The global gluts that have plagued markets from crude oil to zinc are finally starting to subside, sending commodities to their biggest monthly gain since December 2010.
The Bloomberg Commodity Index, a measure of returns for 22 components, climbed as much as 1.1 percent on Friday to the highest since November. The gauge climbed 8.5 percent in April, beating returns for indexes of global equities, high-yield and investment grade, bonds, Treasuries and all major currencies. Oil in New York posted the biggest monthly gain in a year, and gold reached the highest in more than a year.
The brighter picture for raw materials comes as the economy stabilizes in China, the world’s top consumer of metals, grains and energy. At the same time, unfavorable weather has threatened South American grain crops while U.S. crude production is slumping. As the supply picture tightens, a weaker dollar is boosting demand for commodities as alternative assets.
“China looks like it’s doing better because there’s stimulus coming through the pipeline,” said Kevin Caron, a market strategist and portfolio manager for Stifel Nicolaus & Co. in Florham Park, New Jersey. “At the same time, you got the Federal Reserve backing away from a more hawkish stance, which is allowing the dollar to soften, and that is always a good thing for commodities.”
Investors have poured more than $17 billion into exchange-traded products linked to commodities since the start of the year, data compiled by Bloomberg show. The markets are over the worst as demand in China shows signs of a recovery, according to industry veteran Tom Albanese, chief executive officer of Vedanta Ltd. and a former head of Rio Tinto Group.
The gains come after five straight years of annual losses when slowing Chinese demand and rising output produced a global supply overhang for most commodities. The rout hurt producers including Exxon Mobil Corp., Freeport-McMoRan Inc., Glencore Plc and Anglo American Plc, who boosted production following a decade-long so-called super cycle of rising consumption and higher prices.
“I believe with what we’ve witnessed early in 2016 will be the trough for the commodity markets,” Albanese said on a conference call after Vedanta reported quarterly earnings.
Oil prices in New York rose almost 20 percent this month, the largest increase since April 2015. U.S. crude output declined for a seventh week, according to data Wednesday from the Energy Information Administration. Markets may rebalance by the end of the year, BP Plc Chief Executive Officer Bob Dudley said this week. Futures settled at $45.92 a barrel Friday on the New York Mercantile Exchange.
Precious metals rose as a gauge of the dollar touched an 11-month low after weaker-than-expected U.S. economic growth cut prospects for higher interest rates, adding to the appeal of non-yielding assets. Silver futures climbed to the highest in more than a year, and capped the best month since 2013. Gold touched the highest since January 2015.
Soybean futures in Chicago posted the best monthly gain since October 2014. Soybean-meal prices climbed 24 percent in April, the most for the month in at least 56 years. Flooding in Argentina and drought in Brazil has roiled global crop markets in recent weeks.