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May 2016Market Commentary 02Commodity Performance BCOM 08 Roll Select 09 Historical 10Contribution to Return & Weights 11Commodity Volatility Realized 12 Implied 13 Historical Realized 14Commodity Correlation Composites 15 Singles 16 US CPI Indices 17 Country CPI 18 Country GDP 19Commitment of Traders Report Monthly Notional Change & Correlation 20 Historical Net Positions 21Commodity Inventories & Sales Monthly Change & Correlation 23 Historical Levels 24Commodity ETP Flows 26Term Structures 27Research Dashboards (BI) 29Bloomberg Cheat Sheet 30
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TABLES & CHARTS(BCOM)BLOOMBERG COMMODITY INDEX
Energy (34.3 % of BCOM; May performance +3.08%)
Oil had the longest run of monthly gains in five years - rising for four consecutive months - as militant attacks cut Nigerian supply to the lowest level in more than two decades while Canadian output fell amid wildfires, reducing supply. Oil has surged more than 87% since slumping to a 12-year low in February on signs the worldwide surplus is easing amid declining production.
With intraday prices reaching $50 a barrel, a long-anticipated barrier, the question for the oil industry is what comes next? It may take a rise to at least the mid-$50s with signs the rally has staying power before oil explorers start feeling secure again. The world’s 50 biggest publicly traded oil companies need an average price of $53 a barrel to stop bleeding cash, according to industry consultant Wood Mackenzie. For U.S. shale producers, oil may need to rise into the mid-$50s before drillers respond with a significant ramp-up in well completions, Bloomberg Intelligence analysts said. After shaving billions of dollars off capital budgets this year, those companies have a backlog of thousands of wells that have been partially completed but not yet tapped.
Low crude prices may finally be taking their toll on U.S. production. For the first four months of the year, U.S. output has fallen almost 5%. The latest Department of Energy figures show output at 8.8 million barrels a day compared with 9.2 million at the beginning of January. Saudi Arabia and Russia meanwhile have managed to keep output relatively unchanged.
Senior people in the industry including Patrick Pouyanne, chief executive officer of French giant Total SA, and Fatih Birol, the executive director of the International Energy Agency, have warned repeatedly that investment cuts triggered by the current slump could lead to a production shortfall in the future. Wood Mackenzie estimated that explorers have canceled or delayed investments worth nearly $400 billion since prices started their slide in late 2014. Price movements don’t suggest investors are heeding these calls though as the market is still pricing the "lower-for-longer" mantra. While front-month futures for WTI have risen 32% this year, the recovery looks very different if you focus on the longer term. The five-year-forward WTI contract is only up 4% over the same period reflecting the view that shale oil production could rebound as prices recover, capping any rally.
Oil discoveries have fallen to a six-decade low as explorers cut billions of dollars of spending to ride out the biggest market slump in a generation. About 12.1 billion barrels of oil reserves were found in 2015, marking a fifth consecutive year of decline and the smallest volume since 1952, according to Rystad Energy. Still, global climate targets are likely to curb oil consumption, and, according to Morgan Stanley, citing the IEA's base-case scenario, the gap between demand and supply would remain “small” and for the next two decades “further exploration is required but only modestly so”.
The world’s biggest oil companies are borrowing record amounts of money to cope with a slump in crude prices. Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp., Total SA, BP Plc and Eni SpA have together sold the equivalent of $37 billion of bonds this year, about double the amount issued in the period before oil prices plunged, according to data compiled by Bloomberg. While this is stretching their balance sheets and even resulting in credit-rating downgrades, the lowest debt costs in a year are softening the blow.
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Since the start of 2015, 130 North American oil and gas producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn’t include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy earlier this month owing more than $11 billion combined.
Oil producers took advantage of the rebound in crude markets to lock in protection against another slump. They increased their bets on falling prices to the highest level in 4 1/2 years. Speculators reduced bets on falling prices to the lowest level in 11 months. Money managers’ short position in U.S. benchmark crude reached the least since June, according to data from the Commodity Futures Trading Commission.
Federally mandated ethanol blending is adding extra pressure to the U.S. refiners' profits. The worst crude oil downturn in a generation, which at first helped profits, has now passed through to the fuel prices. Now, gasoline is cheaper than the ethanol that refiners have no choice but to use under the Renewable Fuel Standard program introduced in 2005 under the Energy Policy Act. Ethanol futures on the Chicago Board of Trade averaged 21.5 cents above gasoline contracts on the New York Mercantile Exchange in the quarter, compared with an average 48-cent discount in the same period during the previous five years.
American motorists will consume a record amount of gasoline this year as growing employment and low prices spur demand. Consumption will top the previous record reached in 2007 before the Great Recession, according to the EIA. Gasoline demand will average 9.32 million barrels a day in 2016, up from 9.29 million barrels projected in April. Consumption is then forecast to slip 0.1% to 9.31 million barrels in 2017. Pump prices tumbled to the lowest level in seven years in February, and while they’re up from their lows, they still trail the average for this time of year, encouraging vehicle use.
U.S. natural gas futures capped the longest monthly winning streak in three years as forecasts showed hot weather making a comeback. The third straight monthly increase was gas’s best bullish run since the period from late 2013. Gas bulls are betting on hot weather to erode a stockpile surplus that’s the biggest since 2006 for this time of year. Without a scorching summer and a decline in gas production from shale formations, inventories will reach a record before the winter, capping price gains. Gas demand for power plants has advanced 26% from this time last year, data from PointLogic Energy show. Drillers, however, are beating production estimates as the price collapse forced them to become leaner, producing more fuel with the fewest rigs since at least the 1980s. Improved drilling technology has made explorers more efficient, boosting output even as they reduce costs. While the number of rigs has fallen dramatically, producers are drilling several wells from the same site, cutting longer horizontal segments through shale rock to yield more gas.
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Grains (23.3% of BCOM; May performance +1.76%)
Bad weather across South America is shrinking global supplies of soybeans, helping prices extend a rally to a 2-year high. Flooding destroyed plants, hurt crop quality and delayed harvesting and impeded shipments in Argentina. Rains also hampered output in Uruguay. Dry weather hurt production in Brazil, the world’s largest exporter of the oilseed. South African grain and oilseed prices surged to records making the country a net buyer of the commodities after a drought damaged local harvests. The supply woes sent soybean prices into a bull market last month. Hedge funds are expecting more gains, with their bets on a rally rising to the highest since April 2014. The inventories provide a cushion though as they stand to be second-biggest ever even.
China is so hungry for soybeans it has taken a major foray into expanding its control over supplies from Brazil, the world’s top exporter. A unit of China’s Shanghai Pengxin Group Co. bought a controlling stake in Brazil’s soybean trader and biodiesel maker Fiagril Ltda for $286 million. The deal would be the first major Chinese acquisition of an agricultural company in Brazil. Almost 78% of Brazil’s soybean shipments went to the China in 2015.
The best rally for corn prices in 10 months meant U.S. farmers were frantic to sell from the mountain of grain they’d been hoarding. Growers have been stockpiling supplies following a string of bumper harvests, waiting patiently for a rebound in prices. Their hopes have finally been answered after dry weather threatened crops in Brazil, sending futures traded in Chicago to their highest in almost a year. South Africa, the continent’s biggest producer of corn, became a net importer of the grain for the first time since 2008 this year as the worst drought in more than a century hurt local output. South Africa last year had the least rainfall since records started in 1904, damaging crops and raising prices. The nation imported 1.96 million metric tons of corn in the marketing year ended April 29, that’s the most since 1993.
Wheat supplies are forecast to remain ample next season. U.S. reserves will rise to 1.029 billion bushels by May 2017, while world inventories at the end of the 2016-17 season are estimated to a reach an all-time high. The wheat harvest in Kansas will rebound 19% this year, according to findings from a crop tour organized by the Wheat Quality Council, meaning favorable weather in the largest U.S. grower of the grain will likely exacerbate a global glut. Showers in April revived crop prospects across the state and helped farmers avoid a developing drought, while above-normal temperatures warmed soil in February and March to prevent three separate freezes from damaging immature plants. Wheat prices are near the lowest since June 2010 after bumper harvests in the European Union, Russia, Ukraine and India pushed global reserves to a five-year high.
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Industrial Metals (15.3% of BCOM; May performance -7.27%)
For iron ore, if April was a party then May’s been the aftermath. Benchmark prices capped the biggest monthly loss since August 2012 as a rally driven by a speculative frenzy in China reversed into a back-to-reality slump when the fervor faded. Ore with 62% content has lost 24% in May to unwind April’s 23% rally, when prices posted a third monthly gain. The raw material has collapsed 29% since peaking at more than $70 on April 21, and last week dipped below the $50 level. The commodity’s boom turned to a bust as regulators in China moved to prevent the frenzy from getting out of hand and signs emerged of increased supply, including higher port stockpiles. Steel-product prices have also retraced, denting iron ore demand.
Metals slumped in May as Federal Reserve officials hinted at higher U.S. interest rates as soon as June, strengthening the dollar and making materials more expensive in other currencies. The U.S. currency was lifted to its highest level since March after Fed Chair Janet Yellen said that a rate increase may be in order in coming months. China’s central bank, meanwhile, cut the value of the yuan by the biggest monthly amount since August’s surprise devaluation. Money managers raised their bearish copper bets in the week ended May 24 by 38% to the most in four months, U.S. government data show.
Renewable energy and China’s economic shift toward consumer-led growth will be major catalysts for a new wave of copper demand that’ll accelerate a shortage forecast to develop from 2019, according to BHP Billiton Ltd., the world’s largest mining company. By 2040, the share of global electricity generated from renewable energy sources, including solar and wind, will double to 46%; and renewable sources will account for two-thirds of an estimated $12.2 trillion of investment in energy over the next 25 years, Bloomberg New Energy forecasts. Wind, solar and hydro-electricity systems need as much as 12 times more copper than traditional power generation, according to the Copper Development Association. In China, power generation accounts for almost half of the metal’s usage.
China, maker of about half the world’s aluminum, will export less in 2016 as output expands at the slowest pace in five years and a price rebound fails to spur substantial smelter restarts, according to United Co. Rusal, the biggest producer outside the Asian country. The major part of idled capacity is still unprofitable at current levels. China’s aluminum production fell 2% in the first three months of the year, while overseas shipments shrank 10% through April, government data show. Demand will grow faster than production this year in China, curbing overseas shipments as smelters find better prices at home, Rusal said. Domestic use already increased 6% in the first quarter on year, Standard Chartered Plc analysts show. In a sign of tighter supplies, inventories monitored by the Shanghai Futures Exchange have tumbled about 12% since the middle of March.
China is shipping in record volumes of nickel as demand for the metal used in stainless steel surges amid tight domestic supplies. Imports of refined nickel jumped 167% from a year earlier to an all-time high of 48,592 tons, while purchases of the lower-grade ferronickel expanded 43% to 107,161 tons, also the most ever. Demand is rising faster than expected in China and may tip the global market into a shortage this year, pushing nickel toward $10,000 a ton by the end of 2016, according to Macquarie Group Ltd.
Demand is set to exceed supply of industrial metals - led by zinc - after supply gluts and three years of declining prices deterred production, Glencore Plc said. Refined zinc production will trail consumption by 352,000 tons this year, the International Lead and Zinc Study Group said in April, widening its deficit forecast from 152,000 tons in October. BHP Billiton said separately that it isn’t waiting for prices to recover as it boosts investments in copper and oil. The shortfall in refined copper will reach 56,000 tons in 2016, the International Copper Study Group said in March, reversing previously predicted surplus of 175,000 tons.
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Precious Metals (15.0% of BCOM; May performance -7.07%)
After a roaring start to the year, the excitement over bullion dissipated in May on increasing expectations that the Fed is getting ready to raise U.S. interest rates again as the economy improves. The net-long position in gold futures and options fell 26% to 169,491 contracts in the week ended May 24, according to CFTC data. Prices in May capped the first monthly decline this year. Improving U.S. growth is adding to the negative outlook for the metal, which some investors buy to guard against economic malaise.
According to the largest lender in the United Arab Emirates - which is advising clients to hold up to 10% of portfolios in bullion and buy recent dips - gold may rally to $1,400 an ounce in the near term and go on to hit $1,800 by the end of next year. A premature hike by the Fed may lead to a slide in inflation, a pullback in growth and greater volatility, causing investors to shun risky assets, according to Emirates NBD PJSC.
A major Japanese electronics maker approached First Majestic Silver Corp. for the first time last month seeking to lock in future stock, a sign of supply concerns that could boost the metal’s price nine-fold to $140 an ounce by as early as 2019, according to the best-performing producer of the metal. That’s a bold forecast. While silver has rallied 16% this year to leapfrog gold as the best-performing precious metal, it settled at $15.994 at the end of May and reached a record of just under $50 in 2011. The highest projection among analysts surveyed by Bloomberg is $57 an ounce in 2019.
Softs (7.1% of BCOM; May performance +3.78%)
El Nino has ended. The tropical Pacific Ocean is in a neutral state and outlooks suggest little chance of indicators returning to El Nino levels, Australia’s Bureau of Meteorology said. Mid-May marked the end of the event that reduced Indian rainfall, parched farmland in Asia and curbed cocoa production in parts of Africa. The 2015-16 El Nino was one of the three strongest on record, generating the hottest global temperatures in more than 130 years, according to the U.S. National Centers for Environmental Information. El Nino boosted palm oil prices to a two-year high in March, while declining coffee production in Indonesia and Vietnam helped spur the longest rally in two decades for arabica coffee futures. Weather watchers are now waiting for La Nina, a cooling of the tropical Pacific sometimes thought of as El Nino’s opposite. The U.S. Climate Prediction Center says there’s a 75% chance it will develop by year’s end, while Australia’s weather bureau says the majority of climate models suggest La Nina is likely to form between June and August. La Nina can also roil agricultural markets as it changes weather, with the pattern typically contributing to more hurricanes in the Atlantic and heavy rain in Indonesia and India. The previous La Nina began in 2010 and endured into 2012.
A record sugar crop in Brazil’s center south, the main growing region of the world’s largest producer, means this season’s global shortage will be 29% smaller than previously thought, according to Kingsman. World production will fall short of demand by 5.48 million tons in the season started last October, down from an earlier estimate of 7.67 million tons. Output in the Brazilian region will climb to 36.4 million tons, 3.7% more than an earlier forecast. That would be a record, data from industry group Unica showed. Surplus stockpiles accumulated in the previous five seasons will disappear next year, the International Sugar Organization said. While Brazil is boosting supplies for now, global shortages will widen to 7.3 million tons in the 12 months starting October as dry weather hurts crops in Thailand, according to Kingsman. Output in the Asian nation, the second-biggest exporter, will be 9.6 million tons in 2016-17, 18% less than an earlier forecast. Barely a year after ordering sugar mills to compulsorily export from a mountain of stockpiles, India is struggling to cope with spiraling prices and a potential shortage. After the strongest El Nino in two decades shriveled crops, India’s production is set to decline for a second year to the smallest in seven years. That’s alarmed the federal government, which may lower the import duty may and scrap exports to prevent any further jump in prices. India’s likely transition from an exporter to importer comes amid a rally in global prices to a 26-month high, driven by prospects of the first world deficit in sugar in five years.
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Recent heavy rainfall in Brazil will disrupt sugar shipments in the largest producer, potentially increasing congestion at ports struggling to deal with an early start to the harvest. Raw sugar rallied to the highest in almost two years as vessel queues lengthened at Brazilian ports and rain was forecast to slow loadings.
Heavy rains in Brazil are also slowing this year’s coffee harvest and threatening to reduce bean quality in the world’s largest producer. Coffee areas of southern and southeastern Minas Gerais, which account for 29% of arabica production, got 21% more rainfall than normal in the past month, Somar data compiled by Bloomberg show. Precipitation in the Zona da Mata region of Minas Gerais state, which makes up 11% of output, was a quarter more than usual. Rainfall at the start of the harvest can break down mature beans and harm bean drying. Robusta coffee climbed to the highest level in almost nine months as the worst drought in three decades in top grower Vietnam threatens next season’s crop. Dry weather remains fairly widespread in Vietnam, the world’s largest producer of the robusta variety used to make instant coffee. That’s threatening the development of the crop that starts there in October. Production in the 2016-17 season will probably fall to the lowest since 2012-13, according to a Bloomberg survey of traders. Global supply is shrinking as El Nino weather conditions cause crop losses in Southeast Asia and South America. Coffee production in Indonesia will probably drop 10% this year after dry weather caused by the strongest El Nino since 1997-98 which damaged some crops and delayed the harvest. Farmers in the world’s third-largest grower of robusta may reap 570,000 tons of beans in the season that started April 1, down from a record 636,300 tons a year earlier, according to the median of five traders estimates compiled by Bloomberg. That would be the steepest decline since 2011-12, data from the U.S. Department of Agriculture showed.
Soaring demand for China’s state cotton reserves may curb imports by the world’s biggest consumer, according to the U.S. Department of Agriculture. About 120,350 tons were sold in the first week of auctions that began May 3 compared with a total of 63,413 tons during 2015, the USDA said. The purchase rate of more than 99% compares with 3.4% for all of 2015. Reserve sales climbed to 240,266 tons by May 12, according to Cncotton.com, an industry website owned by state-run China National Cotton Information Center. China will sell as much as 2 million tons through August to reduce its inventories to a reasonable level, the National Development and Reform Commission and Ministry of Finance said last month. China’s cotton stockpiles have climbed almost six-fold in the past five years and it now has about 60% of world reserves. U.S. and Australian cotton were most popular in the auctions and were purchased at a higher price, the USDA said.
Livestock (5.0% of BCOM; May performance +2.42%)
Americans celebrating Memorial Day - the unofficial kick-off to summer and the bbq/grilling season - had a windfall with the cheapest retail prices for ground beef in two years. Bumper grains crops have reduced costs to feed animals and cattle ranchers have been expanding their herds. That’s good news for consumers who will see beef prices drop as much as 2% this year as annual production increases for the first time since 2010, the U.S. Department of Agriculture predicts. Hedge funds are betting that the lure of low-cost meat will help stimulate demand and help cattle futures to rebound.
CME Lean Hogs Managed Money Net Total
Bullish bets for soybeans, soybean meal and the hogs that eat the animal feed rose to the highest since 2014, after floods spurred crop and quality concerns in Argentina, the world’s biggest exporter of the feed product.
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Composite Indices * Click hyperlinks to open in Bloomberg
Bloomberg US Treasury Bond Index BUSY 3.72% 3.59% 4.13% 3.94% 4.09%Bloomberg USD IG Corporate Bond Index BUSC 3.39% 3.29% 3.98% 4.10% 4.35%Bloomberg USD HY Corporate Bond Index BUHY 2.50% 3.90% 4.72% 3.68% 3.45%
Bloomberg U.S. Dollar Spot Index BBDXY 5.39% 6.72% 6.58% 6.21% 6.39% 7.09%
BloombergCommodity Index TRS&P 500 Total ReturnIndexBloomberg USTreasury Bond IndexBloomberg USCorporate Bond IndexBloomberg USD HYCorporate Bond IndexBloomberg U.S. DollarSpot Index
Top 10 Creations * Click hyperlinks to open in Bloomberg
Name TickerNet Flows
($m)
Beginning Fund Market Cap
($m)
% of Funds Market Cap
VelocityShares 3x Long Crude ETN UWTI US 113.99 874.97 13.0%iShares S&P GSCI Commodity Indexed Trust GSG US 27.98 661.05 4.2%
iPath Bloomberg Commodity Index Total Return ETN DJP US 18.76 999.83 1.9%ProShares UltraShort Bloomberg Crude Oil SCO US 14.02 97.91 14.3%
iPath GSCI Total Return Index ETN GSP US 12.59 53.91 23.4%United States Oil Fund LP USO US 11.55 3,093.19 0.4%
PowerShares DB Optimum Yield Diversified Commodity PDBC US 7.48 212.27 3.5%PowerShares DB Oil Fund DBO US 3.53 406.35 0.9%
ETFS Physical Precious Metal Basket Shares GLTR US 2.65 161.57 1.6%ProShares Ultra Bloomberg Crude Oil UCO US 2.54 764.79 0.3%
Top 10 Redemptions
Name Ticker Net Flows ($m)
Beginning Fund Market Cap
($m)
% of Funds Market Cap
SPDR Gold Shares GLD US -82.41 21,927.00 -0.4%VelocityShares 3x Inverse Crude ETN DWTI US -62.29 264.13 -23.6%
United States Natural Gas Fund LP UNG US -23.43 519.90 -4.5%iShares Gold Trust IAU US -21.53 5,219.35 -0.4%iShares Silver Trust SLV US -13.17 4,419.41 -0.3%
PowerShares DB Gold Fund DGL US -7.14 138.52 -5.2%VelocityShares 3x Long Natural Gas ETN UGAZ US -6.96 292.52 -2.4%
First Trust Global Tactical Commodity Strategy Fund FTGC US -4.03 182.88 -2.2%ProShares UltraShort Silver ZSL US -3.14 55.73 -5.6%
iShares Commodities Select Strategy ETF COMT US -2.81 206.88 -1.4%
BLOOMBERG INTELLIGENCE: COMMODITY DASHBOARDS BI <GO> * Click hyperlinks to open in Bloomberg
Crude Oil Production: BI OILS <GO> Natural Gas Production: BI NGAS <GO>
Precious Metal Mining: BI PMET <GO> Agricultural Chemicals: BI AGCH <GO>
Copper: BI COPP <GO> Aluminum: BI ALUM <GO>
BI provides analysis on several key drivers of BCOM performance; industrial and precious metals mining, oil and natural gas production, and agricultural chemicals. The dashboards include key macro data libraries and interactive charting and commentary from analysts with an average of seventeen years of experience.
COMMODITY CHEAT SHEET FOR THE BLOOMBERG PROFESSIONAL® SERVICE
* Click hyperlinks to open in Bloomberg
Broad Commodities EnergyTop commodity news CTOP Top energy news ETOPGlobal commodity prices GLCO Top oil news OTOP Commodity playbook CPLY Crude Oil Production Dashboard BI OILSCommitments of traders report COT First Word oil NI BFWOIL Calendar of commodity events ECO17 News on oil inventories TNI OIL INV Commodity arbitrage calculator CARC Oil Buyer's Guide newsletter NI OBGBRIEFCommodity fundamental data explorer FDM Pipes & Wires newsletter NI PAWSBRIEFCommodity futures overview CMBQ Oil market analysis BOILSecurity finder SECF Nat gas spot prices BGASCommodity data contributors & broker CDAT Forward European utility markets EUMContract table menu CTM News on oil markets NI OILMARKET Seasonality chart SEAG News on OPEC NI OPEC Commodity curve analysis CCRV OPEC production and prices OPECCommodity fair values CFVL Oil markets menu OIL Commodity price forecasts CPFC Crude stored in tankers NOONCommitments of Traders Report COT Refinery outages REFOCommodity maps BMAP Oil’s decline EXT5 Commodity options monitor OMON Oil versus inflation expectations SWIFCommodities charts COSYCommodity Investors menu CMNV MetalsUS exchange traded product fund flows ETF Top metal news METT
Precious metal dashboard BI PMETGBase metals dashboard BI BMET
Commodity Indices Metals prices and data MINE Index description BCOM Index DES Precious metals prices and rates MTL Index constituent weights BCOM Index MEMB Metals Bulletin MB Listed index futures BCOM Index CT COMEX inventories COMX Option volatility surface BCOM Index OVDV LME monitor LME Seasonality chart BCOMNG Index SEAG LME implied volatilities LMIV Commodity index futures movers FMV LME warehouse inventories LMEI Commodity index ranked returns CRR
AgricultureWeather Top agriculture news YTOP Global weather database WETR Agriculture calendar AGRI US snow monitor SNOW Agriculture spot prices AGGPEU weather & utility models EUMM Agriculture supply & demand AGSD
Crop calendar CCAL
BCOM QUICK FACTS Index Methodology
Weighting Bias 2/3 market liquidity and 1/3 world production No. of Commodities 20 Re-balancing Frequency Annual Roll Schedule Monthly (5 day roll) Caps/Limits Single commodity: max 15%
Single commodity and its derivatives: max 25%Related commodity groups: max 33%
First Value Date 30 December 1990
The data provided in this report can be easily accessed on the Bloomberg Professional® service along with numerous news and analytical tools to help you stay on top of the commodity markets.