JP Morgan: Commodity Super Cycle Has Begun (Bloomberg)

JP Morgan: Commodity Super Cycle Has Begun (Bloomberg)
With agricultural prices soaring, metal prices hitting the highest in years and oil well above $50 a barrel, JPMorgan is calling it: Commodities appear to have begun a new supercycle of years-long gains.
- A long-term boom across the commodities complex appears likely with Wall Street betting on a strong economic recovery from the pandemic and hedging against inflation
- Everyone from Goldman Sachs Group Inc. to Bank of America Corp. to Ospraie Management LLC are calling for a commodities bull market as government stimulus kicks in and vaccines are deployed around the world to fight the coronavirus.
- The optimism has already driven hedge funds’ bullish wagers on commodities to the highest in a decade.
- Commodities have seen four supercycles over the past 100 years -- with the last one peaking in 2008 after 12 years of expansion. The backdrop is now starting to look similar, with a broad gauge of commodity prices hitting its highest in six years.
- While that one was driven by the economic rise of China, JPMorgan attributed the latest cycle to several drivers including a post-pandemic recovery, “ultra-loose” monetary and fiscal policies, a weak U.S. dollar, stronger inflation and more aggressive environmental policies around the world.

Reverse Shortsellers’ Trap
Like I mentioned earlier, OMH is the “wrong” counter to short as (i) it is already undervalued at only 3-5x PE on FYE 2021/22 vs peers like Press Metal Bhd (PE 72x) and Lynas (still loss making and yet share price hitting all time high) and Ferroglobe (up 70-100% in 2 days) (2) OMH fundamentals is clearly supported with the surge in ferroalloy prices (FeSi at $1,500++, which translates to whopping 50% profit margin) and the cashflow/profit will flow (remember 2018 when the company recorded $160m profit on the back of FeSi @US$1,400) (iii) although share price has doubled from $0.34, it was way over corrected, and at $0.70, it is still 60% below its recent high of $1.70 (iv) the commodity cycle is on multi-year uptrend (Goldman Sach, JP Morgan) as demonstrated by the FeSi price surge of 50% (v) the Bursa listing will unleash the publicity/liquidity that OMH sorely needs.

For illiquid stock like OMH, it is easy to “crash” the price, but on the flipside, there is no liquidity to buy on the way up. Now, the shorter is trying to cover back at $0.70++, but there are not enough sellers to buy on the way up (as most of the buyer/seller queue are artificial). As at current position, the shortseller still has big open short position uncovered (see wws.shortman.com.au on omh). For short seller to cover back, it will be a long way up ($0.8/0.9 or even $1.00). There will soon be a short squeeze, once the company announces more concrete date on the Bursa listing. The last time OMH announced its plan for Bursa listing (back in Oct 2019), the stock price shot up >50% intra day.

Now, what we are seeing it’s a classic reverse short sellers' TRAP in illiquid shares with strong fundamentals/undervalued counters like OMH.