Commodity exchange traded funds, especially those that track base metals, could fall behind as a slowdown in China diminishes consumptions and cheaper oil helps cut costs in production.
Broad commodity exchange traded products have been underperforming other asset classes. Year-to-date, the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) fell 5.6%, iPath Dow Jones-UBS Commodity Index Total Return ETN (NYSEArca: DJP) decreased 4.7% and iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG) declined 8.3%,
Morgan Stanley has cut its forecast for almost all base metals and bulk commodities due to the lower demand from China, the world’s biggest consumer of copper, iron ore and other raw materials, reports Sungwoo Park for Bloomberg.
“With only months left before the mid-year peak in sales of commodity-intensive goods, time is running out for China to support commodity prices in 2015,” Morgan Stanley analysts wrote in a note. “Instead of delivering its reliable first-quarter seasonal expansion in trade, China’s metal processing industry remains dormant.”
The Goldman Sachs Group also anticipates an equally unfavorable outlook for the commodities space, predicting a 20% decline in global raw-material prices over six months.
The broad commodity ETPs lean more heavily toward oil and energy-related commodities, which have plunged in recent months.
Among the worst likely performers ahead, nickel and copper estimates were lowered 23% and 16%, respectively, by the investment bank. Additionally, the bank cut its 2015 forecasts for aluminum by 12%.
For broad base metal exposure, the PowerShares DB Base Metals Fund (NYSEArca: DBB), which equally divides its weight in aluminum, copper and zinc, has dipped 1.1% year-to-date. Alternatively, for targeted exposure, the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC) is up 2.2% so far this year while the iPath Dow Jones-UBS Nickel Total Return Sub-Index ETN (NYSEArca: JJN) has declined 4.9% and the iPath Dow Jones-UBS Aluminum Subindex Total ReturnSM ETN (NYSEArca: JJU) decreased 2.1%.
PowerShares DB Commodity Index Tracking Fund
For more information on the commodities market, visit our commodity ETFs category.
Max Chen contributed to this article.