Money flowed out of commodities such as crude oil and copper

The cumulative outflow of 968 commodity funds investing in gold and agricultural products, among others, totaled $14.7 billion from January to October, a record high since 2013, according to the U.S. research firm. But there is also a view that funds will return to the commodities market again after 2024.

Investment funds are flowing out of international commodity markets. In the U.S. commodity futures market, the net buying of speculative funds in major commodities such as crude oil and copper has decreased by 80% compared to the time of the Ukraine crisis. Commodity-based fund outflows hit a 10-year high from January to October. The underlying reason for this is a sense of caution about the prolonged economic slowdown and slowing inflation. The perception that it will take longer for funds to return is of interest.

The FTSE (formerly Refinitiv) Core Commodity CRB Index, which reflects the volatility of international commodity composite prices, hovered around 270 on Nov. 27, hitting its lowest point since mid-July. Crude oil-related varieties such as WTI (West Texas Intermediate) make up about one-third of the index, making it vulnerable to fluctuations in energy prices. In recent years, the CRB index has not been low due to the high price of crude oil, but the flow of funds has been different.

Data from the U.S. Commodity Futures Trading Commission (CFTC) showed that net buying of 11 major commodities listed in the U.S. market, including crude oil, copper and corn, amounted to 230,000 lots (lots as a unit of trade) as of the 14th, hitting the lowest level since mid-June. The balance after the Russia-Ukraine conflict totaled more than 1.3 million lots, which has now shrunk to nearly one-sixth.

In terms of crude oil, a recovery in demand from China, which changed its strict anti-epidemic policy at the beginning of the year, had been expected, but due to the prolongation of the real estate slump and the ensuing economic slowdown, crude oil looked subdued compared to expectations. In the US prices continued to rise and gasoline consumption stagnated. Strong demand growth brought about by the economic recovery and oil-producing countries to reduce supply to bring the prospect of price increases has been dashed.

From the U.S. Chicago Mercantile Exchange (CME) copper futures, Russia-Ukraine conflict had more than 30,000 hands of speculative funds after the net buying amount has become a net seller of about 16,000 hands. In addition, used in automobile exhaust purification catalyst platinum and palladium also appeared net selling.

Money is flowing out of funds that invest in commodities. Data from US research firm EPFR shows that 968 commodity-based funds investing in gold and agricultural products, among others, saw cumulative outflows of $14.7 billion from January to October. As the same period of outflows, a record high since 2013 (32.6 billion U.S. dollars). The outflows were recorded for five consecutive months starting from June.

Prices of international commodities were mostly below their previous year’s peaks as inflows into commodity markets slowed. Palladium hit a roughly five-year low in November, and corn, which realized a bumper crop in the United States, hit a three-year low. Crude oil and copper are 10% lower than in February 2022, before the Ukraine crisis, offsetting gains after the Russia-Ukraine conflict.

The ongoing loss of investors in various areas of the commodities sector with different supply environments is in large part due to the prolonged continuation of the global economic slowdown, and the overall waning demand for commodities that are easily linked to the economy. Taking the monetary tightening in Europe and the United States and other countries as a starting point, the individual’s ability to consume has gradually declined, and the waning demand for commodities as a whole can no longer be concealed.

According to Takayuki Homma, chief economist at Sumitomo Corporation Global Research, “many firms have large inventories due to high supply risks over the past few years and therefore need time to destock.” These overlaid with the downturn in demand present a pattern of exacerbating the retreat of capital.

In addition, a growing number of investors are predicting that inflation will subside, which is also contributing. Bank of America November 3 ~ 9 implementation of the global institutional investor survey showed that the next 12 months on the rise in global inflation, that “accelerate” the proportion of responses minus “slowdown” difference of -76%, slowdown is expected to account for the majority. As can be seen, buying demand aimed at hedging against inflation has fallen sharply.

On the other hand, there is also a view in the market that capital will return to the commodities market again after 2024.

The US-based Goldman Sachs Group, in a report titled “Three Reasons to Buy Commodities” released in mid-November, pointed out that as inflation slows and central banks’ monetary tightening eases, the looming concern of an economic slowdown will dissolve and demand for commodities will be supported. It recommends buying crude oil and copper, among others.

Currently, there are many varieties, including grains, that have turned into net sellers, and a representative of Green County in Japan said, “The buying margin of speculative funds is strengthening.”

International business consultants familiar with the movements of international commodity markets said that “European and American investors have been able to obtain high interest rates simply by depositing their money in banks. Commodity investment may not increase if expectations of price increases fail to rise significantly.” Contrary to the expectation of a reversal that has begun to emerge locally, the commodity market, which has been sluggish, reflects the fact that the two headwinds, the economy and interest rates, have not yet eased.