Rowan Dartington’s Guy Stephens on the decline of commodities worldwide and the reasons behind this current predicament
Almost all commodity markets have had a very painful experience recently, but this is a trend that has been entrenched for some time now. The aggregate Bloomberg Commodities Index is down over 60% from its 2008 peak, and the last twelve months have just hammered this home.
There has been no place to hide – gold, energy, industrial metals, and even soft commodities have all been weak. The rout can be partly attributed to a number of factors, either tainting sentiment within the sector or fundamentally impacting supply or demand.
One of those factors is almost certainly China; an economy which has been such a dominant driver of demand for industrial metals in particular.
The slowing of (and evolution of) the Chinese economy is one that will have heavily impacted demand for copper, aluminium, iron ore… to name a few.
Chinese demand for energy is also about to stop growing if you believe a number of government officials who are questioning the health of their country’s environment, claiming it is an issue that is now extremely high on the agenda in what is the world’s second largest economy.
Fundamentally, supply has also increased in a number of industrial metals but, more prominently, in oil production as the US shale producers have seemingly transformed that market.
History tells us that oil has not previously participated in prolonged periods of downturn in commodity markets, but this time around, oil has seen the sharpest and most undignified fall of all.
The fall from grace has been well documented, Brent crude futures plummeting from the dizzy heights of $100+ last summer, to the $50 per barrel that we stand at today.