* Platinum, palladium supply at risk in South Africa
* Zinc, lead, tin could also register shortages
* Surpluses to weigh on other commodity markets
By Eric Onstad
LONDON, Dec 30 Nimble investors may find pockets
of outperformance next year in platinum group metals (PGMs) and
selected industrial metals while abundant supplies weigh down
most other commodities.
Platinum and palladium are due to struggle with potential
mine closures amid labour trouble in South Africa while zinc,
tin and lead could face regional shortages.
The opportunities may be short-lived so investors will have
to be quick-witted to squeeze out profits, said analyst Andrey
Kryuchenkov at VTB Capital.
"Market participants will have to be extremely vigilant,
flexible and dynamic in their decision-making, aiming to benefit
from mostly short-term seasonal trades," he said.
Broad commodity indices are likely to underperform again as
surpluses burden oil, grains and metals such as copper and
The Thomson Reuters/Core Commodity CRB index,
which tracks 19 commodities, has shed nearly 4 percent this
year, the third straight year of losses. In 2014, it is due to
underperform stocks again as the latter benefit from strong
company earnings, analysts and fund managers said.
MSCI's all-country world equity index is up
20 percent this year and the U.S. S&P 500 index has
surged 32 percent.
LONG PGMS/SHORT GOLD
Many analysts and fund managers expect more labour problems
in South Africa. The country accounts for about three-quarters
of global output of platinum, mainly used for jewellery and in
catalytic converters to clean vehicle exhaust fumes.
"We're positive on the PGMs because ... the three largest
platinum producers in South Africa, they've still yet to
renegotiate those (labour) contracts," analyst Sudakshina
Unnikrishnan at Barclays said.
"Any sort of supply risk we think is likely to be the
catalyst to push prices higher."
Barclays is advising clients to place relative value trades
in precious metals, taking long positions in platinum and
palladium while going short gold.
Gold is expected to post more losses in 2014 after falling
out of favour with investors, who have been liquidating holdings
of an asset that has lost its safe-haven appeal.
A huge outflow of physical gold holdings from
exchange-traded products (ETPs) has hit gold, which this
year is set to post its biggest annual loss in three decades -
some 28 percent - as it ends a 12-year bull run.
"We do not expect to see a repeat of the rapid outflows that
occurred during the first half of the year, but with 1,820
tonnes of gold still held by physically backed ETPs, there
remains substantial scope for further divestment," said Nic
Brown, head of commodities research at Natixis in London.
ZINC, LEAD, TIN
Other potential bright spots in commodities include zinc,
lead and tin, which analysts said could also encounter supply
"Zinc should continue to see modest deficits with mined
supply lagging," analyst Grant Sporre at Deutsche Bank said in a
note. "Based solely on the annual supply-demand balances, we
think that zinc and lead remain the most attractive."
Again, the safest way to play the market is through relative
value trades, several analysts said.
Metals strategist Stephen Briggs at BNP Paribas suggests
taking a short position in copper due to expected surpluses
versus a long position in a basket of zinc, lead and tin.
Broad commodity indices are expected to be sluggish again
next year, as global growth is seen as insufficient to offset
expected surpluses in many sectors, including oil and grains.
"There is a pattern in commodities where returns don't tend
to become very strong until there's been a decent period of
demand growth that enables any excess inventory or spare
capacity to be drawn down," said Kevin Norrish, head of
commodities research at Barclays in London.
Global economic growth is expected to rise modestly to 3.5
percent in 2014 from 2.9 percent this year, according to a
Reuters poll in October.
Surging supplies are expected to push North Sea Brent crude
down to an average of $103.50 per barrel in 2014, from
this year's average around $109, according to analysts polled by
Reuters this month.
Bumper corn and soybean harvests have weighed on grains
prices and more weakness is seen in 2014.
"We expect the balance of risks tilting to the bearish side
in the agri commodity space, continuing the trend seen in 2013,"
Macquarie said in a note.
(Editing by Dale Hudson)