Fall in commodity prices-“temporary”

The Standard & Poors' GSCI Index, a measurement of the price performance of 24 raw materials, have fallen since the beginning of May and is now where it was just before Lehman Brothers Holdings Inc filed for bankcruptcy.

Spot gold for one has dropped more than 4.60 percent since the end of April while crude oil has tumbled more than 14 percent.

While observers expect demand destruction due to a combination of high prices, monetary tightening measures in emerging Asia and renewed worries over Greek debt as well as concerns over US growth, others believe price drops could usher another round of restocking by China and India.

Phillip Futures Pte Ltd analyst Ong Yi Ling expects robust demand for gold from China and India to continue this year.

“India and China are the largest and second largest consumers of gold respectively. Physical demand for gold in Asia may help to cushion gold's move lower in the event investment demand starts to wane,” she said.

Meanwhile, CIMB Investment Bank Bhd analyst Ivy Ng said in a report yesterday that China and India might buy more palm oil to replenish their stockpiles. Crude palm oil benchmark futures have fallen since February 11.

The price movement of agriculture futures are also complicated by other factors such as weather and their correlation with other commodities.

Corn, soybean and wheat futures have risen after wet weather delayed planting in the US Midwest. Rubber prices have fallen because crude oil's drop has made the commodity less desirable as an alternative for tyre products.

Rabobank global head of agriculture commodity markets research Luke Chandler said in an April report that weather disruptions and low inventories would make the outlook for corn, soybean, wheat and cotton bullish.

He said low supply would remain a concern although farmers were responding to higher prices by planting more while “the need to ration demand of dwindling old crop supplies will maintain and increase prices, with corn and cotton leading the way as we move into the weather market”.