Specialty commodities will not see global oversupply

Subject

Impact of falling commodity prices and dearth of capital on the resource sector.

Significance

The collapse of commodity prices over the past four years has led to large extractive businesses slashing budgets and overall costs while smaller companies have found it difficult to get financing. As operations experience depletion and costs increase, supply challenges are likely to emerge within the next two years, initially for minor commodities, then for more common ones.

Impacts

• Low prices will provide an opportunity to end-users to secure long-term offtake of raw materials.
• Pockets of capital such as private equity funds will capitalise on these opportunities prior to mainstream financial institutions.
• Major companies will wind down their cost-cutting cycles next year and will return as buyers and financiers.
• Overcapacity will remain a challenge for years for bulk commodities such as iron ore and coal.