History is about to repeat itself in commodities in following a late-year slide with a spring rebound, as in 2008-09, Standard Chartered said, terming conditions "almost perfect for a sustained rally".

While commodity markets are "climbing a wall of worry", a mood set to extend into early 2012, "this could be the best time for medium-term investors to go long", the bank said.

"Commodities are gearing up for a rally that will be especially dynamic" in the April-to-June quarter of next year.

"Markets are nervous, supply is constrained, demand is not waning and costs remain high – this is an almost perfect set-up for a sustained rally once confidence returns," the bank added, citing catalysts including a resumption of China's raw materials restocking cycle and further easing of monetary policy in Europe and the US.

'Chinese necessity'

As in 2008-09, when the last financial crisis prompted a late-year slip in prices followed by a spring rally, precious metals would perform best heading into the January-to-March period, while base metals "will experience the strongest rebound" heading out of the quarter.

But there were gains ahead for agricultural commodity investors too, with the "end to the buyer's market that has dominated the second half of 2011".

While this year was closing with a "significant slowdown" in commercial demand for agricultural commodities, as users run down stocks built up early in the year, orders were set to revive in 2012 – notably from China.

"Bargain-hunting will give way to higher [Chinese] demand at the start of 2012, motivated by necessity – particularly as current inventories are drawn down and ahead of major holidays in Asia, which tend to boost domestic demand for agricultural commodities."

Stock replenishment

The bank singled out long investments in soybeans, which it in October said was ripe for gains thanks to strong demand, notably from China, and in sugar.

"Within the softs complex, we expect sugar to outperform, despite the possibility of a surplus in the market," the bank said.

"The surplus will do little to boost global end-season stocks, which have not recovered since the drawdown that followed two consecutive poor harvests in India," the second-ranked producer and top consumer.

It was also noteworthy that, continuing the theme of history repeating itself, "sugar came out of the 2008-09 crisis with relatively high returns".

'Larger imports will be required'

While demand for many other soft commodities would prove "relatively sluggish", held back by soft EU and US economic growth, they still held the potential for considerable gains for long investors, particularly in the April-to-June period.

The futures market is undervaluing cocoa and coffee by more than 10%, compared with the average price forecast for the quarter, sugar by more than 20% and cotton by nearly one-third.

A revival in grains will be led by corn, which will "find its feet", helped by opportunistic purchases by China to replenish stocks which remain at historically low levels.

"Between 1998 and 2003, China's corn stocks-to-use ratio averaged 93%, compared with the current five-year average of 29%," StanChart said.

"This indicates that larger imports will be required to reverse the decline in China's corn stocks.

"We expect corn prices to lead the grains market higher in the first half of 2012 as inventories are drawn down and market sentiment improves."

Standard Chartered is the latest in a series of banks,including Barclays Capital, Goldman Sachs and Morgan Stanley, to issue 2012 forecasts for commodity prices.