Commodities Increased in March due to Positive Fundamental Factors

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Apr 11, 2016, 12:15 ET

NEW YORK, April 11, 2016 /PRNewswire/ -- Commodities increased in March, largely driven by decreasing supply expectations and weather fundamentals supporting the energy and agriculture sectors, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was positive for the month, with 17 out of 22 Index constituents posting gains.

Credit Suisse Asset Management observed the following:

Energy was the best performing sector, up 7.84%, led by Brent Crude Oil, due to reports of an upcoming meeting in April among OPEC and non-OPEC nations to discuss a potential cap on production. Natural Gas increased due to continued production declines, which helped improve the outlook for the supply and demand balance. In addition, an unusual cold snap in the U.S. Northeast at the beginning of spring improved demand expectations.
Agriculture increased 4.44% with Soybean Oil gaining the most due to increased demand expectations out of China amid tightening supplies of vegetable oils. Soft commodities also rallied due to disruptive weather conditions resulting from El Niño and a stronger Brazilian Real versus the U.S. Dollar.
Precious Metals ended the month 0.98% higher, with both Gold and Silver posting positive returns, as demand increased amid concerns over global economic growth. Dovish comments from the U.S. Federal Reserve reaffirmed that they would take a gradual approach to raising interest rates, which weakened the U.S. Dollar.
Industrial Metals gained 0.38% for the period, led by Zinc, with indications of tightening supply after the International Lead and Zinc Study Group reported that output declined in January as large mining companies have continued to cut production.
Livestock was the worst performing sector, down 1.10%, led lower by Live Cattle as the U.S. Department of Agriculture reported higher beef production toward the end of the month compared to the same period last year.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "March was a strong month for commodities, with the main focus on the Energy sector. Although U.S. crude oil production declined as companies continued to cut capital expenditures, inventories remained oversupplied relative to the five-year seasonal average for this time of year. If low oil prices persist, gasoline consumption may increase. Elasticity of gasoline demand amid lower prices was a positive driver within energy last year. Although several oil producers are scheduled to discuss a potential freeze in output later this month, a cap may not be impactful given that among the participants, many are already producing at high levels and others are unlikely to agree. Several geopolitical events impacted oil infrastructure, including disruptions to pipelines in Nigeria and Iraq. Any uptick in geopolitical risk among OPEC countries may help to tighten supplies."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "Macroeconomic headlines may also continue to impact commodity returns. Although concerns over China's economic growth persisted, their industrial profits improved for the first two months of the year, which may signal that the government's stimulus measures are working. In the Eurozone, uncertainty over Britain's upcoming EU referendum led to heightened volatility across global markets. Despite the uptick in core U.S. consumer prices in February, the U.S. Federal Reserve reiterated that they would proceed on a slower path in increasing rates. If economic growth concerns, market volatility, and uncertainty over global central bank policy continue to persist further, commodities may serve as a valuable diversification tool and help to reduce overall portfolio risk in the long-term."

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy is managed by a team with over 28 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 March 31, 2016, the Team managed approximately USD 7.7 billion in assets globally.

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This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change without obligation to update. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not a guide to future performance. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

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Certain risks relating to investing in Commodities and Commodity-Linked Investments: Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.

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SOURCE Credit Suisse AG