London: Coal and iron ore companies may gain the most among natural resource stocks next year as demand to build infrastructure in Asia offsets a slowing US economy, according to Baring Asset Management Ltd.
Building spree: A file photo of labourers laying down new tracks for a high-speed passenger rail line connecting Nanjing and Hefei at a railway station in Hefei, Anhui province. China and India are boosting demand for iron ore and coking coal, used to make steel, as the countries build ports, railroads and buildings.
China, the world’s fastest growing major economy, and India are boosting demand for iron ore and coking coal, used to make steel, as the countries build ports, railroads and buildings.
The Morgan Stanley Commodity Related Index of 20 companies has more than tripled in the past five years as energy, mining and agriculture prices rose to records.
There will probably be “double digit” returns from such companies next year, Jonathan Blake, whose $1.2 billion (Rs4,752 crore) Global Resources Fund is up 33% this year, said on Thursday. “Investment in infrastructure is less cyclical.”
Contract prices for iron ore have tripled in the past five years on rising demand from China. Prices may rise 50% in 2008, Macquarie Group Ltd had said in a November report. Coal prices surged to a record this year because of supply disruptions in Australia, the world’s biggest exporter.
Cia Vale do Rio Doce, the world’s biggest iron ore producer, has risen 78% on the Sao Paulo Stock Exchange so far this year. Xstrata Plc., the world’s largest exporter of coal used by power stations, has gained 37% during the same period in London.
China’s economy expanded at an average rate of 11.5% in the first three quarters. India grew by an average 9.1% during the same period.
Blake declined to give a forecast for stocks or prices.
The UBS Bloomberg Constant Maturity Commodity Index is heading for its sixth year of gains. Wheat prices in Chicago jumped to a record $10.10 a bushel (Rs399 per 27.22kg) this week, while oil last month climbed to $99.29 a barrel, its highest ever. Lead hit an all-time high in October and nickel in May.
“This cycle has the potential to go on for another 5 to 10 years,” Blake said. “There’s no question that there will be cyclical headwinds along the way though.”
Among so-called bulk commodity producers, Blake expects shares of potash and phosphate producers to gain as farmers seek to improve crop yields to meet demand for agricultural products.
Potash Corp. of Saskatchewan Inc., the world’s largest producer of the fertilizer, has more than doubled this year in Toronto trading.
“There will be further potential for gains in this sector,” said Blake. “Increasing yield is incredibly important” for the industry, he added.
Baring, a unit of Springfield, Massachusetts-based MassMutual Financial Group, oversees $58 billion.