Even with commodities mired in the worst slump in a generation, Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. are warning bulls that prices may stay lower for years.
Crude oil and copper are unlikely to rebound because of excess supplies, Goldman predicts, and Morgan Stanley forecasts that weaker currencies in producing countries will encourage robust output of raw materials sold for dollars, even during bear markets. Citigroup says the sluggish world economy makes it “hard to argue” that most prices have already bottomed.
The Bloomberg Commodity Index on Sept. 30 capped its worst quarterly loss since the depths of the recession in 2008. The economy in China, the biggest consumer of grains, energy and metals, is expanding at the slowest pace in two decades just as producers struggle to ease surpluses. Alcoa Inc., once a symbol of American industrial might, plans to split itself in two, while Chesapeake Energy Corp. cut its workforce by 15 percent. Caterpillar Inc. may shed 10,000 jobs as demand slows for mining and energy equipment.
“It would take a brave soul to wade in with both feet into commodities,” Brian Barish, who helps oversee about $12.5 billion at Denver-based Cambiar Investors LLC. “There is far more capacity coming on than there is demand physically. And the only way that you fix the problem is to basically shut capacity in, and you do that by starving commodity producers for capital.”
Investors are already bailing. Open interest in raw materials, which measures holdings of futures and options, fell for a fourth month in September, the longest streak since 2008, government data show. U.S. exchange-traded products tracking metals, energy and agriculture saw net withdrawals of $467.8 million for the month, according to data compiled by Bloomberg.
The Bloomberg Commodity Index, a measure of returns for 22 components, is poised for a fifth straight annual loss, the longest slide since the data begins in 1991.
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