“DEMAND hasn’t been bad,” Ivan Glasenberg, chief executive of Glencore, one of the world’s resource companies, told investors this month.

“Demand is still growing even in oil, iron ore and thermal coal. So why have prices come down? Well . . . we have all invested too much . . . and increased supply in a big manner.”

Supply has been the key narrative in commodity markets this year, determining the winners and the losers in everything from nickel to soyabeans.

It is the reason commodities are on course to be the worst-performing major asset class for a third consecutive year. The Bloomberg Commodity index has fallen 14pc in 2014 to a five-year low.

The asset class is expected to be the worst performer for a third consecutive year

It is a trend that could continue in 2015 with the big iron ore producers and Opec, the oil producers’ cartel, showing no signs of curtailing production, say analysts.

“It has been too convenient to believe that the main problem has been global GDP growth,” said Ed Morse of Citi in a recent report. “But increasingly, the supply side counts more as investment cycles are creating persistent gluts in some areas.”

The importance of supply can be seen in iron ore, the worst-performing big commodity of 2014.

A key ingredient in steelmaking, iron ore has dropped almost 50pc this year to a five-year low as new supply, primarily from mines in Australia, hit the market. That has overwhelmed tepid demand growth in China, the world’s biggest consumer.

Years of high prices saw the mining industry plough hundreds of billions into new projects to cash in on China’s seemingly insatiable appetite for steel.

Morgan Stanley reckons seaborne supply increased 12pc last year, or slightly more than 100m tonnes, as the big producers, BHP Billiton, Fortescue Metals Group, Rio Tinto and Vale, increased capacity.

But demand for seaborne material rose 9pc, resulting in a surplus of 157m tonnes.

Few analysts expect prices to recover in 2015 as more supply is introduced to the market. Fraser Jamieson, analyst at JPMorgan, said in a recent report: “A further 341m tonnes is expected to come on over the next five years . . . global demand moderating, we believe the market oversupply will deepen in the near term.”

Fears about a supply glut have also been partly responsible for the decline in oil prices, which are down 45pc.

Analysts say several years of oil prices above $100 a barrel led to a surge of new supply coming on to the market led by US shale production. Unless some of the output is cut, or demand recovers in Europe and Asia, analysts and traders are braced for a significant surplus in the first half of next year.

Mark Pervan, analyst at ANZ, said: “We could see a market surplus of 1.6m barrels a day”.

Rising supplies have also blighted the agricultural market this year. A bumper crop in the northern hemisphere has led to rising inventories and lower prices.

But supply has also been a key factor behind those commodities that have outperformed in 2014.

Nickel has been the best performer of the metals traded on the London Metal Exchange this year. Prices rose to a high of $21,625 in May after Indonesia bann­ed exports of the metal in an effort to boost its domestic processing industry.

In zinc, expectations of large mine closures have driven the metal to a 6pc return on the LME. This year, there was confirmation that Century, Australia’s largest open-pit zinc mine that started shipping the metal in 1999, would cease production in 2015.

But the difficulty involved in calculating supply has caught some out in the copper market. While the market expected a substantial surplus of the red metal at the beginning of the year, estimates of the extent of that surplus have been consistently reduced on news of mine disruptions and reduced output.

Traders say demand for many commodities is better than widely thought with some metals markets expected to see record consumption. Yet the boom days of soaring growth from China are unlikely to return.

Published in Dawn, Economic & Business, December 29th, 2014