Commodities at peak bearishness, presenting major opportunity

Commodity markets may be close to their most attractive ever after continued levels of bearishness. “Looking at net futures positioning, it’s clear we’re very close to the most bearish position in history – said James Butterfill, ETF Securities’ Head of Research & Investment Strategy – to us this denotes we’re perhaps at peak bearishness. This may not be the opportunity of a lifetime, but it could be the opportunity of an economic cycle at the very least”. 
Butterfill said prices have now fallen so far, leaving many commodities trading below their marginal cost of production, that global suppliers are finally being forced to cut supply. At the same time demand is likely to remain stable – at worst – and even experience a “snapback” as cheap oil prices stimulate economic growth and boost corporate profit margins. 

“Markets have obviously taken leave of any fundamentals, and it’s purely about sentiment where commodities are concerned – remarks Butterfill – But sentiment quite clearly follows the price and history shows that in an environment of rising rates crude and industrial commodity prices usually go up”. 

Butterfill downplayed fears that the general economic slowdown in China could have a major negative impact on commodities. He pointed out that Chinese consumption of the “big four” metals – aluminium, copper, zinc and lead – is still growing at 8.5% per year. “A lot of the fears being discussed – China slowdown, Middle East tension, overextended equity and bond markets, high-yield default risks – really aren’t new. The only thing that is new is what happens after nine years of incredibly low interest rates”, concludes Butterfill.