Base metals to rally higher by year-end: Peter McGuire

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Base metals to rally higher by year-end: Peter McGuire

Peter McGuire, Managing Director, Commodity Warrants, said the Baltic Dry Freight Index had quite an amazing run up of about 50-60% in the last week-and-a-half. He expects base metals to rally further and sees prices of base metals higher by the year end than what they were at the beginning.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » RELATED NEWS See downside for crude limited at $38/bbl: Sushil Global See breakout if mkts go beyond trading range next week Take long position in gold at 14K/10gm on MCX: Brics Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Peter McGuire, Managing Director, Commodity Warrants, said the Baltic Dry Freight Index had quite an amazing run up of about 50-60% in the last week-and-a-half. He expects base metals to rally further and sees prices of base metals higher by the year end than what they were at the beginning.

He is watching gold as he is worried about the global economy.

Here is a verbatim transcript of the exclusive interview with Peter McGuire on CNBC-TV18. Also watch the accompanying video.

Q: Are you expecting a rally in base metals from hereon?

A: I think we will probably see a little bit more upward movement. But it is interesting also to note that the Baltic Dry Freight Index has had quite an amazing run over the last couple of weeks. Also it is up the best part of 50-60% in the last week and a half. So they could have a little bit further of a rally.

It's very hard to forecast how much further there is as far as upside in the near-term. The prices will certainly be higher at the end of the year than what they were at the start of the year.

Q: Which of these base metals would you be most bullish on? Do you think it is copper that is going to take the lead? Which of the metals would you be bullish on?

A: I think copper and aluminium have got some good sunshine ahead of them because they have been oversold. We saw that also with the price of lead and nickel and zinc. All of them were absolutely hammered or smashed in 2008 and were well off their all-time highs. They were down 60-80% on their prices that they hit in '08. So, the aluminium and the copper market will take charge. But I wouldn't be surprised to see lead and zinc also be quite a bit higher at the end of the year.

Q: How would you map the hedge fund activity in the entire commodity space? Would you attribute a fair bit of this copper rally to short covering? How many shorts still exist in the system when it comes to base metals?

A: There is a fair bit of hedge fund participation in the market. There is no doubt about that. As far as covering their shorts, it is probably a week-by-week proposition. They are squaring up their books. They are seeing what their involvement is. As far as the speculators out there are concerned, people are starting to see a little bit of sunshine. So, they are probably starting to go long.

I know that the retail sector is certainly looking at those markets. As far as the institutions are concerned, they have also got their eye on it.