The start of the new year has been dominated by news stories on falling oil prices and plunging stock markets. Earlier this month a barrel of Brent crude oil hit a near 13-year low of just over $27. In terms of sterling, it was the first time since 2004 that you would have received change from a twenty pound note. A barrel of the black stuff hit a low of £19.64 last month.

The declines in the oil price have been huge, but not as marked as within the wider commodities markets. The Bloomberg Commodity Index is a broadly diversified price index covering 22 commodity futures in seven sectors.  These include: energy (oil & gas), agriculture (soybeans, sugar, coffee, corn, wheat), livestock, industrial (copper, nickel, zinc) and precious metals (gold & silver).

Given that China is the world’s largest consumer of commodities, its economic slowdown and falling demand is being felt on world commodity markets. We have seen that in the steel market with the Chinese dumping steel on European markets, driving the price down and triggering thousands of job losses in UK steel plants. The Bloomberg Commodity index hit a 25-year low which also represents the lowest reading since the series began in 1991. Commodity prices have fallen by around 25% y/y and by 48% relative to its recent peak less than two years ago. Meanwhile the recent low represents a decline of 69% relative to the record high in July 2008.