In Commodity News 23/04/2015
The routs in crude oil, iron ore and coal probably will extend to $40, according to Merchant Commodity Fund, which returned 59 percent last year.
Rising output as global economic growth falters means more losses for the commodities which slid at least 31 percent in the past year, according to the $280 million fund, run by Doug King and Michael Coleman. Raw material demand will wane as China becomes less commodity-intensive, said Coleman.
Data last week showed China’s economy expanded at the weakest pace since 2009 in the first quarter, with output, investment and retail data pointing to a deepening slowdown. The country’s economy is transitioning away from manufacturing and construction, while Europe is grappling with the effects of a debt crisis and growing at half the rate as the U.S.
“$40 is the number,” Coleman said Monday in an interview at the Financial Times Commodities Global Summit in Lausanne, Switzerland. “For strong commodity markets, you need global GDP growth at 5 percent.”
The world economy will expand 2.9 percent this year and 3.2 percent in 2016, according to economists’ forecasts compiled by Bloomberg. That’s down from 4 percent in 2010.
West Texas Intermediate, the U.S. benchmark crude, dropped 46 percent over the past year to $56.16 a barrel as the Organization of Petroleum Exporting Countries maintained output in the face of a global glut as U.S. production boomed. Iron ore fell 55 percent to $51.57 a dry ton while European coal prices lost 31 percent to $57 a ton.
Iron Ore
Iron ore prices that this month slid to the lowest since 2005 are unlikely to rebound as China subsidizes its producers, while slowing growth hurts coal demand, said Coleman, whose fund rose 9.6 percent this year through March. China’s economy will expand 7 percent in 2015, the least since 1990, economists predict.
Commodities are returning to performances seen in the 1980s and 1990s, when economic growth reached 5 percent for short periods of time and prices were stable for long periods, he said. Goldman Sachs Group Inc. and Citigroup Inc. have called the end of the commodities “super cycle” of rising prices.
Oil’s 34 percent rebound since mid-March is premature, said Coleman, whose fund saw assets under management climb to $280 million by the end of March from $136 million at the start of last year. While U.S. drillers are using fewer rigs after the plunge, they could easily be turned back on if prices rose to $60 a barrel, he said.
“We are probably a bit more bearish than the price action has been over the past six weeks,” he said, adding that oil would remain low as long as global growth holds below 5 percent. “Canceling drilling rigs is about tomorrow’s production. Nobody has done anything to stop today’s production.”
