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Chinese manufacturers are adding more galvanized materials to cars, which requires zinc.ChinaFotoPress/Getty Images

The precipitous fall in oil prices and resulting dramatic swings in global currencies have left investors skittish about commodities. But for the patient, resolute investor, there could be plenty of profit opportunities in the next two years.

Headlines over the past year have told the story of dramatic price declines for oil, gold and iron ore. And while the leading measure of commodity prices, the Standard & Poor's GSCI Total Return Index, is down 36 per cent over the past 12 months (as of Thursday), other products, from sulphur and coffee to cattle and cobalt, have registered double-digit gains in that period.

Numerous trends bode well for a handful of commodities this year. Demand for higher quality cars in China and India, for example, is boosting demand for galvanized steel. Japan's decision to restart nuclear reactors is giving uranium prices a lift. And a strengthening U.S. economy is finally energizing the home-building sector, suggesting upward prices for forestry products.

"There is so much concern today about a lacklustre global economy and China's slowing growth that base metals are way oversold," says Patricia Mohr, a vice-president and commodity market specialist at Bank of Nova Scotia. "[Economic] growth is slowing, but growth in demand for base metals will continue to move up, and there are a couple of metals in particular where there is supply side constraint."

Her "top picks" for investors this year are zinc, nickel and oriented strand board (OSB) – an engineered wood panel board used often in roofing and flooring.

Zinc and nickel
Zinc is used to galvanize steel, aluminum and iron. Manufacturers in China and India are adding more galvanized materials to cars, trucks and other products to make them resistant to corrosion. Even if China's economic growth stabilizes near 7 per cent this year, reliance on zinc will increase. At the same time, there is shrinking supply of the metal as several of the world's largest mines face depletion, Ms. Mohr says. She forecasts zinc to rise from last year's average 98 cents (U.S.) a pound to $1.10 this year and $1.60 in 2016.

"For any base metal, you need to hold it for several years until the market firms up. This is not a quick flip," she advises.

Even if growth in China's stainless steel production halves this year, global demand for nickel is going to outpace supply beginning in the second quarter. That's largely because of the export ban imposed by Indonesia, which mines about one-third of the world's nickel. Indonesia's government has demanded that nickel-containing ore be processed domestically, rather than shipped raw to market. Those new processing sites aren't expected to come on line for at least another one or two years, which means that as China's ore inventory is depleted during the first half of the year, nickel prices should soar, Ms. Mohr says.

She sees nickel rising above December's $7 a pound to $9 this year and $11.50 in 2016. Other market watchers share her bullish outlook on the base metals.

"With large-scale mines set to close, and new mines slow to open, production will continue to lag demand in the zinc market, suggesting that there is plenty of upside for zinc prices," Dina Ignjatovic, an economist with Toronto-Dominion Bank, said in a recent commodity price report, entitled Searching for a Bottom.

"Similarly, due to the raw ore export ban in Indonesia, coupled with a slow build of mines globally, the nickel market is expected to swing into a deficit position [this] year, driving prices back up toward the highs seen in 2011," Ms. Ignjatovic said.

Oriented strand board
Meanwhile, lumber prices, which dipped about 4 per cent last year, look to benefit as U.S. builders construct an expected 1.2 million units this year and 1.4 million in 2016, up from 930,000 in 2013, Ms. Mohr says.

She forecasts OSB prices to rise 24 per cent this year and another 35 per cent in 2016.

Shares in producers
Investors can add commodities to their portfolios in numerous ways. The most straightforward method is to buy shares of companies that extract, process or sell the products.

There are several ways to invest in base metals and forestry products. Toronto-based Norbord Inc., for example, is set to become the world's largest producer of OSB when it completes its $762.6-million purchase of Vancouver's Ainsworth Lumber Co. Ltd. The deal is designed to help Norbord capitalize on the U.S. housing market and will make it one of the country's largest forest and wood product companies, behind West Fraser Timber Co. Ltd., Canfor Corp., Stella-Jones Inc. and Interfor Corp.

Gary Lampard and Kyle Franklin, analysts at Canaccord Genuity Group Inc., list HudBay Minerals Inc., Imperial Metals Corp., Labrador Iron Ore Royalty Corp. and Lundin Mining Corp. as among their favourite metals and mining stocks at the moment.

But buying exposure to base metals through stocks is harder because none of the majors are pure play producers any more. If you buy Teck Resources Ltd., for example, you get the world's third largest producer of zinc and a whole lot of exposure to copper. In the first nine months of last year, Teck reported $1.9-billion (Canadian) of revenue from zinc, $1.9-billion from copper and $2.5-billion from coal.

Futures contracts
The more direct way to these commodities is by buying futures contracts on the commodities markets. A futures contract is an agreement to buy a specific amount of a commodity at a set price and date. Trading commodity futures contracts is risky because it involves a large amount of leverage, so small price moves in the underlying asset produce big changes in the value of your contract.

Nevertheless, commodity markets are easily accessible to individual investors today through low-cost electronic brokers. CMC Markets Canada Inc., Interactive Brokers Canada Inc. and Gain Capital's Forex.com, offer sophisticated trading platforms for commodities as well as foreign exchange, options and stocks.

Some of the factors on which to judge these brokers include the margin rates they offer, the size of the bid and asks spreads they provide for each commodity, their trading hours, reviews on the speed of their trading platforms, and the quality of the news, research and analysis they offer.

CMC, for example, promotes a near real-time sentiment tool that shows what percentage of its clients are buying versus selling any product, as well as the value of these trades.

Forex.com features software that automatically detects emerging chart patterns across foreign exchange and commodity markets. Using technical analysis, the tool generates trading ideas and instantly detects emerging market patterns, the company says.