Commodity markets suffered in May as negative investor sentiment and broad-based macroeconomic factors resulted in losses, but recent price weakness could provide a buying opportunity, as fundamentals remain strong, Credit Suisse said. "Wavering investor sentiment certainly had an impact on commodity prices last month, however over the long term we believe commodity prices will be determined by fundamental dynamics, such as supply and demand, marginal costs of production, storage costs, etc," said Andrew Karsh, co-lead portfolio manager for the Credit Suisse Total Commodity Return Strategy, in a statement Monday. "We continue to see demand recovering for key commodities, like crude oil and copper, in both the developed world and emerging markets, particularly China, which could increase the likelihood of future capacity constraints, leaving only higher prices to balance supply and demand," Karsh added. "Certain risks may also lead to higher commodity prices over time, for example, the Deepwater Horizon oil spill reminds us of the costs and risks involved in obtaining new sources of oil, while the proposed 'resources super tax' in Australia demonstrates the costs mining companies may incur due to political decisions," he said. According to Christopher Burton, co-lead portfolio manager, other factors could also weigh on the market over the long term, such as the proposed $1 trillion combined economic support package from the European Central Bank, the euro zone and the IMF. "While the details of the proposal are not yet clear, such a large support package could ultimately result in inflation, which could ultimately benefit commodities," Burton said. "We don't believe such a scenario is priced into commodity prices at this time and recent price weakness may offer a favorable entry point for those considering adding to their existing commodity exposures, particularly with inflation expectations remaining relatively low in recent months," he added. The Dow Jones-UBS Commodity Index Total Return was down 6.92% in May, bringing the year-to-date performance to minus 9.89%. Among 19 index constituents, economically sensitive commodities, like the petroleum complex and base metals, were among the worst performers, Credit Suisse said. Natural gas was the strongest performer during the month, returning 7.20% as a result of increased demand, due to an early onset of the cooling season in parts of the US, forecasts for a heavy hurricane season and curbs on offshore drilling. Gold continued its positive momentum, up 2.77% in May and 10.47% year-to-date, due in part to recent fluctuations in the currencies market. Nickel was the weakest commodity for the month, down 18.92% as economic uncertainty led to a pullback in expectations of growth oriented activity. Crude oil was also down 16.28% in May, which resulted in negative year-to-date performance for the commodity. --Andy Blamey, andy_blamey@platts.com

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