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For most commodities, prices are bottoming out and production cuts are likely. Sixty percent of Aluminium producers are unable to cover costs and in nickel 30%, while major of South African platinum producers are stru..

03 Feb 2014

LONDON (Commodity Online): Commodities have turned outperformers so far in 2014 compared to equities and other assets but this may be good news for some but painful for investors who have been switching exporsure out of commodities into other assets especially equities, according to a weekly report by Barclays.

The S&P500 is down 3% in the year-to-date, whilst both the DJUBSCI and the CRB index are both in modest positive territory and the S&PGSCI is down lees than one percent.

Emerging market equities are weak with BRIC-40 having declined 8%. These nations account for 50% of commodity demand and hence this outperformance in commodities looks very robust in comparison, Barclays added.

Macro-economic factors aren't quite favourable: Fresh concerns over China GDP, factory data, Fed tapering, strength in dollar, currency volaitity in emerging markets.

International Monetary Fund has said that major commodity prices are expected to decline this year except coal and natural gas.

For most commodities, prices are bottoming out and production cuts are likely. Sixty percent of Aluminium producers are unable to cover costs and in nickel 30%, while major of South African platinum producers are struggling. Copper, zinc prices are above cash costs and the pressure to cut production is far less, this is true of US nat gas and crude oil as well.

A warm US weather, improvement in labour relations in South Africa, fall in production cuts and cut in long positions in oil, gas, copper and platinum could see supportive factors for commodities fading away.

On the positive side, the fact that many commodity futures are in backwardation (near month priced higher than far month) suggests fundamentals are improving slowly but steadily.

Of the 24 major commodity markets, ten are now in backwardation compared with just six a year ago and only four in January 2012. And those ten include some of the largest and most important global commodities markets including both of the world’s major crude oil contracts, CBOT soybeans, LME copper and NYMEX natural gas.


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