Latest news with #BCOMTR
Bloomberg
02-04-2025
- Business
- Bloomberg
March madness for markets, but commodities climb higher
The Bloomberg Commodity Total Return Index (BCOMTR) had its best quarterly return in three years and the individual sectors all contributed positively except for grains which fell by 1%. The biggest outperformances came from natural gas and precious metals as the gold price pierced the $3000 mark for the first time. We also saw softs perform strongly with coffee rising 23%, and industrial metals where copper prices rose on tariff news. To start the year, the US had the highest seasonal amount of natural gas stored in 10 years as can be seen in Exhibit 2. The North American winter was expected to be mild but then January was unexpectedly the coldest month in the US going back to 1988. This created a spike in demand for natural gas used for heating buildings, leading to an increase in natural gas prices. Last year, there were record liquified natural gas (LNG) exports from the US as European and Asian buyers searched for alternatives to Russian gas. This also led to less domestic supply at a time when the weather shifted, and demand picked up. Storage levels have crept back to the middle of the 10-year range in March but are still below average at this point in the year. Another theme, which is only in its infancy, is the growing power needs from the tech sector. Despite the efficiency of new AI models like DeepSeek, the world will need more power as A.I. use increases in adoption and demand for energy sources like natural gas in turn will pick up as well. Copper prices in NY hit an all-time high as the US announced tariffs on copper imports may come in the second quarter. Copper prices in London rose by much less and rose on a similar path to gold over the quarter, which doesn't typically happen historically (Exhibit 3). Daily correlations over the last year rose to 50% but correlations over the last 15 years have been almost perfectly zero. Tariff news, and the search for safe haven diversifiers, in the first quarter drove both metals higher despite their historically different demand drivers. Will gold lose momentum after a tremendous move higher over the last two years? Could Copper break out if what happened in the 2000s repeats? There was one period when Copper doubled in price from 2005 to 2008 during the last commodity super cycle and this could be a playbook to follow this decade as well. With uncertainty for the markets ahead, this could be the year to diversify after a very strong 15-year period for US equities. Market participants are taking note, but so far positioning across commodities has been disparate with some sectors in favor over others. Exhibit 4 shows a clear bias toward market participants positioned for more upside in copper and gold while net short crude oil expecting lower prices from here. The last week of the quarter saw a reduction across net positions as traders lightened up exposure amidst the uncertain path forward for 2025. The precious metals sector, including silver, has strong tailwinds behind it but the energy sector is out of favor at the moment. This could switch on a dime if inflation picks up (the energy sector has the highest inflation beta of any commodity sector historically) or if there is an uptick in geopolitical tensions particularly in key oil producing regions. Closing out the first quarter of 2025, we have already experienced a news-filled year despite only 60 trading days for the major commodities markets. At this point in the cycle, diversification is key, and the most recognized alternative asset class backed by the most history is commodities. Broad commodities have outperformed so far rising 9% as other asset classes are in free fall. Will this continue through 2025? During periods where risk assets move lower together in a correlated matter, turning to uncorrelated asset classes like commodities to diversify could be the right move if the March madness in markets continues the rest of the year.
Khaleej Times
31-03-2025
- Business
- Khaleej Times
Commodity prices show strength in the first quarter
The commodities sector has emerged as one of the best-performing asset classes this year, research shows. The Bloomberg Commodities Index, which tracks the total return of 24 major futures markets, spread close to evenly between energy, metals, and agriculture, has traded up 12.2 per cent in the past twelve months, with the bulk of that gain being achieved within the last three months. The year-to-date return shows a 7.9 per cent gain, well above the return seen on some of the major equity market indices. On a sector level, precious and industrial metals stand out, having delivered returns this quarter of 15.2 per cent and 12.5 per cent, respectively, while the 12-month performance is even more impressive at 37.6 per cent and 18.1 per cent. This has been driven by continued haven demand for gold (+14.7 per cent) and silver (+16.7 per cent) amid ongoing demand from investors seeking protection in tangible assets against geopolitical and economic uncertainties, as well as central bank purchases of gold to reduce their dependency on fiat currencies, especially the dollar. The industrial metals sector shows a clear distinction between New York-traded HG copper and those traded and tracked by futures contracts on the London Metal Exchange. The HG copper contract has surged to a record high on speculation that Trump may implement tariffs on imports within weeks. The premium HG copper trades over London has reached 17 per cent, helping to explain the major contribution of industrial metals to the BCOMTR — a sector that otherwise would struggle amid global growth concerns. The energy sector has mostly been a story about natural gas strength, with a total return so far this year of around 25.5 per cent, while crude and fuel products have struggled amid a tug-of-war between economic growth concerns impacting demand and the increased threat of sanctions potentially reducing supply from Iran and Venezuela. 'This has, in turn, offset a planned OPEC+ production increase from next month,' Ole Hansen, Head of Commodity Strategy, Saxo Bank, wrote in a report. Finally, the agriculture sector has delivered a small return of 2.2 per cent, with broad losses across an amply supplied grain and soybean complex partly offsetting gains in softs and livestock. Standout performances have come from Arabica coffee and sugar and, to a certain extent, live cattle. Looking at the performances and individual weights, it can be seen that gold, copper, and natural gas have delivered close to 75 per cent of the total return, despite the three contracts only carrying a total index weight of 27.5 per cent. 'This highlights the advantage of holding broad exposure to commodities instead of trying to pick individual winners,' Hansen said. Hansen identifies seven megatrends that are likely to push the commodities market this year upwards: ● Deglobalisation: The US-China rivalry is reshaping supply chains, prioritising security over cost, and increasing demand for critical resources. ● Defence: Rising geopolitical tensions are fuelling record military spending and stockpiling of key materials. ● Decarbonisation and power demand: Investments in renewables, EVs, AI, and data centers are driving demand for metals and energy. ● De-dollarisation: A shift from US dollar reliance is boosting gold purchases as a financial hedge. ● Debt and fiscal risks: High global debt and deficits are increasing demand for hard assets like gold and silver. ● Demographics & urbanisation: Ageing Western populations and growing emerging economies are driving resource demand. ● Climate change: Higher power needs for cooling, food security concerns, and protectionism 'So far this millennium, we have witnessed three major commodities bull cycles, the biggest being the China-led rally from 2002 to 2008, followed by the pandemic- and Ukraine war-led spike between 2020 and 2022. In the past three years, the index has traded mostly sideways before making a renewed upside attempt within the past couple of months,' Hansen said.
