El Nino a looming wild card for commodities – by Rachelle Younglai (Globe and Mail – May 14, 2014)

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Commodity traders are placing their bets on El Nino. The periodic weather phenomenon leads to torrential rain in South America and droughts in Asia and Africa, and may provide a needed boost for commodities after last year’s slump in prices.

Weather forecasters around the world are predicting that a shift in climate patterns could occur this summer, with some warning of the strongest El Nino in more than a decade.

“One should prepare portfolios to actively trade that event,” Société Générale SA said in a research note released on Tuesday. “We see support for base metals, especially nickel and zinc, as well as more volatility for sugar, cotton, coffee and cocoa.”

The severe weather event, which happens when temperatures warm in the Pacific Ocean, could cause flooding in copper and zinc mines in South America.

It could also cause droughts in resource-rich regions, threatening sugar crops in Thailand and India and drying up waterways needed to transport ore in Indonesia, the bank said.

Those disruptions could help pick up depressed metal prices. One metal bucking the trend – nickel, already up nearly 50 per cent this year – stands to benefit the most.

Société Générale looked at the past seven El Ninos in the 1990s and found that nickel was the best-performing commodity during the meteorological changes.

The silvery metal rose an average of 14 per cent. Copper gained an average of 8 per cent, zinc increased 1 per cent, soybean jumped 3 per cent and coffee climbed an average of 10 per cent. On the down side, wheat lost an average of 5 per cent and sugar fell 10 per cent, according to the bank.

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