Any hopes amidst commodity prices bloodbath?

There has been a bloodbath on the commodities markets. Over the past 12 months, the price of oil is down more than 40%, the iron ore price dropped by more than 40%, the price of nickel is down more than 35%, the price of coal has dropped by around 25%. We can continue this list with other metals and minerals prices – most of them have suffered greatly.

This is affecting the Canadian economy which depends heavily on the oil and gas and mining  sectors – our GDP grew by just 0.6% in the fourth quarter of 2014 (a 2.5% growth in 2014 as a whole), contracted by 0.1% in January this year as compared to December 2014 and was flat in February.

There are hopes for stronger commodity prices, as we have seen a bounce in several of them over the past several weeks. The recent iron ore price rally of 25%+ from its recent lows, which very few people predicted a year ago, has helped (but appears to be losing steam now). The price of oil is up by about 40% from its January 2015 low. The global supply of oil had been rising but the current price rally is attributed rather to recent lower rig counts in the U.S. and the current conflicts in the Middle East (with fears that unrest in Yemen may spill over into Saudi Arabia).

Another major Canadian product, copper, has also seen a recent price renaissance, rising by more than 15% since January this year. According to mining.com, the demand for copper will be growing this year, but the majority of analysts expect an even stronger supply and that copper will move into a surplus this year with as much as 400,000 excess tonnes on the market. This does not bode well for the copper price, and so the recent price rally for copper should be viewed cautiously.

For a sustained price recovery, much will depend on China which accounts for about half of the global copper consumption. The Chinese economy is now in a slow-down mode – it officially grew by just 7.0% in the first quarter of 2015, which is the lowest growth rate since early 2009, due to a slowdown in manufacturing and property investment.

Although we’ve seen recent commodities prices rally, there are indications are that the bad times for commodities may not have ended yet.

By: Ukrainian Credit Union Limited