According to new research by Bank of America Merrill Lynch, the China-fueled bull market in commodity prices is set to end soon, as a renewed glut of production enters the market.

In fact, say the analysts, much of the price boom was caused by a downturn in capacity to begin with. From Bloomberg:

A sharp rally seen in products from thermal and coking-coal futures to glass and even garlic since mid-2016 carried signs that China’s great ball of excess liquidity had found its way into commodities. Rather than speculative investors, it’s good old fashioned laws of supply and demand that have propelled prices, Helen Qiao and fellow economists at Bank of America Merrill Lynch wrote in a Jan. 13 note.

“The notable rise in commodity prices in 2016 was mainly due to capacity reduction on the supply side,” said Qiao and her coworkers at Bank of America Merrill Lynch.

The firm pointed to recent action coal and steel prices as proof of their findings. As demand for these commodities jumped early last year, production soon caught up, and acted to mitigate the price surges.

Bank of America Merrill Lynch also noted that demand will soon slow again, especially in the auto market. Plus, with China looking to avoid another infrastructure bubble, we’ll see more economic balance from the world’s most populous country later this year.

The iShares S&P GSCI Commodity-Indexed ETF (NYSE:GSG) was trading at $15.74 per share on Tuesday morning, up $0.13 (+0.83%). Year-to-date, GSG has gained 0.45%, versus a 1.36% rise in the benchmark S&P 500 index during the same period.

GSG currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #4 of 122 ETFs in the Commodity ETFs category.

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