Credit Suisse Points to Weakening of Commodity Fundamentals in May

Mild June forecast, weakening of Brazilian currency, and loosening of Indonesia’s export restrictions contributed to worldwide losses, report says.

Commodities softened in May, with fundamentals weakening for many sectors, Credit Suisse Asset Management reports. Total return on the Bloomberg Commodity Index was also negative for May, with 14 of the index’s 22 commodity inputs registering losses.

The Bloomberg Commodity Index’s constituent groups are energy, grains, industrial metals, precious metals, softs (including sugar, coffee, and cotton), and livestock. Of these groups, energy has the largest weighing on the index, at 30.57%. 

Looking into particular commodity sectors reveals the following:

  • Natural gas led the energy sector down, with the sector off 3.28%, as forecasts for a mild first half of June led to a drop in expectations for demand from cooling requirements.
  • Agriculture was down 2.17% as producers sold off their holdings of sugar, soybeans (and its byproducts), and coffee, amidst the Brazilian real’s weakening.
  • Industrial metals saw a 1.04% dip, as a result of a decline in nickel, which came about as Indonesia loosened its export restrictions.
  • Precious metals was up 0.5%, with gold and silver glittering bright to investors as safe havens in the face of multiple terrorist attacks, and geopolitical tensions with North Korea.
  • Livestock was up 7.42%, as a result of a jump in lean hogs thanks to the USDA’s reports on reduced pork production, and a decline in stored frozen pork in April.

Nelson Louie, global head of commodities for Credit Suisse Asset Management, said, “US exploration and production companies continued to grow crude oil exports. As the global supply and demand balance of crude oil continues to tighten, partially due to the extension of the OPEC-led production agreement, the US should be increasingly called upon as the marginal supplier to the world.”

Credit Suisse also expects that a change in government staffing could help ease restrictions on nickel mining in the Philippines. In the livestock sector, exports of beef and pork were robust in May, and China’s opening up to beef exports could help this trend gain. Credit Suisse believes that “stronger demand and food quality concerns may be underpinning this shift in stance.”



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