JPMorgan Asia targets growth in energy, metals trade

SINGAPORE Fri May 27, 2011 2:49am EDT

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SINGAPORE (Reuters) - JPMorgan Chase & Co (JPM.N) plans to expand its physical trading activity in China's oil market, Indonesia's coal sector and across Asian metals to cash in on what it sees as a long-term bull market, the head of the bank's Asian commodities unit said.

Despite a sharp fall in commodities prices in the first-half of May, JPMorgan is bullish on the sector's future prospects as developing economies consume more raw materials, said Ray Eyles, chief executive of the bank's Asian commodities business.

"The fundamental story is still very strong and the emerging market story would have a significant long-term impact on these commodities prices," Eyles said in an interview with Reuters.

China continues to lead a charge in developing world demand that has fueled commodities markets for over a decade, and a chorus of market players this week have said they maintain a bullish outlook for the sector despite the sell-off this month.

Top trader Glencore (GLEN.L) said it saw emerging markets straining supplies and testing the ability of producers to ramp up output. Goldman Sachs (GS.N) and Morgan Stanley (MS.N) raised oil price forecasts this week.

JPMorgan aims to take a bigger slice of the market for physical oil trade into China, Eyles said. China is already the world's second-largest oil consumer and the International Energy Agency expects the nation to account for around 40 percent of the increase in fuel demand worldwide this year.

"China has clearly been a large part of the demand story for physical oil," Eyles said. "Moving forward, this is one of the areas we are placing significant emphasis on."

Expansion in the Chinese oil trading business is part of the bank's wider strategy to grow in the country, Eyles said.

"China is one of our top priorities for the next several years," Eyles said. "We... are seeking some very significant opportunities there. The platform we've built offshore and are building onshore is well positioned to maximize the opportunity across the physical commodities as well as the investor business."

In Indonesia, the world's top exporter of coal for power generation, JPMorgan is looking for coal purchase contracts as part of a move to grow its physical trade, Eyles said. The bank is also looking at opportunities to supply fuel to the country's commodities producers, he added.

Physical metals trade in Asia is another target growth area, Eyles said. The bank plans to increase capacity at its Asian metals warehousing facilities, he said. Last year, it opened a precious metals vault in Singapore.

The Asian gas, power and coal sectors also offer growth opportunities, Eyles said. China, India and Japan will all need more imported gas in coming years, and Asian governments are making huge investments in expanding power generation and grids.

"Although the gas and power market in Asia is still relatively small, we see strong potential there in the years to come and we are adding resources and increasing our focus in order to capture the opportunity," he said.

JPMorgan will add two to its team of four covering the region's gas, power and coal sectors, said Eyles, who took the helm at the bank's Asian commodities unit in September 2010.

The bank sees little other change in its 100-strong Asian commodities and energy team, which has expanded from just 60 in mid-2010 as the bank absorbed RBS Sempra Commodities.

ENERGY, PRECIOUS METALS TO OUTPERFORM

The slowdown in global industrial production following the massive earthquake and tsunami in Japan in March had made JPMorgan "more cautious" in the short-term on commodities markets, Eyles said.

The 19-commodity Reuters-Jefferies CRB index .CRB is heading for a monthly loss of over 7 percent.

Concerns about more tightening in Chinese monetary policy and euro zone sovereign debt were also dogging markets, he said.

"There is still scope in the short-term for prices to go lower, but we don't see it as a long-term move," he said. "In the long run, we believe we are set for significantly higher commodity prices and I think the energy space will be one of the major beneficiaries."

The bank is most bullish on long-term prospects for oil, coal and gas, he said.

"We'd expect to go through a period of outperformance in energy and precious metals, and underperformance in industrial metals," he added.

Fundamentals in oil and copper were finely balanced, giving little room to absorb a strong increase in demand, he added.

The agricultural market also provided a big opportunity in coming years, Eyles said, as governments focus on food security and producers looked to increase output to meet demand growth and changes in dietary habits.

(Editing by Himani Sarkar)

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