Commodity prices could be facing fresh falls after speculators pushed them to unrealistic levels, a broker said Tuesday, hitting shares in the sector.
Oil and copper may lose recent increases if investors are forced to cover bets on gains amid concerns that prices do not reflect weak market fundamentals, Barclays said in a note.
The broker's Kevin Norrish said commodities had attracted investors as one of the best-performing assets so far in 2016.
"However, in the absence of any concerted fundamental improvements, those returns are unlikely to be repeated in the second quarter, making commodities vulnerable to a wave of investor liquidation," he said.
Big commodity stocks were in the red, with Glencore PLC (LON:GLEN) off 4.25p at 146.95p, Anglo American PLC (LON:AAL) down 16.8p at 484p, Rio Tinto PLC (LON:RIO) easing 57p to 1880.5p and BHP Billiton PLC (LON:BLT) ceding 21.3p to 757.1p.
Hopes that commodities had bottomed out after steep falls in the second half of last year drove prices back in January from a quarter-century low.
Net flows into commodity products are thought to have totalled more than US$20bn in January and February in the strongest start to a year since 2011.
But Barclays says investors have increasingly been placing short-term bets on price movements, rather than taking account of longer-term prospects and investment strategy.
Brokers including Goldman Sachs have argued that the surge in prices has been overdone and that they will reverse unless there is a China-led improvement in demand.
Barclays reckons copper may return to the low US$4,000s per metric ton, from US$4,945 in London last week.
The broker also believes the price of a barrel of Brent crude could fall back to the low US$30s, from just above US$39 on Tuesday. West Texas Intermediate stood at about US$38.6 a barrel.
Senior market analyst at spread-betting firm IG, Chris Beauchamp, said long positions in crude were now hitting their highest levels in months, which he said could be a bearish sign as oil stockpiles rise.
"The short-covering is over, but the inventory build goes on, and this will dominate more and more as the new quarter gets underway," Beauchamp said.