The year 2015 proved to be one of the most negative in recent history for raw-material markets. The fall in supply costs affected the entire manufacturing sector, as summed up in the Prometeia indices below, and was responsible for average annual price drops (in US dollars) of between 18% (in fashion and wood/paper) and 46% (in the energy sector). While becoming more volatile, the situation on the commodity markets has not changed significantly in 2016, which began with further severe price reductions.
Only since March has there been a tentative rebound in prices, which is due, however, more to expectations (in particular, of an agreement between Saudi Arabia and Russia to freeze oil supplies and, regarding metals, of a continued expansionary stance on the part of the Chinese authorities) than to an effective structural change in the fundamentals. A degree of caution is therefore required before seeing these shifts as representing the first seeds of recovery. At current supply levels, only a solid recovery of final demand can sustain an upward price trend. But our macroeconomic outlook does not anticipate accelerated growth, neither in the advanced nor in the emerging economies, instead indicating a scenario of net decline for global GDP in 2016.
Our outlook for the coming months thus foresees a continuing weak but volatile scenario, in which commodity prices will maintain a W-shaped profile, with alternating increases and decreases for a large part of the year. Price recovery will not be seen until the following two-year period, when accelerated growth in the main global economic areas will be able to contribute, via increased demand, to stabilising the principal commodity markets. The recovery will be moderate in any case, given a scenario that is peppered with risks in both the short and the medium to long term.
One of the most substantial upward risks is the possibility of the Chinese government deciding to counteract a potential hard economic landing with massive public investment, which would have a particularly strong impact on industrial commodity prices. A significant risk concerning the oil markets is the possible spread of political instability to the large producers in the area, especially Saudi Arabia. Finally, the growing use of protectionist measures by the importing countries and the control of supply by the exporters could contribute to sustaining commodity prices over the coming months.
The main downward risks are related to competitive devaluations: a real currency war between the emerging economies would lead to much more marked decreases than those envisioned in the base scenario.