Headwinds set to persist

Commodities are extending their generally poor performance into a third successive year. Concerns about the early withdrawal of monetary stimulus at least are overdone, even though there may still be another bout of nerves when the Fed does start to taper its asset purchases. But other headwinds will persist, or strengthen. The recovery in global economic activity is likely to remain subdued, with China in particular facing a prolonged slowdown. At the same time, the supply of many commodities should rise sufficiently strongly to meet higher demand even at (much) lower prices. Rounding off the negative picture, investor enthusiasm for commodities as an asset class is at a low ebb.