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Commodities Gained on Lower Supplies

Commodities gained in December as base metals and energy supplies decreased while demand expectations increased, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was positive for the month, with 13 out of 22 Index constituents posting gains.

Credit Suisse Asset Management observed the following:

  • Industrial Metals increased 9.16% on lower production and increased demand expectations on the back of positive economic growth indicators globally.
  • Precious Metals rose 3.05% amid higher inflation expectations and a slightly weaker US Dollar.
  • Energy gained 3.90%, as pipeline disruptions in the North Sea, the US and Libya tightened crude further, while OPEC continued to comply with its production agreement.
  • Agriculture declined 1.49% as supportive weather conditions allowed for supplies of most grains and softs to outpace demand.
  • Livestock decreased 0.70%, led lower by Live Cattle, due to increased competition in the global export market, particularly from Brazil.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "With the help of increasing demand for oil, OPEC and its partners have slowly brought down global supplies closer to the five-year average. Their agreement, which potentially extends the cuts through the end of 2018, may rein in supplies further in the coming year. In 2018, markets will remain focused on compliance levels from the parties to the agreement. However, if crude prices continue to rise, this may enable smaller companies to grow production as well. Environmental controls implemented in Asia reduced production for most industrial metals throughout 2017 as increasing demand, due to improving global economic growth, outpaced refined supplies. Meanwhile, disruptive weather failed to materialize during key growing and harvesting seasons, allowing many agricultural commodities to remain oversupplied. The increasing demand for protein-rich foods globally should continue to shape what farmers choose to grow, such as more planted soybeans versus wheat in the US. In addition, US pork and beef production has increased significantly compared to years past to meet rising demand."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Global growth continues to be strong, potentially increasing commodity demand and inflation. Earlier in the year, the Organization for Economic Cooperation and Development (OECD) predicted the GDPs of all 45 countries it monitors would grow in 2017, backed by low interest rates, lower unemployment and elevated consumer confidence. Some central banks, such as the US Federal Reserve (Fed) and the Bank of England, have already begun to tighten monetary policies, though largely accommodative stimulus measures remain for both and for the rest of the developed world. Additionally, China may relax some credit controls in 2018 if it believes that recent central bank liquidity restrictions to rein in some financial excesses also created too large of a reduction in growth."

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 30 years of experience, and seeks to outperform the return of a commodities index, such as the Bloomberg Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:

  • Spot Return: price return on specified commodity futures contracts;
  • Roll Yield: impact due to migration of futures positions from near to far contracts; and
  • Collateral Yield: return earned on collateral for the futures.

As of December 31, 2017, the Team managed approximately USD 8.6 billion in assets globally.