact despite wild swings in prices.

"Our view remains consistent in that we see current prices as a solid floor, and while short-term downside risk emanating from external events like the sovereign debt crisis cannot be ruled out, the highs for the year are not in yet," Barclays said in a report.

Brent dropped more than 1 percent to below $112 a barrel on Wednesday, after rising 2 percent on Tuesday following Goldman's revised estimates.

Morgan Stanley raised its 2011 Brent forecast to $120 and its 2012 estimate to $130, citing improved demand coupled with a loss in production from Libya.

After months of anticipation, Glencore went public last week with London's largest-ever listing.

On Wednesday, shares in Glencore International Plc <0805.HK> fell as much as 3 percent on their Hong Kong debut, tracking a weak start to the shares in the London leg of the offering the previous day and as retail investors found the offer price expensive.

Founded in 1974 by Marc Rich, a trading sensation who fell afoul of U.S. authorities, Glencore has subsidiaries employing tens of thousands and an oil division with more ships than Britain's Royal Navy.

Analysts agreed the outlook on commodities remained positive, given strong demand from developing nations.

"It is pretty much a consensus that prices will stay at what are historically very strong levels," said David Thurtell, an analyst with Citigroup.

"The outlook is very positive, there is a strong chance that on base metals we might not make new cycle highs but prices will stay up. Iron ore and coal are all looking strong. For oil its 100-plus outlook for sometimes."

ASIAN DEMAND STRONG

Goldman said current copper prices offer an attractive opportunity to buy the metal. It also said recent weak data from top copper consumer China raises "some caution and we recognize that China may experience some further economic weakness before comfortably resuming a growth trend."

London copper rose nearly 1 percent on Wednesday, extending gains from the previous session after sliding 3 percent earlier in the week, although worries about a spreading debt crisis in Europe may limit its advance.

The grains market has avoided much of the May sell-off. Morgan Stanley said corn, soybean and wheat prices should rise this year and next because higher price tags are needed to encourage new acreage outside the United States to boost supply to keep pace with demand.

Chicago wheat rose around 1 percent on Wednesday as poor crop weather across top producing regions of the world supported the market, while corn firmed on forecasts of more rains in the U.S. crop belt.

(Writing by Naveen Thukral: Editing Sambit Mohanty)