Will Thrifty Chinese Kill the Commodities Boom?
The Chinese are known for being thrifty in business. They hate high prices. And this temperament may overwhelm the boom in most commodities, as is the case now in the prices of copper and rare earth metals.
China has become the world's most resource-hungry country. It has tremendous impact whenever it decides to control prices and production of commodities, whether scarce or not.
Investors are advised it is better to err on the side of caution.
"Although few are calling an end just yet, the risks of a commodities downturn are rising," the Bull News said.
"Yes it's the China story every time, but the Chinese hate high prices," John Browning, head of metals at Newedge, said, noting the Chinese will continue to build infrastructure "but they don't necessarily have to run to buy copper tomorrow."
The commodities boom has been chugging along since 1999. As a result, investors and traders deluged the commodities markets. Speculators, institutional and retail punters, even retirees all jumped into the commodities boom to grow their investments and take a slice of China's extraordinary growth story.
China's surging demand has propelled commodity prices for years now. It is a widely recognized driver of a 'supercycle' in commodity prices, the Asian Investor said.
Jim Rogers, formerly with hedge fund manager George Soros, doesn't see any immediate signs of the boom ending.
"(But) it doesn't mean that the commodities boom will last forever. Every asset-price boom in history has come to an end, and this one is no exception," the Bull News said.
Attesting to this is the story on copper prices. Like with most commodities, copper prices soared on the back of seemingly insatiable Chinese demand over the past decade. But it does not effectively mean that copper prices are destined always to rise. True enough, it has suffered a retreat.
Copper spot prices are currently trading at around $3,500 per pound. It ranged between $4,000 and $4,500 per pound from January until mid-August, at which point its price fell to $3,000 per pound.
"The supply of copper is finite. But then why do prices change? It's because of investor expectations and flows in the markets," Browning said.
"No boom in history has gone on forever, regardless of the underlying reasons for the boom in the first place. Everyone thought that the internet was going to change the world forever, and they were right. But that didn't prevent the Internet boom from busting one fine day in March 2000," the Bull News said.
The International Monetary Fund has downgraded earlier its outlook for commodities prices due to slower global growth. Chinese companies, on the other hand, are slowly experiencing slowing demand from China's supposed growing middle class.