End of Commodity Boom Spells Trouble in 2016

The rout in commodities prices that has wiped billions from the value of energy and mining companies across the world in the past 12 months will continue in 2016, according to economists, analysts and executives on the front line.

Prices in a range of key industrial commodities plunged in 2015 as China’s factories and appetite for raw materials slowed while supply, especially of oil and iron ore, increased.

Bob Dudley, the boss of BP, said the price of oil, which lost 34% in 2015, could continue to fall in the first few months of 2016. “A low point could be in the first quarter,” Dudley has told BBC radio.

Dudley predicted that prices could stabilise towards the end of the year, but would remain low for the forseeable future.

“Prices are going to stay lower for longer, we have said it and I think we are in this for a couple of years. For sure, there is a boom-and-bust cycle here,” Dudley said.

His words will sound a warning for investors across the globe when markets reopen on Monday, especially those in the resource-heavy UK and Australian markets.

The commodity index used by Thomson Reuters fell by a quarter over the year to hit its lowest level since 2002.

“The chances of an optimistic 2016 are bleak,” Mark To, head of research at Hong Kong’s Wing Fung Financial Group, said. “Slowing economic growth and structural reforms in China might contribute to decreased demand for commodities.“

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza