Don’t Get Used to Commodity Rebounds as Global Surpluses Persist

Don’t be fooled by Wednesday's rebound in some metals and agricultural products. The world is still mired in a surplus of most commodities, which means tough years ahead for prices.

That’s the warning in today’s report from analysts at Goldman Sachs Group Inc. led by Jeff Currie. The Bloomberg Commodities Index of 22 raw materials was up 0.1 percent at 2 p.m. in New York, after two days of steep declines that the bank says will resume.

“Long-term surpluses in most commodity markets require prices to remain lower for longer,” the Currie team wrote. The markets are contending with declining costs, a strengthening dollar and slowing growth in emerging economies like China that use a lot of raw materials, the bank said.

Oil, the most important commodity, extended its slump by dropping for a fifth straight day. Patrick Pouyanne, the chief executive officer at French oil giant Total SA, told a parliamentary commission in Paris that the oversupply will last into 2016.

While some banks like UBS Group AG and Societe Generale SA see signs of a modest recovery in prices, global inventories are piling up as producers in the U.S. and the Middle East compete amid weak demand.

Copper, nickel, zinc and lead were the big gainers today, each up more than 2 percent. The bounce could reflect short-term speculators taking profits, but a sustained recovery isn’t likely, Societe Generale said in a report today.

Demand remains weak, according to Goldman. Iron ore, the key ingredient in steel, slumped to the lowest since at least 2009.

Crops like corn and soybeans have rallied recently as wet U.S. weather cut supply expectations. But Goldman is bearish for the next couple years as global growing capacity remains high, and inventories are ample.