Investors in raw materials markets need to be more active and alert to the supply and demand cycles of individual commodities, Investec Asset Management told Reuters.
Bradley George, investment analyst at Investec, said the time had passed for buying passive index products that bet only on rising prices of a basket of commodity futures.
Indices had brought large rewards for investors since the bull run started in 2002, but recent volatility meant investors should look for new ways and opportunities to earn returns in commodity markets.
"In the energy complex now, specifically crude, you've got high inventories and clearly it is on a different cycle to base metals where inventories are extremely low right now," George said this week.
"At any one point in time all the commodities have their own supply and demand fundamentals, and investment decisions should be made on an analysis of these fundamentals."
Crude oil jumped to record levels above $78 a barrel in July on political tensions in the Middle East and fears of supply disruptions, while demand from emerging market economies such as China remained intact. But prices have since fallen back to below $60.
"In the last year additional crude supply has been brought back on stream and developed as new investments have finally been made," Investec energy sector analyst Adrian Jackson said.
Rising supplies had coincided with an economic slowdown in the United States, which was expected to cut demand from the world's biggest consumer of crude oil.
"We are seeing a short-term supply surge as a result of several years of high prices stimulating investment," Jackson said. "However, in base metals the opposite is still true."
Zinc - used to protect steel from rust - hit a contract high of $4,325 a tonne on the London Metal Exchange on Wednesday. It was boosted by worries about supplies as stocks in LME warehouses fell to just above 100,000 tonnes this week from 620,000 in June last year.
Nickel jumped to record highs of $32,625 a tonne in October as stocks of the metal used in the production of stainless steel fell to around 4,000 tonnes from more than 37,000 at the beginning of this year.
ASIAN GROWTH: Over the longer term, though, Investec expected commodity prices to continue to rise as supplies fell short of strong demand, particularly from Asia. China's urban population was expected to increase from 530 million to 875 million by 2030 as Chinese rural workers abandoned the land for jobs in the cities.
Economic growth was seen at around 10 percent a year. "The relocation of 25 percent of the population in China from rural to urban areas will further fuel this ... growth by driving wealth and increasing the development of infrastructure and demand for energy," George said.
China was now at a stage of development that involved massive construction and major energy and raw materials use. That was likely to last for another 10 years, after which Investec expected India to take over. Investec asset management runs $50 billion in assets and is the fund management arm of South African-based banking group Investec Plc.
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