2015 was another dismal year for commodities, the third year in a row of negative returns. Over supply continues to be the universal theme in the market, however capacity cuts are beginning to be announced. As the saying goes the cure for low prices are low prices.
The real curse for commodity prices, however, is on the supply side. The last decade’s commodities boom has led to irrational investment in new projects. China’s demand for iron ore and coal declined only this year, but commodity prices have been dropping since 2011. These price declines reflect concerns about a persistent surplus as mining firms continue to expand supply. Global iron ore production is expected to have increased by 100 million tons in 2015 despite the declining demand from China, and further increases are expected over the next two years.
