The great commodity bear market rally is over, apparently, via Macquarie:
After the regular liquidity pushes of 2016, the Chinese government has now shifted to a tightening bias, propagating a destock cycle through the manufacturing chain. Chinese construction activity has been extremely strong, but we also expect sequential weakness in this area. To be clear, underlying demand conditions are and still will be good over the coming months even if the global industrial growth cycle has peaked, but sentiment shifts are clearly now on a downward trend given previously high expectations.
2017 looks to be providing another classic example of this simple commodity rule, one we have seen played out again and again. Those which traded out the cost curve in 2016 are seeing the strongest positive supply reaction (before disruptions), and those which have consistently traded into the cost curve a supply decline in the main. Coming months will find out the extent to which supply-side flexibility exists across various commodities.
