Friday, January 16, 2015

Commodity Sell-Off Is A Demand And Supply Problem

This is over at

Demand is clearly contributing to the commodity sell-off.  After all, economies growing below potential obviously demand less of everything.  And with several regions experiencing economic problems (Russia, the EU and Japan), overall demand will be lower.  But there is also over-supply.  Shale oil exploded, adding to supply while also challenging the Saudi dominance of the oil market.  They responded as a classic oligopoly: crash the price to push out competition.  And copper is also over-supplied.  Producers invested heavily, betting on continued Chinese demand.  But as China has lowered their GDP growth projections, they are simply demanding a lower amount of raw materials.  The summation is that we’re looking at a demand and supply issue.