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Commodities may be at most attractive level


ETF Securities believes commodity markets may be close to their most attractive ever after continued levels of bearishness.

 Delegates at the firm’s annual investor conference heard that the firm believes that sentiment is near an all-time low, yet there is compelling evidence to suggest prices will rise in 2016.
James Butterfill, ETF Securities’ Head of Research & Investment Strategy, said: “Looking at net futures positioning, it’s clear we’re very close to the most bearish position in history.
“To us this denotes we’re perhaps at peak bearishness. This may not be the opportunity of a lifetime, but it could be the opportunity of an economic cycle at the very least.”
Butterfill said prices have now fallen so far, leaving many commodities trading below their marginal cost of production, that global suppliers are finally being forced to cut supply.
At the same time demand is likely to remain stable – at worst – and even experience a ‘snapback’ as cheap oil prices stimulate economic growth and boost corporate profit margins.
Butterfill said: “Markets have obviously taken leave of any fundamentals, and it’s purely about sentiment where commodities are concerned. But sentiment quite clearly follows the price – and history shows that in an environment of rising rates crude and industrial commodity prices usually go up.”
Butterfill downplayed fears that the general economic slowdown in China could have a major negative impact on commodities.
He pointed out that Chinese consumption of the ‘big four’ metals – aluminium, copper, zinc and lead – is still growing at 8.5 per cent per year.
He said: “A lot of the fears being discussed – China slowdown, Middle East tension, overextended equity and bond markets, high-yield default risks – really aren’t new. The only thing that is new is what happens after nine years of incredibly low interest rates.”
Responding to concerns about dividend returns, he said some firms will cut dividends this quarter while others are already cutting capital expenditure instead.
He said: “The worry is that aggressive cuts to capital expenditure might affect the future infrastructure and the capacity of firms to produce. For me it makes more sense to own the oil than the oil companies.”
ETF Securities is a leading independent provider of exchange-traded products (ETPs) and an acknowledged innovator in the field, having created the world’s first gold ETP. It offers investors direct exposure to a variety of commodity price movements through its classic ETPs and a growing selection of short and leveraged products.

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