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Macquarie: The commodity rebound has outrun fundamentals

Photo by Lintao Zhang/Getty Images for IAAF

Nymex Crude fell 4%, the iron ore rally is stalling, copper lost more than 2% and the overall commodity market barometer – the Thomsen Reuters CRB index – fell 2.27% last night.

This price action reflects a growing recognition by traders that after the big bounce since the February lows the commodity price rally has outrun fundamental, Colin Hamilton, the head of commodities research at Macquarie wrote in the FT overnight.

Hamilton said commodity markets have already seen “two distinct mini-cycles — down in January, recovering in February and March”.

“Of course, fundamentals do not change that quickly, but sentiment certainly can. In particular, Chinese sentiment has turned around sharply — from the lowest point in the history of Macquarie’s China steel and copper surveys in January into positive territory,” Hamilton wrote.

This recovery in confidence, as central banks further loosened policy, has been “undoubtedly” accompanied by a demand recovery Hamilton said. But this is just from sub-trend to trend.

“For example global steel demand looks to have improved from around minus 6 per cent year on year to perhaps minus 2 per cent,” he said.

But reflecting a growing chorus of analysts and traders in recent days Hamilton said the “outlook for 2016 is not great and we would be cautious on hopes of further upside in prices as demand is not aggressive enough”.

That’s why the risk rally is struggling at the moment. All we’ve seen is a snap back from acute pessimism. It’s now up to the data and the global economy to provide support for the rebound.

If not prices will continue to slide once more.

You can read the original article in the FT here.

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