Monday, December 26, 2011
China is still the key to commodities
The macroeconomics say that you should not hold commodities in 2012. The headwinds are strong, but you have to adjust to China demand. China just keeps consuming. Over the first decade of of the century Chinese demand for many commodities has jumped:
This demand will not go away even if there is a slowdown in Chinese growth in 2012. Prices have moved up over the last decade so a fall will be in the cards if demand slows, but this should only be temporary. The other issue is that if the other BRIC countries are also growing which collectively adds to commodity demand. Simply put, the demand from the rest of the world will drive commodity prices not US or EU growth. For example, US demand for oil has been stable at a little over 19 mm bl/day while global demand has moved from 65 to over 70 mm bl/day.
Commodity investing is becoming another form of emerging market investing. Notably, commodity investing has outperformed emerging markets stocks significantly this year.