Commodities Declined in February as Oversupply Continued to Drive Returns

Mar 08, 2016, 12:59 ET from Credit Suisse AG

NEW YORK, March 8, 2016 /PRNewswire/ -- Commodities decreased in February, largely driven by supply surpluses, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with 14 out of 22 Index constituents yielding losses.

Credit Suisse Asset Management observed the following:

  • Energy was the worst performing sector, down 9.27%. Natural Gas declined the most as above-average U.S. temperatures reduced heating demand and increased the likelihood that inventories would remain excessive.
  • Agriculture declined 2.78%, led lower by Cotton, amid expectations that the Chinese government may increase sales from its large stockpiles. Chicago Wheat was the worst performer among grains as the strong U.S. Dollar incentivized exports out of Argentina and Europe rather than from the United States.
  • Livestock increased 0.93%. Live Cattle gained the most as the U.S. Department of Agriculture ("USDA") reported lower production of beef during the second half of the month.
  • Industrial Metals ended 3.35% higher, led by Zinc, due to declining inventories as mine closures and production cuts from large smelters have helped to reduce excess inventories. In addition, ongoing stimulus measures from the People's Bank of China increased China's economic growth outlook, supporting demand expectations for base metals broadly. 
  • Precious Metals was the best performing sector, up 8.98%. Gold gained the most amid demand for safe haven assets after economic data released at the beginning of the month showed that the services sector grew at a slower-than-expected pace, while manufacturing data again disappointed.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "Supply concerns in crude oil and petroleum products continued to persist throughout the month. Despite current high levels of inventories, expectations increased that the market will be better balanced between supply and demand going forward. Throughout the first two months of the year, many leading U.S. oil exploration companies and producers continued to announce significant capital expenditure cuts alongside other measures. Elsewhere, discussions between Saudi Arabia, other OPEC members, and Russia ended with agreement to maintain production at current levels. The gesture will have little immediate impact given that it was preliminary and unbinding and as the countries involved are already producing at high capacity levels. However, the willingness of these countries to come together to even discuss possible output cuts may potentially open up avenues for more concrete reductions in the near future." 

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Ahead of the recent Shanghai G-20 meeting, the governor of the People's Bank of China reiterated the scope of its monetary policy stance, citing further room to implement monetary tools and currency measures if necessary. Global central banks in Europe and Asia have also confirmed their commitment to utilizing the policy measures necessary to revive growth in their economies, which may support global commodities demand. U.S. inflation expectations declined to very low levels alongside the rise in global inventories. The Federal Reserve may remain on a slow tightening course if weak economic data continues to increase U.S. economic growth concerns. Amid loosening monetary policy measures worldwide, exposure to commodities as an asset class may help to reduce overall portfolio risk in the event of any unforeseen increase in inflation." 

About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy is managed by a team with over 28 years of experience, and seeks to outperform the return of a commodities index, such as the Bloomberg Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:

  • Spot Return: price return on specified commodity futures contracts;
  • Roll Yield: impact due to migration of futures positions from near to far contracts; and
  • Collateral Yield: return earned on collateral for the futures.

As of February 29, 2016, the Team managed approximately USD 7.3 billion in assets globally. 

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This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change without obligation to update. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not a guide to future performance. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

Certain information contained in this document constitutes "Forward-Looking Statements" (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe", or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.

Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.

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