Global growth is improving which will increase demand for commodities. Emerging markets like China, India, and others in Asia still require significant infrastructure investment to support urbanization and rising middle classes. This long-term demand combined with constrained supply of many commodities provides fundamental support for commodity prices. Recent weakness in commodity prices has created attractive opportunities for long-term investors.

1. Ten reasons to consider commodities
1) Global growth is picking up
Commodities have suffered in the low growth environment
of the last few years, but expectations for the global
economy are now improving.
2) China still needs infrastructure
As people continue to move to urban areas, the Chinese
government is investing heavily in the smaller cities and in
mass transit systems.
3) Other emerging markets need to play catchup
Demand from rapidly urbanising economies such as
Indonesia, the Philippines, Bangladesh and Vietnam is
expected to surge over the next decade.
4) India has lagged behind
Compared with China, India has massively underinvested
in infrastructure. It must now catch up to support an urban
population that is expected to almost double between now
and 20301
.
5) India urgently needs better transport
and housing
Around 350-400km of new subway and 700-900 million
square metres of housing and commercial development will
be needed every year from now to 2030.1
6) Rising Chinese consumption will create demand
for oil and gas
China has historically consumed much less oil than western
economies, but demand is expected to grow as the new
middle classes buy cars.
7) Growing emerging market wealth means greater
demand for luxuries
Diamonds, gold and other precious metals are all set to
benefit from the appetite for luxury goods.
8) Dwindling supply also supports prices
The copper price has risen much more than the aluminium
price over the last decade, even though demand for
aluminium has grown faster. The reason? Supply. Copper
miners have struggled to increase production, while
aluminium is plentiful.
9) New supply is hard to come by
New reserves of many commodities are in harder-to-reach
places and are more expensive to extract, providing long-
term support for prices.
10) Share prices look attractive
With the natural resources sector currently unloved by
investors, shares in well-managed companies may be
available at attractive prices.
All information as at 30 April 2013 unless otherwise stated
The natural resources sector has fallen out of favour amid worries over Chinese growth and disappointing
returns. But with the global economy recovering and the long-term case for commodities still strong, the
recent sell-off presents a compelling opportunity for long-term investors.
1 India’s urban awakening: Building inclusive cities, sustaining economic growth’, McKinsey Global Institute, April 2010
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