2016: Is there hope on the horizon for non-energy commodities?

According to Daniel Yergin, IHS Vice Chairman, non-energy commodity prices have dropped 48% since July 2014. The end of the BRICs era has been one of the key factors behind the drop, but is there hope on the horizon for non-energy commodities in 2016?

Gold’s fall from grace has been making the headlines all year, but it is not the only metal to have suffered over the course of 2015. Silver has followed a similar downward trend, as have platinum and copper. Palladium has fared a little better than its fellow metals when viewed over the last ten years, but again in the last year its value has dropped off considerably.

“It’s been a bad year for precious metals and base metals alike,” comments Nikolas Xenofontos, Director of Risk Management of leading online trading services provider easy-forex, “And I’m far from convinced that prices have bottomed out yet. I think early 2016 will bring further declines, but there may be hope of a rally during the second half of the year, particularly if the global economy picks up again.”

Over the course of 2015, the projected global economic growth rate has been steadily cut by the International Monetary Fund (IMF). While the world economy grew by 3.4% during 2014, the IMF projected growth would slow to 3.3% in 2015. Then in October 2015 it lowered the projection to just 3.1%, with the slowdown of China’s economy and the shrinking of the Russian and Brazilian economies noted as having a major impact on the projection.

Grains have suffered just as much as metals over the course of 2015, with wheat, corn, soybeans and oats all experiencing significant drops in value. Rice showed some signs of recovering in the four months from June, but prices have since dropped off sharply.

Livestock, lumber, coffee and almost all other non-energy commodities have followed the same pattern, with only sugar and cocoa breaking the mould over the past 12 months. Sugar’s fortunes have been mixed, while cocoa has shown an impressive increase, to US$3,413.84 per tonne as at 17/11/15, up from US$2,871.10 per tonne a year earlier. Over the past two years, cocoa prices have risen by more than 40%, driven by an increase in demand that supply cannot match.

“Cocoa is an interesting one to watch during 2016,” confirms easy-forex’s Nikolas Xenofontos. “With growth restricted to within 20 degrees of the equator, it’s not a crop that can see production scaled up as easily as something like corn can. Global demand is increasing and, despite a good harvest this year, supply is lagging behind that demand. It’s a situation that looks set to continue into 2016. If you’re only going to invest in one commodity next year, cocoa might be the one for you!”

But with the IMF projecting an improved pace of global economic growth during 2016, at 3.8%, might there be light at the end of the tunnel so far as other non-energy commodities are concerned?

It’s certainly not out of the question, explains Xenofontos,“If the world economy rallies then we could see commodity prices begin to pick up once more, perhaps towards the tail end of 2016. I think it would be overly optimistic to think of them reaching their former heights – the end of the BRICs has led to the end of the commodities super-cycle era – but it’s not out of the question that prices might begin to recover as the world economy gets back into shape. There’s definitely at least a glimmer of hope on the horizon!”

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