London, 6 October 2011: Reuters

Demand from emerging markets for base metals is likely to support prices over a longer-term, with commodities seen as among the asset classes to post a rapid bounce back from recent falls on sound fundamentals, Anello Asset Management said.

Benchmark copper on the London Metal Exchange lost more than 25 percent in September as global recession fears and demand worries prompted investors to dump the metal, with some forced to liquidate positions to cover margin calls.

Mark Hewlett, managing partner at Anello Asset Management told Reuters in an interview the need for raw materials from emerging economies such as China could help cushion an economic deterioration in the west. China accounts for about 40 percent of global consumption of copper, estimated at around 19.9 million tonnes this year. Western Europe consumes about 15 percent and the United States 10 percent.

"It's a western crisis that is affecting prices of products for which demand from the east is still strong. In times of crisis people tend to forget the underlying demand story and just throw the baby out with the bath water.

"Commodities bounced back quicker than equities between 2009 and 2011 and I think they will do the same again. People have been shaken out of positions to meet margins elsewhere and.. will want to get back in because the fundamental story is still there."

The effects of a slowdown in the global economy, tight domestic monetary policy and volatile prices have added to uncertainty about China's demand for copper -- used in power and construction -- although tentative positive signs have emerged.

China's imports of refined copper surged 21.2 percent in August compared to the previous month to reach their highest level since January as improved arbitrage spurred spot buying. Hewlett said he was upbeat on the prospects for lead on a favourable demand outlook for batteries used in hybrid cars, while supply is expected to remain tight.

Reduced production of lead-acid batteries in China after a government crackdown on lead polluting operations have supported battery prices in the second half of the year, but overall production remains lower than last year.

"There is still strong demand for lead for batteries over the next five years and the increase in supply is going to be minimal," Hewlett said, adding that a supply shortfall was also expected to underpin the case for tin.

Anello is in the process of launching a multi asset managed account called the Diversified Futures Programme investing in commodities futures, including industrial and precious metals, energy and food.

Its AAM Mantis Programme which invests across equities, fixed income, and G-10 currency pairs, showed 2.49 percent rise in September.

Ends --

Reuters market analysis – for Commodities Now with permission.