http://www.financialnewsusa.com/c34-financial-news/oil-commodities-wont-bottom-until-late-2016/Commodities sectors savaged by a five-year price slide watched helplessly this week as the Federal Reserve threw a switch effectively guaranteed to force further declines.
Copper, corn, gold and coal; crude oil, platinum, soybeans and cattle are all struggling with stubborn oversupply, tepid global demand and a stronger dollar.
The world’s leading miners, including Freeport-McMoran (NYSE:FCX), Anglo-American (OTCPK:AAUKY) and Glencore have announced production cuts, layoffs and asset sales. Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM) and other oil majors and minors have also slashed capital spending.
Supply-Demand Imbalance
For most commodities, supply and demand is not expected to balance until at least late 2016. That assumes the sluggish global economy doesn’t falter.
Even in situations where fundamentals are better, investor confidence is AWOL.
The Fed’s rate hike liftoff Wednesday sent the dollar higher vs. most rival currencies.
Metals posted volatile reactions. Platinum, for example, rose 4% through Wednesday, dived 3% Thursday, then recovered to end the week up 2.2%.
The Thompson Reuters Core Commodity Index ended the week down 1.5%.
“Technically, sector-after-sector is oversold, but fundamentally, they are also oversupplied,” said senior analyst Darin Newsom at DTN.
A rising dollar threatens to make commodities more expensive on global markets, including China’s. But it may actually worsen surpluses by spurring output in countries that price their products in devalued currencies.
Among metals, zinc and nickel probably have the best fundamentals right now, according to Bart Melek, head of commodities strategy with TD Securities.
“We’re looking at (supply) deficits” in both metals, he said. “Yet what we’re seeing is demand uncertainty has really hit sentiment hard, and we haven’t seen prices take off as one would expect from the tighter fundamentals.”
Demand uncertainty largely involves the haze surrounding China, in its years-long effort to transition from an export-driven economy to one driven internally by consumer demand. A weaker-than-hoped-for U.S. rebound and a eurozone economy barely treading water also are factors.
But China was the big, hungry dog that drove commodities to their last cyclical peak, even as the U.S. and Europe licked their post-recession wounds.
The Thompson Reuters Core Commodity Index topped out in April 2011 at just above 370. Supplies of almost everything were tight.
Miners cranked up spending to expand production and new sources of supply. The U.S. shale boom began to take off as fracking techniques migrated from natural gas to oil production.
But the U.S. Dollar Index started to climb from an April 2011 low. And new supplies of copper, nickel, zinc and iron ore met a downshift in China’s growth, from 10.6% in 2010 to 7.8% in 2012 and just 6.9% in Q3 2015.
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Looking at the oil market chart, I'm not sure there's anything supporting the price right now. I can see it spiking down hard to sub-$30 in very short order. If it does the markets are going to be a roller coaster ride.
