373. COMMODITIES OFFICIALLY IN BEAR MARKET
Lots of interesting developments which I will be posting on shortly, but its hard to ignore this week's major shift in sentiment. Oil is back to $120, but that's just one aspect of a broader sell-off:
Aug. 5 (Bloomberg) -- Global energy and raw-materials stocks fell into bear markets after plunging oil, gold, copper and wheat prices spurred declines in last year's best-performing industries.
[...]
"Commodities prices have hit a choking point,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. "With further evidence of slowing growth there'll be ongoing pressure on mining and resources stocks.''
[...]
"The perception that the global economy is slowing is damping demand for commodities,'' said Park Sehick, a fund manager at Hanwha Investment Trust Management Co. in Seoul, which holds $1 billion in equities. Commodity prices "will keep on falling from here,'' he said.Source
Sign of the times: GSCI index now down 20% from its high on July 3, 2008
Deutsche Bank heads for the lifeboats:
Deutsche Bank has called the top of the commodity cycle. The uber-bulls of the oil, food and metals boom have advised clients to take profits before the downturn engulfing most of the global economy works its inevitable effects.
Oil will slide back towards its "marginal production cost" of $60 to $80 a barrel; gold will slump to $650 an ounce as the dollar recovers against the euro; copper, lead and tin will slowly halve in price; grains will calm down as harvests in Australia and the Eurasian Steppe return to normal.
The report comes on cue. The CRB commodity index fell 10pc last month, the steepest one-month drop since the onset of the Volcker crunch in 1980. Most raw materials have been slipping for months. Crude was the last to turn after peaking at $147 early last month.
Deutsche Bank says this year's oil surge has been a quirk. Misjudging demand, Saudi Arabia cut output by 400,000 barrels a day (bpd). Several upsets hit the non-Opec bloc of Russia, Norway, the UK, and Mexico. Rebels caused mayhem in Nigeria. Global supply is now creeping back into surplus.
The Saudis are adding 500,000 bpd. Deepwater projects are coming on stream off the US, Mexico, China, and Africa. The Caspian is cranking up a gear. Non-Opec will add 2.2m bpd over this year and next, says the International Energy Agency.Source
by JD
posted by JD @ 4:35 AM
32 comments
32 Comments:
As always, please use the Name/URL option (you don't have to register, just enter a screen-name) or sign your anonymous post at the bottom. The conversation is better without multiple anons.
Thank you,
JD
I know I am just a small fish in a sea of knowledge...but I have seen my cheese prices drop dramatically in the last week. They were playing this little game with bids to keep the price up on the CME but when the product finally moved the price dropped like a rock and continues to drop day by day.
This so-called demand destruction is kinda false. I see it as the hot " Wall Street" money leaving because there are no justifications for the prices and now they will lose more money in commodities. Cash is now king until they can figure out where else to make 7%.
Ric
Oil prices only "appear" to be tied to commodities. The energy "input" cost(s) in production of grains and livestock are actually a very small percentage of total production cost.
Small as in - less than 10% of overall gross. The rise in grain and livestock pricing was more of a production "price correction" than a bubble. Granted crude oil price increases were the catalyst, but don't bank on grain prices falling to the extent that you will see oil prices fall.
Oil prices will drop like a rock mostly due to the fact that so many institutional investors were betting on a continued sinking dollar and putting their faith in oil.
The world thought.. wrongly... that oil was some sort of "magical" fluid whose value was somehow intrinsic vs the reality that oil only has value if the US economic engine needs it. The world forgot the axiom.... "If the US sneezes.. the world catches a cold."
Don't drop your grain or livestock positions yet...
Signed,
Missouri Farmer/Rancher
Bill H.
In case anyone wanted to know:
Revised CFTC data show speculators controlled nearly half of NYMEX oil futures. CFTC data also reveals one trader controlled 10% of oil futures on exchange.
So if NYMEX is "regulated" and non-producers are allowed to own 115 days worth of US WTI, i wondered what happens on "unregulated" markets, like the ICE.
Way to go futures markets.
That is odd... they are talking about oil futures so by definition 100% of oil futures were owned by speculators.
"The rise in grain and livestock pricing was more of a production "price correction" than a bubble."
Bill I tend to disagree. In the very near future prices are going to be lower than they were last year at this time. The justification for the prices still does not exsist. If the economy is slowing demand is too. The substantial jump in food prices from May to middle July were not warranted by demand...if they were the prices would still stay there. A 20% drop in prices in 9 days means things are correcting back to where they are suppose to be...20% of the world did not die or quit eating.
Ric
Yeah, sure, speculators have no role in the NYMEX. You see, the real supply/demand for oil caused it to surge rapidly to nearly $150, and now real supply/demand has resulted in a 20 percent decline in prices.
And when commodity funds start to bail, and prices sink back to $60 a barrel, speculation will have nothing to do with it....
MXQ: I can't get link to work....please fix, I wan to read....
cyclical bear market in a secular bull market. this is to comomdites what 1987 was to stocks.
please note this is the 2nd or 3rd time in 5 years the commodity bubble has supposedly burst
Secular bull market in commodities?
Raphael.
This is from articles sources.
--Some 26pc of the copper that ever existed in the Earth's crust has been lost, according to a Princeton study. We are exhausting our patrimony of resources.--
Thats a little worrying, the rate of exhaustion is that high?
I guess those nanoengineers better come up with stuff faster:)
Raphael
Raphael,
I would worry more about the price of your LCD TV going up than running out of copper. There are plenty of places to get copper from above ground already.
Raphael, copper is infinetly recyclable and most copper that has ever been produced is still in circulation.
Recycling copper is so profitable that druggies sometimes pipes or cables while they are still in use to get money for their next fix.
"--Some 26pc of the copper that ever existed in the Earth's crust has been lost,"
Lost, as in fissioned or fused into another element? Or sent into space?. Or lost, as in a dump somewhere? There is lots of copper in Arizona alone. All we need it to ignore the environmental wackos who think the entire West should be reserved for their personal vacation playground.
Actually, I did read long ago that a surprisingly high percentage of the "lost" copper is in shipwrecks. We do a really good job of recycling the rest.
Everyone,
Yes, I'm aware about most of mined copper being recycled.
Copper is a major industrial metal, and it was a little shocking to me we have mined 26 percent already, in such short time :)
We do however have a real looming crisis with rare earth metals, and things like indium, gallium, etc.
More mines in Canada are coming online, but some metal supply is rather tight, and markets are illquid since those metals are produced in tiny quantities, maybe a few hundred tons a year, which is small on industrial scale.
Unlike oil, which is a non-issue really, technology wise, oil can be replaced/substituted rather rapidly. Im just curious how we are going to deal with things that can not be substituted easily, such as rare, but very useful, metals.
Ari, why LCD? is that just a joke or some comment with substance? AFAIK, OLED tech barely uses rare materials, with most of them being organo-metallic chelates, and OLED is the future :)
-Raphael
It is well known that peak everthing-ers have a well developed domination of the web. There are many interesting articles on resource depletion which you will never read unless you browse the academic/trade literature - even if you do you may not be able to access them unless you are willing to pay or work in academia. Peakists are often very selective in what they choose to cite, or sometimes, as in the case of Matt Simmons, don't really understand the literature.
Anyway, for a quick summary of gallium/indium supply situation:
http://www.indium.com/_dynamo/download.php?docid=552
I'm afraid it is a trade group, but as they point out, geologists believe they both occur more frequently in the earth's crust than for example, silver, which is mined at a far higher rate.
Enjoy it while you can, yet another 'think tank' has decided that it'll go back up and even higher again 'soon'.
http://news.bbc.co.uk/1/hi/business/7549044.stm
soylent is right, I work for Network Rail in the UK, and we are fighting a war against criminals pulling signalling cables out of the ground and chopping lengths out to go and sell. Sometimes they get electrocuted.
Huge dump on NYMEX today. Sure, it has nothing to do with speculators liquidatng positions. Look out below. $60 a barrel? I think so.
secular bull market=long-term bull market.
Enjoy it while you can, yet another 'think tank' has decided that it'll go back up and even higher again 'soon'.
A supply crunch within the next 5 to 10 years -- scary. Particularly since Mercedes plans to eliminate petroleum fueled vehicles from its lineup by 2015.
If you had popped into peakoil.com in 2004, when I first joined, and announced that the crunch would happen in the range from 2013-2018, you would have been labeled a cornucopian and denialist. Which just goes to show how bad the slippage in the pessimist case has become.
As for the metals issue: That's the same ol' doomer bait-and-switch we've been laughing about for years. Whenever the petrocalypse starts receding, the doomers are always ready to jump ship to the next big disaster.
For balance, it must be stated that the report in question makes no mention of geological peak oil, being more concerned about geo-politics.
One guy called it more than a month ago from the Philippines no less, on both oil and commodities. check this links. while all the experts were saying "UP" he said watch for the collapse in prices. looks like he reads "debunked" too
www.nowpublic.com/world/high-oil-price-deception
www.abs-cbnnews.com/storypage.aspx?StoryId=123894
600 sqare miles of the most industrial land in the world turned off two weeks ago. in three weeks it will all light back up.
Two weeksw ago oil started to slide down.
Demand destruction in the USA is having an effect. Just as the giant shutdown in China must also have some effect.
Turning off industry so people can play games should prove to everyone that China is not a paper tiger. It also peoves that the rulers of China do not get their power from money.
This is significant because Many people claim China will not dump the US dollar because it will cost them.
The Chinese gov't obivously is not too concerned about money.
Re "peak everything", I've just learned about "Peak Holland", which occurred in 1617.
Prices of oil starting to bite in China too it would seem; Oil imports Down 7%
http://www.bloomberg.com/apps/news?pid=20602099&sid=aNa5UhWFYM1k&refer=energy
Iskanda
My bet is that Gold is going up as the USD crashes from the sub-prime meltdown which is only a third of the way through re-setting ARM's and all the other shit that is close behind. It has been going up against all major predictions but the fundamentals support it going through the $1000 mark soon. Now is a good buy. It will be taking its rightful place as the world currency again.
I also think as China comes back on line Oil will not go much lower if at all. The market is too tight for it to feel comfortable at $60 -$80. I see this as a necessary correction but oil is still on track for $150 by the end of the year (and I don't like that one bit).
Raphael,
Ari, why LCD? is that just a joke or some comment with substance? AFAIK, OLED tech barely uses rare materials, with most of them being organo-metallic chelates, and OLED is the future :)
That's my point entirely: it's a non-issue, relatively speaking. There are always substitutes and substitute products.
It's down to $114 today so far.
Anyways I just came by a report on peak oil from the U.S. Army.
I've only skimmed through it.
What are your thoughts on that reprt JD? You think the U.S. Arny has it right?
-Justin
seems some believe that 'china shut down' when in fact effects are limited to something like two and a half percent of industry.
other hand, effected industries such as "steel producer Beijing Shougang Group...ramped up output in the first half of the year so it could fill orders during the shutdown, and it shifted some production to a mill outside Beijing." (AP, 7/29/08)
nevertheless, even bringing production forward has not prevented china's rate of growth from slowing for four consecutive quarters. (FT, 7/17/08)
the world is slowly entering into a synchronized recession and i would not expect, at most, a short-lived pop in demand post-olympics.
which is all somewhat beside the point if speaking to financialized commodity prices that have more likely been reacting to a breakdown reversal in particular pair trading strategies such as long commods/sht dollar.
sorry,
should read; 'i would, at most, expect a short-lived demand pop...'
Talk about a bear market!
Do you see $60.
Oil down even with the bad, bad news out of Georgia.
juan,
It might be interesting if this article in Foreign Policy mag's projections for economic growth following the Olympics plays out in China.
http://www.foreignpolicy.com/story/cms.php?story_id=4368
Small, and probably unrepresentative sample, sadly.
All of the boomsters have been calling commodities a bubble under $20/barrel, $30/barrel, 50, 70, 90, 120 since pre911. All of which ended as a mild correction. It's going be the same this time.
We are only going to see a bust in oil price when there is a structural shift of oil to other viable alternatives or there is a GLOBAL deflationary great depression with 100 of millions worldwide losing their jobs and houses & a systemic collapse of global financial industry which the FED has been trying to prevent with cheap money created out of thin air.
Oh btw, GEOPOLITICAL tension is another critical factor (ie : 1973 ) which will boost the oil price to record level.
Russia to cut off oil to the west
Post a Comment
<< Home