The worst commodity meltdown since 2008 probably isn’t the end of the pain for bulls, according to Citigroup Inc.
Excess supplies and a sluggish world economy mean that it’s “hard to argue that most commodity prices have reached their trough for the year,” analysts led by Ed Morse, the global head of commodities research, said in a report Tuesday. The bank is bearish on crude oil, aluminum, platinum, iron ore, cocoa and wheat in the next three to six months.
Prices for raw materials are languishing near a 16-year low as inventories climb just as demand growth slows in China, the world’s biggest consumer of everything from cotton to zinc. Money has been flowing out of funds linked to metals, crops and energy, while investors have punished shares of miners and oil drillers.
“Across energy, industrial metals, and agricultural products markets remain oversupplied, partially because of the sluggish world economy, but largely because of the over-investment in developing new supplies in the last decade and favorable weather conditions providing bumper row crops,” Morse said.
Citigroup isn’t alone in its pessimism, with banks from Goldman Sachs Group Inc. to Morgan Stanley also forecasting more declines for raw materials. The Bloomberg Commodity Index, a measure of returns for 22 components, has tumbled 15 percent since June 30, heading for the worst quarter since the end of 2008.
China’s slowest expansion in decades is cutting demand just as farmers, miners and oil drillers expanded supplies, encouraged by prices that were at record highs in 2008. It’s a reversal from the just a decade ago, when booming growth across Asia fueled a synchronized surge across commodity prices, dubbed as the super cycle. Citigroup called the end of the super cycle in late 2012.