2016 was the year when the commodities
\nbear market ended. It capitulated in January
\nwhen crude oil fell below $30 a barrel and a
\nnumber of commodity-producing companies in
\nthe energy and metals sectors were in a battle
\nfor survival, selling off assets and desperately
\nrestructuring their balance sheets.<\/p>\n
As commodity prices fell below the cost of
\nproduction, these companies were losing
\nmoney at a rapid rate. If oil stayed below
\n$40, then 20% of global capacity would have
\ngone out of business. Similarly, major mining
\ncompanies Glencore and Anglo American were
\nforced to liquidate significant parts of their
\noverall businesses to reduce debt and to shore
\nup their balance sheets.<\/p>\n
The market recognised that prices were
\nunsustainably low and there was a small
\nbounceback. As we enter January 2017,
\nprices are rising further. This is because,
\nalthough prices fell in 2015 and the beginning
\nof 2016, demand for commodities continued
\nto increase; not at an extremely strong rate
\nbut fairly consistently. And so the requirement
\nfor increased production over the medium
\nterm remained.<\/p>\n
The Bloomberg Commodities Index rose So, prices have risen, significantly in base Demand outstrips supply<\/strong><\/p>\n The question for 2017 is whether the market Firstly, the supply side is not in a position to Secondly, I expect there will be significant Thirdly, we think that in the developed and Fourthly, governments of both developed and A widespread trend<\/strong><\/p>\n The increase in demand is likely to be most We think the growth rate for oil demand will The new US administration is unlikely to want Longer term we are bullish about precious Turning to agricultural commodities, there have Start of the bull market?<\/strong><\/p>\n Across the commodity markets as a whole, We have had the end of the bear market, after According to David Donora, Head of Commodities, Columbia Threadneedle, after commodity prices bottomed in early 2016, demand is outstripping supply once again, suggesting the next bull market may be approaching…<\/p>\n","protected":false},"author":1,"featured_media":60998,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1809,1655,1744,1651,2087,2148,1746,2068],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/61000"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=61000"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/61000\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/60998"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=61000"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=61000"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=61000"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The question for 2017 is
\nwhether the market bounces
\nalong the bottom or prices
\nincrease significantly. My view
\nfor 2017 is that we will have
\nsignificantly higher prices.<\/quote><\/p>\n
\n11.8% in 2016. That does not signal a bull
\nmarket. In my view, a commodity bull market
\nis when we experience a doubling or tripling of
\ncommodity prices. In the bull market of 2000-
\n2008, the index tripled in value. That was a
\nfull commodity bull market. 2016\u2019s rise is just
\nbouncing along the bottom.<\/p>\n
\nmetals and in energy. In oil, OPEC countries
\nand a number of non-OPEC countries led by
\nRussia have agreed to take 1.8m barrels per
\nday of production off the market to reduce
\nexcess inventories more quickly than they
\nwould otherwise have been depleted.<\/p>\n
\nbounces along the bottom or prices increase
\nsignificantly. My view for 2017 is that we will
\nhave significantly higher prices for a number
\nof reasons:<\/p>\n
\nrespond to significant demand growth. While
\ncommodity producers have spent the last three
\nyears dealing with very low prices, focusing on
\nbalance sheet restructuring and saving cash,
\nthey have not brought on new projects. Also,
\nin mining they have been \u2018high grading\u2019 (only
\nproducing the highest grade ore) to just stay
\ncash-neutral or cash-positive.<\/p>\n
\ndemand growth. Emerging markets demand will
\nbe greater than the market expects, especially
\nin Asia. China has been going through
\neconomic restructuring for a number of years.
\nWe believe that it is coming through that and
\nthere will be stronger consumer-led demand
\nfrom China and all Asian emerging markets.<\/p>\n
\nemerging markets, consumers have enjoyed
\nlow food and energy prices for two years, and
\nthat has shored up their finances and now
\nthey are also receiving higher wages. So, we
\nexpect consumer demand for commodities
\nto increase. For example, for two years the oil
\nprice has been around $50 rather than $110.
\nThat halving in the price of oil was worth $2
\ntrillion per year to the benefit of consumers,
\nat the expense of oil-producing companies
\nand countries.<\/p>\nLonger term we are bullish
\nabout precious metals as
\nwell. Gold is likely in the short
\nterm to continue to be weak
\nwhile bond yields are rising.
\nCommodities, in general, are
\nnegatively correlated with
\nbonds but gold at the moment
\nis behaving more like a low-yield
\nreserve currency and less like a
\ncommodity.<\/quote><\/p>\n
\nemerging countries are signalling a shift in
\nfocus from monetary policy to fiscal policy and
\nfiscal stimulus. They recognise that quantitative
\neasing has not materially helped consumers
\nand consider that fiscal stimulus is more likely
\nto do so. We expect to see the US, Europe
\nand Japan turning to fiscal stimulus, while
\nChina continues to deploy it. That will
\nincrease demand for commodities.<\/p>\n
\nacute in base metals. Copper, zinc, nickel and
\naluminium should benefit from a substantial
\nincrease in consumer demand for metals.<\/p>\n
\ncontinue to be strong in 2017. The return of
\nsupply discipline will keep the oil price on an
\nupward trajectory. It is worth noting that there
\nis very little spare capacity globally. If the
\nOPEC agreement holds and 1.8 million
\nbarrels are taken off the table globally, that accounts for almost all surplus inventory,
\nleaving the world vulnerable to a supply
\ndisruption. We have concerns about this
\ngiven the security situation in the Middle East.<\/p>\n
\nto be the region\u2019s peacekeeper. And while the
\nRussians have become more involved, it is
\nnot clear whether this will contribute to stability
\nor not. It is likely that the boundaries drawn up
\nin the Sykes-Picot Agreement 100 years ago
\nwill be redrawn.<\/p>\n
\nmetals as well. Gold is likely in the short term
\nto continue to be weak while bond yields are
\nrising. Commodities, in general, are negatively
\ncorrelated with bonds but gold at the moment
\nis behaving more like a low-yield reserve
\ncurrency and less like a commodity. Gold will
\nbe weak when bond yields are going up and
\nbond yields have some way to go. Once bond
\nyields plateau we would expect to see gold
\nstrengthen again.<\/p>\n
\nbeen two years of abundant harvests as the
\nEl Ni\u00f1o weather cycle\u2019s stable weather pattern
\nhas prevailed. But this has ended, so weather
\nis likely to be more variable in growing regions
\nand so crop yields are likely to fall. Our view
\nis that despite having two great years to
\nrebuild stocks, they are only adequate.
\nIf the next Northern Hemisphere harvest is
\ncompromised, we will see upward pressure
\non agricultural prices.<\/p>\n
\nwe expect 2017 to be another positive year.
\nInventories are tightening. Commodity curves
\nare flattening, which supports prices and
\nreturns for investors. Producers are likely to
\nhave difficulty keeping up with demand over
\nthe next couple of years.<\/p>\n
\nwhich there is normally a period of bouncing
\nalong the bottom. While this historically has
\npersisted for two to five years, we think that a
\nfocus on improving the lot of consumers could
\nbring this forward to 2017.<\/p>\n","protected":false},"excerpt":{"rendered":"