A comprehensive collection of scholarly, personal, and editorial articles relating to the growth and development of economic / political ties between China and South America-- with a focus on commodity rich countries in South America and commodity/energy markets.
When I woke up this morning and did my morning news reading there weren't too many stories that particularly stood out... If you wanted to describe the news this morning in one word, it would have to be gloomy.
I've assembled separate posts according to region and subject of the the “Gloom and Doom,” as Marc Faber says.
Until this past October / November when markets came crashing down all over the world as the US credit crisis exploded into a full blown global economic crisis it seemed as if nothing could stem China's insatiable demand for commodities.
However, once economic crisis spread to wealthy nations a chain reaction started.
First, consumers who had been eating up cheap Chinese exports for years decreased their spending as credit dried up. Less demand for goods produced by China's manufacturing sector would mean less Chinese demand for commodities.
Second, a slowing global economy produced a situation where aggregate commodity demand shrank around the world. It mattered little if a country is rich or poor, a slowing global economy would mean less demand for energy and metals.
Third, as economic problems continued to spread it became less and less likely the economic dragon of China would be able to ride the storm out. If a global recession occurred, China would find it very difficult to rely solely on their domestic economy and international currency reserves to keep things growing as fast as they had been from 2001-2008.
Finally (and this is a over-simplification), combine all facts and you get a situation where the future of the global economy is unpredictable. Meaning, no one really knows when Chinese demand will pick up again, no one really knows when the global economy will recover and therefore investing in metals and energy seemed foolish if recession would hamper demand in the near future.
That being said, a few interesting stories passed through the presses this weekend. The first two indicate demand is returning to the commodity markets in China, the second two tell a different story.
Baoshan Steel, Angang Steel, Wuhan Iron & Steel and Maanshan Iron & Steel. Four major Chinese steelmaker stock ratings where raised by Credit Suisse, which said improving demand will help raise steel prices (click here for Bloomberg LP article).
China National Petroleum Corp., the country's biggest oil and gas producer, said it plans to increase oil and gas production by 5% annually to meet domestic demand (click here for Bloomberg LP article).
China's State Electricity Regulatory Commission said demand and output in China will continue to shrink this year because of slower economic growth. China is the world's second largest consumer of energy.
If people are using less electricity it means one of three things. First, it could be a bad sign for the economy. It could indicate the Chinese are becoming more efficient / environmentally friendly. Or third, it may mean the Chinese are trying to save a few Yuan from the higher price they have to pay for the energy.
The correct answer in this situation I feel is the first. A slowing economy simply means less demand for energy. I don't doubt the Chinese are indeed adapting their growth strategies to be more environmentally friendly, but I don't think it is the reason their demand for energy is shrinking (80% of China's energy comes from coal). Last, I don't think it's because of higher prices, commodities after all have once again become very cheap (click here for the Bloomberg LP article).
I think the main idea to take away with you from all of this is that the market has no idea how to make up its mind and neither do the participants in the market. If and when the global economy does see a recovery, be sure you have some of your money invested in energy and metals, because demand will return and with a vengeance.
For a bit of perspective check out what Jimmy Rogers and Marc Faber, the guru's of commodity investing have to say.
Jim Rogers - Recession and Commodities in 2008
Marc Faber - Says He'd Favor Industrial Commodities Over Gold 2009 - P1
Marc Faber - Says He'd Favor Industrial Commodities Over Gold 2009 - P2
Bloomberg's journalists have been speaking with good old commodity guru's Jimmy Rogers and Marc Faber about commodities.
``I don't see that it's the end of the bull market,'' the chairman of Rogers Holdings, said in an interview in Bangkok before speaking at an investor conference later today. ``Until either a lot of supply comes on stream or the economy collapses, the bull market will continue,'' he said.
Soybeans, copper, platinum and crude oil have dropped from all-time highs after a rally in the dollar curbed demand for raw materials as a hedge against inflation and concerns increased that economic growth will slow. Sixteen of the 19 commodities in the Reuters/Jefferies CRB Index fell this month, after the index plunged 10 percent in July, the biggest such drop in 28 years.
``I am contemplating whether it's time to get involved in base metals again,'' Rogers, 65, said today. ``I haven't bought any for awhile.''
Gold fell to the lowest since October on Aug. 15, while platinum had the biggest intraday loss since 2001. Aluminum has dropped 18 percent from a record on July 11 and Nickel is down 26 percent in the past year.
Captivated observer and active participant in the growing exchange between countries in the Americas and East Asia.
Exhilarated by the process of identifying and growing local and international business opportunities.
Committed towards expanding my reality and nurturing a network of like-minded individuals and organizations from across the globe. Including but never limited to -- entrepreneurs, creative talent, educators, students, innovators, investors and new media journalists.
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