Reuters reported that supply trends will be a greater differentiator of commodity price performance in the Q3 with crude oil, copper and corn among the most interesting plays. Mr Kevin Norrish MD commodities research at Barclays Capital said that "The headwinds have got stronger for commodities but our view is that now is not the time to underweight commodities Exposure.” He argued that commodities tended to outperform during periods of slower GDP growth and higher inflation but there would be some divergence of performance across the commodities sector in the next few quarters. It will be more about the supply side. Zinc, natural gas, cocoa and sugar were amongst those commodities that looked well supplied. He said that by contrast, supplies of crude oil, copper and corn look to be getting tighter, and the report highlighted the higher risk of a price spike in oil. In oil there is little sign of demand destruction although there has been a lot of talk about it. Mr Norrish said that "We are getting to the point where there is a lack of spare capacity to absorb further supply shocks. Geopolitical risks have intensified and the market will continue to be sensitive to events in Saudi Arabia and Bahrain." He said that for copper many mines had underperformed their production expectations at a time when China was coming back into the market and beginning to buy again. Meanwhile US corn stocks are already low by historical standards but may fall further as US plantings have been affected by a wet spring in the Midwest. Mr Norrish said that he still sees a lot of mileage in gold as inflation concerns, dollar weakness and steady buying from central banks will continue to be supportive. It will be a bumpy ride but we expect to see some reasonable price appreciation in the H2.

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