Citi cuts commodity forecasts again

Citigroup has again wound back its forecasts on commodities as general market bearishness takes hold.

The move is little surprise for the industry, as it has one of the worst starts to a year on record.

The Bloomberg Commodity Index has recorded its worst start to a year since data began collection in 1992.

The coverage of returns for 22 materials fell four per cent, according to Bloomberg.

This precipitated the massive impact on mining and commodity prices, which rely heavily on ongoing Chinese demand, and are being negatively affected by continuing uncertainty in the country.

Blue chip miners stock has moved from black to red as ongoing volatility rocks the market.

Anglo American, BHP, and Glencore have all recorded at least a fifth of their value destroyed, while Rio Tinto has also been hit, as all suffer under poor economic conditions and declining commodity demand

Now Citigroup has reforecast its guidance on oil and base metals as global stocks tanked to their lowest levels since 2013, although it did note gold has remained strong despite the market volatility.

Analysts slashed oil to an average of US$40 per barrel – a price point it recently slipped well below earlier this week when it fell to US$28 per barrel – from US$51 a barrel it posited in November last year, while it wrote a fifth off the value of nickel down to US$8450 per tonne, according to Bloomberg.

“Declining expectations of global growth are exacerbating the results of oversupply across commodity markets,” Citigroup analysts wrote in their recent report.

“The lower worldwide demand for raw materials promises “to prolong the time it will take for commodities to come into balance.”

Glencore chairman, and former BP CEO, Tony Hayward pointed the finger solely on energy producers, stating, “there’s too much oil.”

This situation is likely to only worsen as EU embargos on Iranian oil production are lifted, and the nation begins increasing its output, which has some pundits forecasting a price floor of US$25 per barrel.

Added to this downwards pressure is ongoing Chinese market weakness.

“Commodities prices have been under pressure from China,” Citigroup said.

“The dramatic market sell-off that started 2016 is impacting all sectors, pushing commodities down even further.”

This flow on effect has hammered global markets overnight, wiping nearly 50 billion pounds off the FTSE 100 and officially push it into a bear market.

Despite all the market gloom, gold remains a holdout for investors as it is supported by wider geopolitical concerns and as a hedge against inflation.

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