Commodity Market Remains Uncertain

2015 was another difficult year for commodities, as they struggled under pressure from weak demand, US dollar strength and lingering economic uncertainty. 2016 should prove less volatile, not least because of deep price corrections that have already taken place. Yet, as highlighted by the recent slide in energy, it remains unclear whether a floor has been reached. In theory, a drop in the unit value of a product to below the marginal cost of production should cause businesses to restructure and suspend unprofitable operations, as has been announced by several major mines. However, the global commodity demand and supply situation is as complex as it is fundamental. Negative sentiment will continue to come from a slowdown in China, and a squeeze in US dollar liquidity could hamper commodity demand from countries with large budget and current account deficits.

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