This link has been bookmarked by 1 people . It was first bookmarked on 23 Aug 2008, by Michael.
-
23 Aug 08
-
-
DURING the six months to the end of June commodities posted their best performance in 35 years, rising by 29%. In July they had their worst month in 28 years, falling by 10%. The slide continues: an index compiled by Reuters, a news agency, shows that prices are almost a fifth below the pinnacle reached in early July.
-
They cite various reasons for the recent drop in prices, chief among them the darkening economic outlook in rich countries.
-
Marius Kloppers, the boss of BHP Billiton, a huge mining firm presenting its results this week, argued that emerging markets were much more important to the firm’s fortunes than rich ones were. Developing countries, he said, consume four to five times more raw materials per unit of output than rich ones do.
-
As Mr Kloppers pointed out, emerging markets, and China in particular, now account for the lion’s share of growth in global demand for raw materials, and a good chunk of overall consumption (see chart).
-
The IMF expects developing countries to grow by almost 7% this year. That should be enough to keep demand for most commodities expanding briskly.
-
In terms of supply, however, the picture is more mixed. Farmers, encouraged by high prices, have been planting more grain.
-
-
The world’s output of industrial metals is also expanding, and prices have been dropping for over a year. But progress has been fitful. At many mines, the quality of the ore is falling as the richest seams are exhausted.
-
Mr Kloppers spoke of BHP’s woeful shortage of tyres for its huge trucks, big mechanical shovels, bearings and all manner of other equipment. Such bottlenecks have been hampering the opening of new mines and the expansion of existing ones.
-
The Chinese government has started to discourage the expansion of energy-intensive industries, including aluminium and steelmaking, in an effort to ease the burden on its grid. All this is hampering the production of metals around the world, and so slowing the fall in prices.
-
Nonetheless, the output of most metals is still growing much faster than that of oil—which is barely expanding at all. The oil industry, too, is suffering from shortages of equipment and engineers.
-
Despite a rise in American inventories, global stocks do not appear to have grown much, suggesting that buoyant developing economies absorbed most of the increase in supply.
-
Other factors also influence commodity prices. Some see commodities in general, and gold in particular, as a hedge against inflation, and so may sell if their fears about rising prices abate.
-
Commodities also tend to move in the opposite direction to the dollar, which has risen of late.
-
Would you like to comment?
Join Diigo for a free account, or sign in if you are already a member.