Natural resources prices ‘may fall again’ – by Neil Hume and David Sheppard (Financial Times – November 19, 2015)

Natural resources prices have not bottomed and could fall further unless demand improves or more supply is curtailed, according to Goldman Sachs, one of the most influential banks in commodity markets.

With raw materials from oil, copper, coal and zinc trading around their lowest levels since the financial crisis, some investors said that prices might have troughed and could recover in the next 12 months.

Production cuts from miners such as Glencore, which plans to reduce annual production of zinc by a third, have given further grounds for optimism.

But unless demand picked up, Goldman analysts said, the cuts would prove insufficient to balance commodity markets. Prices needed to remain “lower for longer” to force more production offline.

“Supply adjustments to date are still insufficient, and demand has done too little to offset this slow adjustment,” they said in a report. “This sustains the need for lower prices for even longer, keeping us underweight commodities for the next 12 months.”

It has been another dismal year for commodities. The Bloomberg Commodity index, a basket of 22 commodity futures widely followed by institutional investors, has fallen 16 per cent to its lowest level since 2009 and is on course for a third consecutive year of losses. Over that period it has fallen almost 40 per cent.

Abundant supplies, caused by a decade of heavy investment and slowing growth in China as it moves to a more consumer-focused economy, have been behind this year’s sell-off. A strengthening US dollar has been another headwind.

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