Monday, October 20, 2014

Commodity prices going lower due to lower demand

Some market commentators have expressed a hope that weaker commodity prices, primarily in USD terms, will provide a consumption boost. 

This assumes that commodity prices are softer because of oversupply. I would suggest that the market is ignoring the obvious – that commodity prices are softer due to weak demand. If this is the case, then I see no reason to expect a material bounce in consumption from weaker commodities (other than perhaps at the margin in the US), and as such I see no reason why the price of some commodities cannot continue to fall. Crude may be different as US $80 a barrel is roughly where the world’s big swing producers start to see their profitability vanish.