The Bloomberg Commodity Index fell 25 percent in 2015, the largest drop in five straight years of declines. Nickel was the biggest loser in the industrial metals sub-index, plunging 43 percent.
Rising supply and a slowdown in demand from China, one of the world’s biggest commodity consumers, pulled down prices. These trends may continue to weigh on prices in 2016.
China is still increasing its investments in late-cycle commodities such as base metals, while spending on early-cycle commodities such as steel has declined. This translates into continuing capacity expansion for aluminum and copper used in the latter stages of the construction cycle.
For example, China will probably add about 3 million tons capacity for aluminum this year, according to Bloomberg Intelligence (BI) analysis, an 8 percent increase from end-2015 and accounting for 94 percent of the global addition.
As the largest metal-consuming country, China’s announced plans to accelerate railway and other infrastructure projects have yet to translate into more demand for metals, according to BI’s channel checks with producers and traders.
It appears that implementation of the projects may not have started, as metal producers are still waiting to receive orders. China’s local governments, which usually match Beijing on infrastructure investments, may lack funds this year due to declining tax proceeds and land sales.
The views expressed in this article are those of Yi Zhu, an analyst at Bloomberg Intelligence.
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