Commodities, as measured by the S&P GSCI Light Energy Index, may gain as much as another 10 percent this year, led by oil, sugar and coffee, according to Colin O’Shea, head of commodities at Hermes Fund Managers Ltd.

The index, which Hermes uses as a benchmark, advanced 15 percent last
year, buoyed by Chinese demand for oil, copper and other commodities.
The gauge has a 36 percent weighting in energy, 30 percent in
agriculture and almost 18 percent in industrial metals, based on data
from Jan. 21.

“Last year, we had very strong demand from emerging markets,
particularly from China,” said O’Shea, who forecast a gain of 5 percent
to 10 percent in the index and manages 1.2 billion pounds ($2 billion)
across three funds. “Will demand continue? We believe so, albeit at a
lower rate.”

China’s economy, the world’s largest copper consumer and second-biggest
oil user, accelerated to the fastest pace since 2007 in the fourth
quarter, the statistics bureau reported yesterday. The World Bank on
Jan. 20 raised its forecast for 2010 global growth to 2.7 percent,
compared with an estimate in June of 2 percent.

O’Shea, speaking in an interview in Dublin on Jan. 20, said he favors
so-called soft commodities including sugar. Raw-sugar futures more than
doubled in New York trading last year. Excess rains in Brazil and a
weak monsoon in India hurt sugar-cane output from the world’s two
biggest growers. Global demand for sugar will outpace supply by 13.5
million metric tons in the 2009-10 season, according to broker
Czarnikow Group Ltd.

“There are big problems in supply,” O’Shea said. “We believe over the
next few months we could be due for further prices rises.”

White sugar traded in London rose to its highest since at least 1989
yesterday, while raw sugar advanced to the most costly since January
1981.

Source: Bloomberg

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