Commodities Stand on Brink of Bull Market After Oil’s Recovery

Updated on
Metals Rally Running Out of Steam
  • Prices surged in 2016 on supply cuts and weather worries
  • Citigroup said last month commodities had turned the corner

Commodities are approaching a bull market after prices rebounded from the lowest in at least 25 years on a rally in oil, soybeans and zinc.

The Bloomberg Commodity Index, which tracks returns from 22 raw materials, climbed 0.7 percent to 87.31 by 8:44 a.m. in New York. A close above 87.45 would mark a 20 percent advance, meeting the common definition of a bull market. Prices briefly surpassed that level today. The index is still about 50 percent below the high reached in 2011.

Commodities suffered five straight years of declines through 2015 as China slowed, denting raw-materials demand after producers ramped up supply on expectations the boom in Asia’s top economy would persist. Citigroup Inc. said last month commodities had turned the corner and Tom Albanese, former head of miner Rio Tinto Group and chief executive officer of Vedanta Ltd., said in April that markets were beyond the worst as China showed signs of recovery.

“The rebound in commodity prices this year has been consistent with the big picture of constrained supply, recovering demand and improving sentiment that we expect to lift prices further over the medium term,” Simona Gambarini, a commodities economist at Capital Economics Ltd. in London, said by e-mail.

Brent crude has surged from a 12-year low in January amid disruptions from Nigeria to Venezuela, and as U.S. output declined, pressured by OPEC’s policy of sustaining production. The global oil market has flipped to a deficit sooner than expected, Goldman Sachs Group Inc. said in May.

Prices of zinc used to rustproof steel in auto bodies and suspension bridges climbed above $2,000 a metric ton for the first time since July on Thursday after mine production cuts by Glencore Plc and others. Goldman Sachs has dubbed zinc the “bullish exception” among metals in contrast to the bearish outlook for copper and aluminum.

Citigroup said in May that commodity prices were unlikely to return to lows seen in the first quarter and the bank increased forecasts for metals to grains amid the oil-led recovery. Soybeans consumed in cooking oil and livestock feed have jumped 35 percent this year to the highest since 2014 because of lower crops in South America and concerns dry weather will cut U.S. output.

— With assistance by Jake Lloyd-Smith

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