With the markets and global economy taking a "breather" over the last few weeks, a variety of asset classes have seen their prices dwindle. Perhaps no asset class has fallen more dramatically than the commodities complex. As growth expectations for a variety of nations and regions such as China and Europe have slowed, so has potential demand for a variety of natural resources. Everything from gold to crude oil has seen its price slide and various broad measures like the iShares S&P GSCI Commodity-Indexed Trust (ARCA:GSG) now sit closer to its 52-week lows. However, despite the recent downturn in commodities, one natural resources powerhouse is still bullish on the long term. Investors may want to use the recent weakness to add the asset class to a portfolio.
SEE: How To Invest In Commodities.
Robust Long-Term Demand
Renewed concerns over the state of the global economy have driven commodities prices downward. However, global commodities powerhouse, Glencore International (OTCBB:GLCNF.PK) expects demand for raw materials to remain robust, as China and the U.S. help offset the impact of the downturn in Europe. The firm, with operations that span from metals and grains to energy, said the current demand picture "remains broadly healthy across the globe, although precise conditions vary by location."
The key driver for commodities remains China. Speaking to the Financial Times, CEO Ivan Glasenberg remarked that Glencore had not seen a reduction in Chinese demand and blamed the outside financial markets for the recent drop in prices. Tightness continues to be a problem, with inventories on both commodity exchanges and supply chains dwindling.
The firm acknowledged that it is getting harder to produce certain resources in select parts of the world. Over the previous quarter, Glencore's own production of gold, nickel, copper and zinc dipped, as problems such as power failures and various government authorities clamped down on operations. Overall, the group's data shows that global inventories of key resources demanded by the Asian Dragon, like copper, continue to remain low.
At the same time, the natural resources powerhouse said that it has seen rising demand from the United States, as its economy has finally begun to move in the right direction. Higher manufacturing numbers and increased production across sectors like the aerospace and automobile industries have pushed up demand for industrial commodities such as steel aluminum. Overall, Glencore believes that China, the rest of the emerging world and the U.S., will more than make up for slack demand in the E.U.
SEE: Top 6 Factors That Drive Investment In China.
Using the Weakness
Echoing similar statements from Goldman Sachs (NYSE:GS) and sogo shosha Mitsubishi (OTCBB:MSBHY.PK), Glencore's predictions show a continued bullish market for commodities. Yet, short-term thinking has the asset class in the doldrums. For investors looking for value, now could be a good time to strike. Here are some suggestions on how to play it.
The PowerShares DB Commodity Index Tracking ETF (ARCA:DBC) remains the behemoth in the space and allows investors to bet directly on commodities pricing. The fund tracks a basket of 14 different natural resources, including copper, Brent crude and wheat. Since its inception in 2006, the PowerShares fund has outperformed the other broad natural resources measures, including the previously mentioned GSG and the iPath DJ-UBS Commodity Index TR ETN (ARCA:DJP).
Expenses run a relatively cheap 0.93%. Likewise, producers of various commodities have sold off as well over the last few weeks, but should see their prospects improve as demand increases. The SPDR S&P Global Natural Resources (NYSE:GNR) remains a global broad-based choice to play the commodity producers.
Finally, with much of Glencore's thesis stemming towards the industrial commodities complex, investors may want to focus on these areas. The iPath DJ-UBS Industrial Metals ETN (ARCA:JJM), Market Vectors Steel ETF (ARCA:SLX) and SPDR S&P Metals & Mining (ARCA:XME) make ideal ways to play rising prices/demand for these materials.
SEE: How To Reduce Taxes On ETF Gains.
The Bottom Line
As global growth has begun to slow, the prices for various commodities have dwindled as well. However, natural resources powerhouse Glencore says not to worry. Strong medium to long-term demand may be in the cards for a variety of materials. Investors could use this recent weakness to add to the sector. The previous picks, along with the ELEMENTS Rogers Commodity ETN (ARCA:RJI) are prime examples on how to add the sector to a portfolio.
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Aaron Levitt is long GNR since January 2012.
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