Salient to Investors:
History suggests the commodity slump will deepen by the end of December as prices head for their first annual loss since 2008.
Since 1971, the S&P GSCI Spot Index fell in December 83 percent of the time whenever it was losing for the year through November.
EPFR Global reports investors pulled $34.1 billion from commodity funds since the end of December 2012, a record since tracking the flows in 2000. Economists expect China to slow for a third year in 2013.
Michael Cuggino at Permanent Portfolio Family of Funds said the trend lower will hold through the end of the year as investors see anemic or slowing economic growth in developed and emerging-market economies amid more supply on hand.
Jeffrey Currie at Goldman Sachs sees significant declines through next year for iron ore, gold (to $1,045 by year-end 2014), soybeans and copper as the supercycle of rising prices is eclipsed by more supply. Citigroup and Credit Suisse are bearish.
Goldman Sachs forecast in October that the S&P GSCI Enhanced Commodity Index will be 0.7 percent lower in 12 months, led by precious metals expected drop of 17 percent and agricultural products expected drop of 8.1 percent.
Michael Haigh et al at Societe Generale sees signs of a rebound in global growth and gains in developing economies supporting demand for raw materials, and said investors have become excessively pessimistic on industrial metals because prices are below output costs for some producers.
Economists predict the global economy to grow 2.8 percent in 2014, the most since 2011.
4 of 5 investors expect the Fed to delay tapering until March 2014 or later.
Catherine Raw at BlackRock Commodity Strategies Fund said less fear about the global economy moving into 2014 is positive for commodity demand.
Citigroup said China’s move away from infrastructure expansion may mean less demand for raw materials. The mean economist expects China to slow from 7.7 percent in 2012 to 7.6 percent in 2013, 7.5 percent in 2014 and 7.2 percent in 2015.
Wagers by hedge funds et al have slumped 27 percent since the end of December 2013, and are net-short for corn, copper, coffee, wheat, soybean oil, natural gas and ultra-low-sulfur diesel.
Global holdings in gold ETPs have tumbled 30 percent in 2013 to the lowest since March 2010.
Barclays predicts copper supply will outpace demand by 407,000 metric tons this quarter, versus a 636,000-ton shortfall in the previous six months, while 2014’s surplus will total 193,000 tons, versus from a 63,000-ton deficit in 2013.
Jack Ablin at BMO Private Bank said supply and demand imbalances have been really fueling huge stockpiles in Chicago, and does not see many signals of an upturn in commodities yet.
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