BCA Research published this note on commodities on April 28, 2009:
There are a number of reasons to have a bullish bias on the commodity complex even though many prices are off the bottom.
First, China will be able to dampen its dependence on the U.S. consumer on a 6-12 month horizon: the authorities have aggressively stimulated monetary policy, have pressured banks to lend, have purchased "strategic" commodities and have ramped up infrastructure spending.
Second, global and U.S. demand indicators that correlate closely with base metal prices are showing signs of bottoming, albeit at depressed levels. The message is that destocking may have hit an extreme and the pace of the demand meltdown is due for at least a reprieve.
Third, supply constraints remain as structurally bullish as before the meltdown for many commodities. Fourth, excesses in the financial demand for commodities have wound down. Speculators remain net long commodity futures, but to a lesser extent than in late 2007/early 2008. Overall open interest is back down to pre-2006 euphoria levels.
Finally, the U.S. dollar is topping out, although it may well be a broad top, rather than a severe decline. Nevertheless, any global relief rally would prompt capital to shift to emerging and commodity currencies, at the expense of the greenback. Bottom line: Investors should continue to selectively accumulate risk in the commodity complex.
BCA Research published this daily note on April 28, 2009.
