Natural resource commodities have had a tough year. From oil to metals, prices have been persistently low. According to Goldman Sachs, however, this trend is not going to shift anytime soon – and prices could fall even further.
The banking giant has said that the bearish nature of commodity markets is set to continue, with prices not yet bottoming out, unless supply is restricted or demand picks up again.
The banking giant has said that the bearish nature of commodity markets is set
to continue
The Bloomberg Commodity index – a basket of 22 different commodity futures prices – has fallen by 16 percent and is at its lowest level since 2009. Copper is its lowest point since 2009 – hitting a low of $5,000 in November 2015. Due to its wide range of uses in the world economy, copper is often considered a yardstick for the general health of the world economy. Other commodities have also hit record lows, with oil sitting at historically low levels since the summer of 2014.
As Goldman Sachs notes, unless supply is restricted or demand increases, prices are likely to slide again. The slowdown in China is generally seen as having caused contributed to a fall in demand for commodities, as it underpinned the commodity super cycle that peaked in 2011. As China rebalances away from heavy investment, its demand for hard commodities has slowed down. Whether or not China’s demand for natural resource commodities will pick up again seems unlikely.
However, a restriction in supply for oil seems more likely, as the Saudi decision to keep OPEC production levels high, creating a market glut and price decline, is becoming more untenable. OPEC countries reliant upon oil for national budget increasingly feel the fiscal constraints of low oil prices.
