Commodity Investing : Best days are ahead of us?

All commodities are going through rough times in last 4-5 years. Some of the important commodities where strong indian equity plays in listed space are currently available includes Steel, Aluminium, iron, Cement, Sugar etc. Commodity works on basic economic principal of demand and supply and they are usually very asset heavy and require big amount of financial investments and commitment. Most commodities are basic building blocks of all industrial development and currently india economic stage require it to be heavy use of commodities to support its future growth and realize its potential. India is net importer of commodities and so as a whole consumer more than it can produce in most cases. Another important aspect of commodities are mostly they are trades in global market and priced in US Dollar which can provide a natural hedge against depreciation in INR. Most of commodities are currently priced at about decade old level and at the level where it is difficult to make profit as a commodity producers and so new money investment in commodities are at multi year low level. Stock prices for most of commodities players are already priced it at low level and any positive news can help them recover while any negative news may not cause much fall in prices. Already most of commodities stocks in global market is up by more than 20% from their recent lows 3-4 months back. Investing in commodities or commodities producer stocks can be highly profitable in short to medium term. All ready many signs of bottoming is their like most govt increasing anti dumping duties and import duties on steel, easing of export duty on iron ore, supporting of export incentives for sugar etc. Finally most investors hate investing in commodities which create good valuation in turn around situations.


What are the signs of bottoming for a particular commodity? Nice topic btw.

Signs of bottoming of various commodities differ based on fundamentals i.e. supply demand scenarios.
(1) Soft agricultural commodities like sugar , coffee, tea , wheat, rice etc has different cycle and mainly influenced by weather phenomenon. I guess all cycles are myth created by academician and economist to justify business cycles but actually it is mainly to do with demand and supply. Sugar for example is already in strong uptrend after bottoming out last year august, 2015. It is widely believed that sugar follow a cycle of about 5 years in which 3 years down cycle and 2 year up cycle happens however this time down cycle lasted for almost 5 years and only because of poor monsoon and al nino effect which has potential to cause supply shortfall is causing upward movements while most other commodities are still in strong bear grip.

(2) All metals like ferrous(iron, steel) and nonferrous (aluminium, copper, zinc, silver etc) usually follows a cycle of 8 years. However depending upon supply demand scenarios few metals can always buck the trend.

(3) Most real estate, construction , infrastructure, cement etc follows a cycle of 18 years and so it is believed that every 18 years major recession or depression comes in business cycle. While small recession can come every 7-8 years. All govts / central banks etc just take credit without actually much capacity to influence economic activities and usually they are like most investors are too late.

(4) Typical sign can be low volume or low interest level of the market. Investor are very averse to even talk about investing in commodities or commodities producing companies. However unless demand or economic activities peak up prices can be depressed for 2-3 years and this duration is grey area. so with margin of error of 2-3 years it is not very difficult to predict these cycles. All commodities are basic building blocks of economic activities and industries and require considerable time and money to increase supply once demand scenario changes.

Lets forget about scripted and stipulated time -cycle ranges and lets get interested into actual supply demand figures.

August 2015, what were supply demand figures of sugar before this point of time …and what are the corresponding readings after that point of time?

Also, lets not forget to take into account the inventory and closing stock readings.

Thanks once again for this excellent topic

who no’s bottom ?// still no one …
about sugar it seems it is having shortfall in international market .
oversupply in domestic market intact.
next year there will be a shortfall for sure if this figures are correct ///??
BUT…if next year due to shortfall sugar rate’s rise then cane cultivation will rise .
and market will start factoring in huge sugar output there after.

but in international market in Brazil there maybe AL nino this year???