During our morning calls we spend time analyzing a certain headline and dissecting it. We addressed the following questions today to the article mentioned above:
a. The very basic and fundamental reason for this statement is that the current economy status doesn't support the high commodity prices at this level, as recently pointed out by medias and many economists.
b. The stabilizing situation in middle east and decreasing world-wide demand have started pressing the commodity prices down.
c. Because of the big stake that GS has in the commodity market, it needs to start cutting its position earlier at the beginning of any risk arises.
d. Worrying about market speculation by hedge funds and world-wide hot money investors is also one of the reasons.
Japan mostly uses the Platinum Group of Metals in the auto industry. They are used as autocatalysts and catalytic convertors. However, the recent events in Japan have caused a downside demand for the platinum group metals. Moreover, in the electronic markets that use platinum quoting, there has been a 5% drop in the demand. On the other hand, the demand for copper in Japan has increased due to the need to rebuild infrastructure. As of 2010, Japan consumed 4.8% of the world's refined copper.
"The demand for PGMs, following the recent events, car production in Japan could be 5% lower than previously expected. Japan had been expected to produce around 9 million light vehicles in 2011 - the world's third largest producer - which would have required around 15,000oz of Palladium and 7,000oz of Platinum each week".
China is the world’s largest copper user. Demand for copper is surging as the nation plans to build more homes, autos and appliances and upgrade power-grid networks. However, the government is attempting to cool its economy, especially its real-estate market.
Because of government measures to tighten lending and curb inflation, China’s demand for Copper will slow in the second half of the year. The main contributor to the slowdown in China will come from the construction sector as the real-estate market cools. Chinese regulators curbed loans for third-home purchases, increased downpayment requirements and raised mortgage rates in a series of announcements since last year, so as to rein in spiraling property prices. China’s property prices climb at a much slower pace this year, according to China Information News, adding to signs government measures are taking effect.
Besides, the demand for copper may also be undeterred on concern that surging oil prices may slow economic growth.
Indeed this is a good article to discuss. Dispite what's in the article, I am bullish on the commodities markets.
Oil prices go up..... Opposition party in Libya can't able to export oil eventhough Qatar offered to market their oil
Oil prices go up...Some oil fields are Cut on fire in Libya
Oil prices go down.... OBEC decides to boost production.
The attach on the oil pipelines impacted oil prices and now the uncertainties in the currency market is impacting the price of gold and silver. JP Morgan has been widely tied to the silver story. The firm's short covering resulted in the price of silver sky rocketing to $40, resulting in a 121% change over the past year. According to an analyst, "there has been a statistically significant negative relationship between bank concentration and silver prices (96.4%). Every one percent decrease in concentration has resulted in a 40 cent increase in silver prices."
Take a look at the following U.S. Bank Concentration vs. Silver Price chart:
Here is a chart showing the price trend of silver:
Other companies per say have yet to react but reading some other articles and chatting with some investors, I get the feel that no ones buying into GS theory and are bearish on commodities. I believe the same mostly because there is an indirect relationship between commodity prices and the FX rate - value of dollar. And unless the Fed pulls back on the money supply allowing the Dollar to appreciate in value, commodity prices will continue to go up.