Worst of Commodity Rout Seen Over as Volatility Eases, ANZ Says

Commodity markets from oil to copper are showing signs that the worst of the rout may be over, according to Australia & New Zealand Banking Group Ltd.

Sentiment has improved as investors reduce the probability of downside risks amid slightly better fundamentals, ANZ bank analysts including Daniel Hynes said in a research note Friday. The headwinds that a stronger U.S. dollar and volatile equity markets created are easing and the market is increasingly focused on the long-term impact of low prices, according to the bank.

“This is not to say we are completely out of the woods,” ANZ said. “A weak Chinese PMI for February showed manufacturing activity isn’t likely to rebound in the short term. In some markets, a final wave of supply growth is expected to push them further into surplus. That aside, the point where markets start tightening is now close enough to see for investors.”

The speed of that tightening will differ with each commodity, ANZ said. Oil supply outages will start to increase exponentially amid increasing financial and technical pressures, a situation that is already occurring in industrial metals, it said. The rebalancing process for bulk commodities from iron ore to coal will probably take longer to achieve, the bank said.

The Bloomberg Commodity Index, a measure of 22 raw materials, has climbed about 9 percent since plunging to the lowest level in more than two decades on Jan. 20. The Bloomberg Dollar Spot Index is heading for a second weekly decline, down 0.8 percent this week.

To contact the reporter on this story: Ben Sharples in Hong Kong at bsharples@bloomberg.net. To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Abhay Singh, Aaron Clark

By: Ben Sharples

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