Commodities Slump a Buying Opportunity, Morgan Says

By Thomas Kutty Abraham

Feb. 8 (Bloomberg) -- A slump in commodities last week was caused by a strengthening dollar and raw materials remain “hot- ticket” investments for 2010, Morgan Stanley said.

The Reuters/Jefferies CRB Index of 19 raw materials fell to the lowest since October last week. The decline is a “buying opportunity,” Hussein Allidina, head of commodity research at Morgan Stanley, said at a sugar conference in Dubai today.

“The recent sell-off in commodities will pass,” he said. “It’s a general risk reduction and not the same that surrounded the Lehman collapse.”

Copper, sugar and lead prices doubled last year, helping raw materials post the biggest annual gain in four decades, as Chinese demand compensated for the slump in the world economy. The S&P GSCI Index of 24 materials jumped 50 percent in 2009, the most since at least 1971, and commodities drew record $60 billion in investments, according to Barclays Capital.

Growth in emerging markets and supply constraints will help boost commodity prices, Allidina said. Expansion of 6.5 percent in developing countries “augurs well” for oil demand, and the OPEC may need to raise output in second-half of 2010, he said.

Mohammad Ali Khatibi, Iran’s OPEC governor, said today the world oil supply is enough to meet demand during the first half of this year. The Organization of Petroleum Exporting Countries has left production levels unchanged since December 2008, when it announced the largest supply cut in the group’s history at a meeting in Algeria as world demand collapsed in the wake of the financial crisis. OPEC meets on March 17 to consider whether to alter supply targets.

Crude oil traded in New York will rise by the end of this year to $95 a barrel as demand recovers, Allidina said Jan. 25. Declining crude stockpiles and the improving global economy will boost prices and oil will average $100 in 2011, he said.

Oil for March delivery was at $71.46 a barrel, up 27 cents in after-hours on the New York Mercantile Exchange as of 7:15 p.m. Mumbai time. Futures tumbled to a seven-week low of $69.50 on Feb. 5.

Last Updated: February 8, 2010 09:09 EST