Why you should take this commodities rally with a grain of salt – by Joe Chidley (Financial Post – March 29, 2016)


Signs are beginning to surface that the global commodities implosion has reached bottom. The questions for investors, though, are how long the relative good times will last, and just how good they will be.

On the surface, at least, the news has been positive. Last week, the Baltic Dry Index — which reflects the price of moving dry goods by sea, is often considered an indicator of global commodities demand and trade, and has nothing to do with drought in Estonia — finished above 400, which represents a 38 per cent increase in a little more than six weeks.

Meanwhile, spot prices for iron ore have risen by nearly 30 per cent this year, and are now well out of the trough they dug last December. Base metals like zinc and copper are also up by double-digit percentages on the year. Futures for benchmark West Texas Intermediate crude (not dry, but anyway) have soared 50 per cent since testing US$26 on Feb. 11.

That’s the good news. Yet once you scratch the surface of this rebound, a few “buts” appear.

One is context. The fact that prices have risen so dramatically recently is in part just an indication of how low they had fallen. For instance, the performance of the Baltic Dry Index is stellar in relative terms, but absolutely crummy otherwise: at 400, the index is now at less than four per cent of 2008 levels, when it hit 11,793.

For the rest of this article, click here: http://business.financialpost.com/investing/investing-pro/why-you-should-take-this-commodities-rally-with-a-grain-of-salt

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