All commodity prices to decline in 2015

A new World Bank report has forecast a grim future for the global mining industry.

The new July 2015 Commodities outlook report explained that a combination of falling demand and oversupply of the major commodities in the market has created a perfect storm for the mining industry.

“All main commodity price indices are expected to decline in 2015,” it bluntly states.

This is “mainly due to abundant supplies and, in the case of industrial commodities, weak demand.”

It outlined an overall 17 per cent decline in metal prices across the board, although it pegged a 46 per cent fall in iron ore prices due to increased capacity coming out of Australia and Brazil.

This is little surprise for the market, following all the major, Rio Tinto, BHP Billiton, Vale, and Fortescue Metals Group, announcing record iron ore production levels, with few signs of slowing.

A sharp fall in gold prices has also now made approximately one in ten gold mines uneconomical, with little relief in the future.

The report stated that gold prices are expected to fall around 12 per cent, driven by the rising US dollar and a tightening in the country’s monetary policy.

This oversupplied market also saw the Macquaire Bank issue notes calling on the mining industry to cut supply, or face continued stagnation.

"Demand growth is now extremely stagnant. As a result, demand is only growing into installed capacity very, very slowly. The only thing that will now close the balance is supply cuts," the bank said in a research note.

These comments echo those of Glencore CEO Ivan Glasenberg and Deloitte.

Earlier this year Deloitte stated that a greater control over supply was needed in order to turn around the current period of correction.

Glasenberg has been heavily critical of miners, stating many do not understand the supply and demand market.

Speaking at the company’s annual general meeting in Switzerland, Glasenberg blamed falling commodity prices on overproduction by other mining houses.

"Unfortunately our competitors in the world have produced more supply than demand and commodity prices are down for that reason," he said.

"I'm doing my level best to convince my competitors that we should understand demand and supply.”

Staying true to his word, Glasenberg decided to cut the company’s Australian coal production by 15 per cent or 15 million tonnes earlier this year.

“We don’t want to be the ones forcing the price down with oversupply,” he said at the time.

In Macquarie Bank’s research notes, it stated that supply cuts, for the most part, have been non-existent.

“In a world of cheap money, not only is it cheaper to fund new capacity, but it is also easier to keep existing marginal assets going. Essentially, we have not let conventional economics work in this cycle — we simply have not seen enough hard decisions made by company boards or bankruptcies of uneconomic capacity," the bank said.

In terms of oil and gas “energy prices are projected to average 39 per cent below 2014 levels, whilst “coal prices are projected to fall 17 per cent due to weak import demand and surplus supply,” the World Bank stated.

It outlined a significant fall in Chinese imports of coal in the first five months of the year coupled with an increase in global supplies from new low-cost operations which further depreciates producer currencies.

However “pressures will be partly offset by rising demand in India and other emerging economics”.

Gas prices are also forecast for pain, remaining weak in all regions due to similar surplus supply, low demand, and low oil prices.

No major respite is expected from China in the future, as its “growth is expected to slow gradually below seven per cent by 2017 and beyond, with a shift away from industry-led growth towards more services-based growth,” the World Bank report said.

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