Global commodity prices marked a fourth straight annual decline in 2014 in their longest losing streak in 23 years, as lingering concerns about global economic growth battered appetite for raw materials, while producers didn’t hold back supplies and worsened a glut.
Brent crude oil led the broader fall in demand by hitting last year its lowest since 2008, gold dropped for a second straight year for the first time since 1998, copper capped the worst losses in three years, iron ore hit a five-year trough and some farm items were hovering around their meanest since 2009, as any credible sign of a demand recovery remained elusive. Despite rock-bottom interest rates in the US, the dollar stayed strong last year, making imports of raw materials less attractive to users of other currencies and further weighing on demand.
The Bloomberg Commodity Index, which tracks 22 key commodities, lost 17% last year after hitting its lowest since March 2009 on Wednesday. Crude, gasoline and heating oil were the biggest losers in 2013, the index showed.
Crude oil prices dropped sharply as a spike in US shell drilling resulted in the largest inventory at least in three decades, especially in view of poor demand, while the Opec showed reluctance to cut output, effectively declaring a price war not to cede market share to those outside the West Asian oil cartel. Brent crude dropped 48% to end the year at $57.33 per barrel, while the WTI crude also lost by around a half. Gasoline prices, too, declined 48%.
The dollar climbed to the highest level in more than five years as a US recovery spurred speculation that the Federal Reserve will start to raise borrowing costs this year. Commodities will probably be volatile in 2015, with crude oil poised to extend its slump, according to Australia and New Zealand Banking Group.
China, the world’s largest buyer of copper and iron ore and second-biggest energy consumer, saw its factory output hitting the lowest in seven months in December and was widely expected to head for the slowest economic growth since 1990 last year. An interest rate cut by its central bank in November, the first since 2012, to spur consumption didn’t seem to help much, while its property market slowdown was stretched beyond expectations. China’s crackdown on commodity financing earlier last year in a bid to curb circumvention of its lending rules further discouraged its local traders to import in large volumes. Moreover, with the European economy still struggling to recover completely from the financial crisis, analysts don’t see demand picking up significantly any time soon.
Nickel rose the most among metals, gaining 9% to $15,150 a metric ton on the London Metal Exchange after Indonesia halted ore exports. Both commodities rose in the early months of 2014, before dropping in the final quarter.
Deutsche Bank last month cut its 2015 forecast for Brent to $72.50, down from an October prediction for an average of $88.75. Goldman Sachs Group expects brent to average $80 to $85 a barrel in 2015, while WTI may trade at $70 to $75.
The Bloomberg Dollar Spot Index, which tracks the US currency against major peers, advanced 11% in 2014 amid speculation the Fed may raise interest rates in the third quarter as the world’s biggest economy improves.
Gold prices, which had hit a four-year low in December, dropped 1.5% in 2014, compared with an average yearly rise of 12% since 2000, as investors sought refuge in the relative strength of the dollar.
After a 41% drop in 2013, investors also trimmed gold holdings by 11% in the world’s biggest exchange-traded fund, SPDR Gold Trust, last year.
While many, including Societe Generale, Goldman Sachs Group and Credit Suisse Group, have forecast further fall in gold, only a few like Australia & New Zealand Banking Group Ltd have projected the precious metal to regain its lost glitter in 2015.
Copper lost 14% in 2014 amid prospects for waning demand from China. Latest data by the London Metals Exchange showed copper inventory was at its peak since May.
Aluminum, lead and zinc also saw losses on the LME, although nickel and tin gained last year. The LMEX index of six metals dipped 7.8% in 2014.
Similarly, lack of demand for steel in China has dragged down iron ore demand, with the raw material with 62% content having lost 47% in 2014 to $71.26 a dry metric tonne.