Is the commodities boom over?

[CamKawa]

The commodities boom is over for perhaps the next ten years or so. Lets take a quick walk down memory lane to remind ourselves what's happend in the past.

"The Great Depression of the 1930s was an economic catastrophe that severely affected most nations of the world, and Australia was not immune. In fact, Australia, with its extreme dependence on exports, particularly primary products such as wool and wheat, is thought to have been one of the hardest-hit countries in the Western world along with Canada and Germany. Unemployment reached a record high of almost 29% in 1932, one of the highest rates in the world."

...

"Falling export demand and commodity prices placed massive downward pressures on wages, particularly in industries such as coal mining. Due to falling prices, bosses were unable to pay the wages that workers wanted. The result was a series of crippling strikes in many sectors of the economy in the late 1910s. Coal miners' strikes in the winter of 1929 brought much of the economy to its knees."

Source: http://en.wikipedia.org/wiki/Great_Depression_in_Australia

 

[Reealjrd]

Hello All,

Here i would like to say that the currenct commodity market is not for trading each day and keeping any long term position. Present market conditions say that just book profits if trading and take trades if seeing any market movements.

 

[metric]

its a worry..

got gold or silver in convertable size....?


.

 

[sam76]

Goldmans Bullish On Commodity Prices
FN ARENA NEWS - 17/10/2008


No surprises - Goldman Sachs' global economics team has downgraded its global growth forecast for 2009 from 3.7% to 3.0% and the commodities team has thus been swung into action for downgrades of its own. The credit crisis is obviously the driver, and the analysts note ongoing uncertainty on the credit front means ongoing downside risk to commodity prices.

But this story has a bullish end.

There are two reasons why commodity prices have fallen as far as they have to date. The first reason is they were too high. If oil is the benchmark, the ridiculous speculative bubble experienced earlier this year is just another example of leverage gone mad and a classic tale of "upside panic". The bubble burst when it was obvious a point of demand destruction had been reached in the US, and thus there was nothing surprising about the fall back from US$147/bbl to the US$100 level as speculative positions retreated.

Buy today we are at US$70. The second reason oil has fallen is due to the sudden panic about a global recession, brought about by the last gasp throes of a dying credit market. All in the last month, more or less. While the two are obviously related, it has been rather unfortunate for oil investors that fears of economic weakness have intensified right in the middle of a deleveraging process of the grandest scale ever experienced. Other commodity prices have experienced a similar rout. At the beginning of 2008 commodity investment funds were the preferred alternative to investment to a volatile stock market, and now that money is leaving in droves as well and escaping into cash.

The stock market went first, the commodity market has followed. Selling begets more selling. But just as surely as the sun rises in the east and sets in the west, commodity prices will overshoot to the upside and then overshoot to the downside. So while the Goldmans analysts are forced to bow to current market volatility and thus the risk of more short term weakness, they suggest:

"Nonetheless, we believe that the point of maximum demand weakness for many commodities and especially for oil is likely occurring right now while the credit markets are frozen. These credit conditions have generated severe dislocations in the commodity markets, in some cases substantially depressing demand far below where weak economic conditions would suggest."

And thus Goldmans suggests that once credit market tightness and general fear abates, so too will the intense selling pressure on commodities.

The analysts have been forced to significantly rein in their 12-month price forecasts, conceding that they had underestimated the potential severity of the economic slowdown that will be derived from the freezing of credit markets. However, they also note that even after making such downward revisions, prices remain historically high.

This could be put down simply for the "stronger for longer" theme, otherwise known as the China Story. Chinese demand is now expected to pull back, but there was always two sides to "stronger for longer". The other is global under-supply. There are supply constraints across the globe from China to South Africa, from South America to Russia. And in Australia. These constraints will remain in place even as demand weakens.

"As a result," says Goldmans, "it is likely that the supply constraints that have propelled commodity prices to record-high levels in recent years will likely be even more binding as the credit crisis resolves and as economic growth regains positive momentum. This suggests the potential for substantial upside from commodity investments in the medium-to-longer term."

A combination of fear, destocking and supply disruptions has sent oil demand crashing, the analysts note. Oil demand has likely fallen 10% in only the last week but underlying GDP weakness would imply only a 3-4% reduction in demand, they suggest. This provides the capacity for a market rebound "much stronger than it has been historically". There will not be the usual inventory overhang because tight credit is a disincentive to store oil.

Having said that, Goldmans has reduced its 2008 year-end price forecast from US$115 to US$70, and its year-end 2009 price from US$125 to US$107. This sends it 2009 average price forecast down from US$123 to US$86.

The analysts reiterate, however, an earlier warning that while credit markets remain in turmoil oil could trade as low as US$50 in the near term.

On the base metals front, Goldmans notes that nickel, zinc and lead prices had already come down a long way ahead of the latest financial cataclysm as demand from OECD nations, particularly the US, had subsided. This is what they expected, and they also expected copper and aluminium to hold up given supply constraints. But now copper and aluminium have been hit too.

Goldman's economists believe that the recent moderation in Chinese economic growth will now continue into 2009. They have downgraded expectations for domestic demand, construction, industry, exports and fixed asset investment. All of these have an impact on metals prices. Copper remains the most vulnerable, as it remains the only metal still trading substantially above its marginal cost of production, the analysts note.

It is Chinese demand that to date has held metals prices above historical levels. Demand for copper, for example, has been driven by a strong Chinese real estate market. But growth in real estate, and also manufacturing, has begun to abate.

The good news is that Goldmans nevertheless believes a bit of a fall in what were strong real estate prices is not a bad thing. With softer prices but generally rising incomes in China, the analysts expect demand for real estate to recover in 2009, which will in turn lead to increased demand for base metals towards late 2009. Assistance was also be provided by lower Chinese interest rates in response to the easing of the inflation threat.

Goldman's new 12-month base metals price forecasts are US$2600/t for aluminium, US$6625/t for copper, US$1525/t for lead, US$14375/t for nickel, and US$1640/t for zinc.

But the Goldman Sachs analysts remain long term base metal bulls.

They are looking for long run infrastructure growth in China, with the focus now moving to the underdeveloped central and western parts of the country. These areas will provide the next phase of real estate and general infrastructure growth, the analysts suggest.

On a more general note, ongoing urbanisation, demand from the vast population for manufactured goods that were not part of the "comsumption basket" as little as a few years ago, and subsequent industrial production of manufactured goods will underpin a robust pace of growth and support base metals demand.

While all the above is going on, China will continue to suffer from mature and overstretched production infrastructure, ongoing supply disruptions and marginally high costs of production. This is the supply-side factor that will also be supportive of commodities prices.

Despite dropping forecast prices, Goldmans is still expecting a net 10% return from metals investment in the next 12 months.

All is not lost. It's just a rocky road.
http://www.sharecafe.com.au/fnarena_news.asp?a=AV&ai=10611

 

[seasprite]

Goldmans Bullish On Commodity Prices

Having said that, Goldmans has reduced its 2008 year-end price forecast from US$115 to US$70, and its year-end 2009 price from US$125 to US$107. This sends it 2009 average price forecast down from US$123 to US$86.

The analysts reiterate, however, an earlier warning that while credit markets remain in turmoil oil could trade as low as US$50 in the near term.

I doubt if they could convince OPEC of these revised forecasts , I guess we will see on the 24th Oct.

 

[rederob]

Everyone said that the commodity boom would have a few rough edges.
Unfortunately it's copped a beauty with the financial market meltdown.
It's hard to see commodities being much above cost of production in near to medium term as buyers dry up and stock accumulates.
However, you need to bear in mind that despite the US being in slumber mode for over a year, only nickel and aluminium stockpiles have returned to historical high levels.
Copper, lead and zinc have low stockpiles by historical standards.
Zinc is trading below cost of production, so I can't see stockpiles rising greatly as producers are putting projects on care and maintenance.
Lead is a byproduct metal, so if its brethren decrease in output, its price could rise despite the doldrums we are in.
Copper demand from China remains robust, but it's hard to see it gobbling up what others have now passed over.
In a few years time the commodity bull will again roar into action.
It will then have every nation on earth ready to reinvest and consume like never before.
My strategy is to get into many "producers" late into 2009 and see if I can surf a building wave of pent up demand.
In the interim I am going to target a few oil producers as by 2010 we will see a return of plus $100 prices for good... and a launching platform to $200 as peak oil kicks in.

 

[Glen48]

Ch 10 News to night did a survey 85% of voters reckon things will get worse

 

[noirua]

OPEC have brought forward their meeting to discuss oil output.

 

[Sean K]

Ch 10 News to night did a survey 85% of voters reckon things will get worse

Time to back up the truck...

 

[sam76]

But there's also been a rush of roving capital out of the market. According to the latest data from Hedge Fund Research, third-quarter hedge fund redemptions hit a record-high $210 billion, spearheading an exodus wealth that burst one of the biggest commodities bubbles of all time

http://www.marketwatch.com/news/sto...x?guid={D4E24BFF-BDC4-4B75-9C98-D06DD1C80A5F}

The voices are getting stronger.

I've got (had) a fair bit in commodities so i hope she rebounds...

 

[noirua]

At some point a recovery will come. Maybe not anywhere near the US$ peaks seen this year. Anyway, it's more what the price equates to in AU$'s.
Time to do research and work out which companies are going to do better in local currency terms.

 

[seasprite]

Ch 10 News to night did a survey 85% of voters reckon things will get worse

Of course that would be the answer, simply because the circumstance has been weighted to what the media expect.
If you kick someone in the groin then ask them if it hurts , you expect one answer only as the majority answer.

If Ch 10 asked the same question when the economy was performing well . 85% would probably say , "it can only get better".

Media profit on gloomy stories and gossip simple as that.

 

[lcl999]

Yep. The boom's over.

It all seems like a replay of the 1969 nickel led boom and 1970 crash.
Back then everyone was playing the market, even taxidrivers.

 

[seasprite]

NEW YORK (CNNMoney.com) -- The price of oil rose Friday, after slumping to a 13-month low in the previous session, as investors viewed rising stock prices as a positive sign for energy demand.

Light, sweet crude for November delivery rose $2 to settle at $71.85 a barrel on the New York Mercantile Exchange. That's down 50% from crude's July peak settlement price of $145.29 a barrel.

On Thursday, the contract settled at $69.85, the lowest level since Aug. 23, 2007.

The oil market has been dominated by concerns that a prolonged economic slowdown would curb demand for energy. But some traders now say the price of oil has been driven down too far.

"The market is very oversold," said Peter Beutel, oil industry analyst at Cameron Hanover in Connecticut. "Now that we're out of the meltdown phase, the market is starting to look ahead."

Meanwhile, stock markets in Europe and Asia rose Friday. On Wall Street, the Dow Jones industrial average was up nearly 1% with about one hour left in the session.

Many oil traders see rising stock prices as a sign that economic conditions are improving and that energy demand may recover.

At the pump, gasoline prices fell another 4 cents overnight to a national average price of $3.04 a gallon. Gas is down more than 25% after soaring to an average of $4.11 in July.

As gas prices retreat, households should have more money to spend on discretionary items. That could help speed an economic recovery since consumer spending makes up two-thirds of the nation's gross domestic product.

OPEC: The market was also digesting a surprise move Thursday by the Organization of the Petroleum Exporting Countries to hold an emergency meeting earlier than it had originally planed.

OPEC member countries control two-thirds of the world's crude supplies, and analysts say its decision belies a desire to put a floor under the rapidly declining price of crude.

"OPEC is starting to panic," Beutel said. The cartel is expected to cut production by as much as 1 million barrels a day, he added.

But Beutel thinks a production cut by OPEC will not have a significant impact on the price of oil given the current outlook for supply and demand fundamentals.

"They're going to fail at keeping the price where they want it," he said.
+++++++++++++++++++++++++++++++++++++++

An outlook/prediction is only an opinion.
Fact is , OPEC are very concerned about the oil price drop and fact is they want results now not next month.

 

[alex arigo]

no where near over listen to jim rogers the master of commodities this bull run has a long way to go we just started this is only another short term pull back and remember this is the chinese century

 

[agro]

no where near over listen to jim rogers the master of commodities this bull run has a long way to go we just started this is only another short term pull back and remember this is the chinese century

not to mention pull backs are normal within a bull run

 

[jonojpsg]

You've got to take things into perspective here - current developed world population is what 1.5 or 2 billion. That leaves hmmm, let's see, oh yes about 5 billion people, most of whom are probably pretty keen to get their hands on some of what we've got. Even if they don't want the flat screen tvs and fancy cars, they most definitely want electricity, running water, houses, washing machines, etc etc.

Given the current capacity of the worlds mining companies to produce and the lead times in getting new production up and running, let alone the issues of finding new resources, there is no way that commodoties can return to historical levels, at least not for more than maybe a few months, year at most.

Interesting article from NY Times by Jared Diamond talks about the factor of 32 - which is about how many times our consumption is compared to developing countries!!! That gives a real picture of what commodity prices are going to do over the next twenty - thirty years.

http://www.nytimes.com/2008/01/02/opinion/02diamond.html?_r=2&pagewanted=2&oref=slogin

 

[rederob]

From a price perspective the commodity boom is dead for this cycle.
From an inventory perspective base metal stockpiles are failing to build at the pace one would expect in such a recessionary phase.
The Shanhai exchange saw copper and aluminium stockpiles decline slightly, zinc steady, and fuel oil drop by a massive 15%.
LME inventories are on the rise, although several metal's stockpiles remain at long term low levels, viz. copper, zinc, and lead.

We are now at an interesting crossroad, as mine closures across the globe are on the rise. Any expectation of metal stockpiles rising rapidly are likely to be dashed, because the cost of production is too often greater than the price sold.
This situation is markedly different to the phase leading into the bull run. For many years we had a benign global economy that enabled marginal producers to eke out a living on stable but low metal prices.
Now, almost overnight, we have prices fall through the floor: Miners need quickly to cut their losses or go broke.
Nickel is the odd man out in the present inventory build cycle: It appears to have strong warrantings from Norilsk, and few buyers. How long Norilsk will deliver metal below cost prices is anyone's guess.

Although early days, there appears a strong probability that the next bull run for commodities will commence from an exceptionally low inventory base. In such an environment the price moves upward will be stellar compared to the recent cycle.

 

[treefrog]

From a price perspective the commodity boom is dead for this cycle.
From an inventory perspective base metal stockpiles are failing to build at the pace one would expect in such a recessionary phase.
The Shanhai exchange saw copper and aluminium stockpiles decline slightly, zinc steady, and fuel oil drop by a massive 15%.
LME inventories are on the rise, although several metal's stockpiles remain at long term low levels, viz. copper, zinc, and lead.

We are now at an interesting crossroad, as mine closures across the globe are on the rise. Any expectation of metal stockpiles rising rapidly are likely to be dashed, because the cost of production is too often greater than the price sold.
This situation is markedly different to the phase leading into the bull run. For many years we had a benign global economy that enabled marginal producers to eke out a living on stable but low metal prices.
Now, almost overnight, we have prices fall through the floor: Miners need quickly to cut their losses or go broke.
Nickel is the odd man out in the present inventory build cycle: It appears to have strong warrantings from Norilsk, and few buyers. How long Norilsk will deliver metal below cost prices is anyone's guess.

Although early days, there appears a strong probability that the next bull run for commodities will commence from an exceptionally low inventory base. In such an environment the price moves upward will be stellar compared to the recent cycle.

good logic rederob - while there are many high cost mines closing there are quite a few cheaper producers still to come on line/ramp up next stages etc because they are past the point of no return with development.
But hell yes, keep a keen eye on prices and stockpiles for timing of your model playing out.

 

[dj_420]

How long Norilsk will deliver metal below cost prices is anyone's guess.
recent cycle.

Looks like they have already stopped rederob, several of Norilsk mines shutting down and been sold off:

http://www.bloomberg.com/apps/news?pid=20601081&sid=aRTcug1VJ7tA&refer=australia