What a difference a year makes. January 2016, the Bloomberg Commodity Index (BCOM) was at a 14-year low and most investors had dismissed the asset class over concerns of massive oversupply conditions, the China slowdown and looming deflation risks in Europe and Japan. But as commodities rallied, investors have started to dip back in. China’s economy and commodity consumption seem to be stabilizing, inflation is back on the radar (especially since the election), and — most importantly — the supply-demand commodity imbalance is improving across a broad swath of the market.
Yet, with the BCOM trading at just one-third of 2008 levels, the recovery still has a long runway. In fact, commodities may be one of the few remaining areas of the market where investors have an opportunity to unlock value in a depressed asset class.
After five years of falling commodity prices, about 70 percent of the market is trading below production cost, and many producers