There have been several instances wherein observers affirming the end of commodities over the preceding months. Yet, also has been a hold back in China and other emerging economies which resulted in lost faith among many investors. Barclays projected that there will be an estimated $63 billion worth of commodity investments that were removed in the second quarter alone.
Analysts were able to conclude that the quicker infrastructure development and accelerated investment in the property sector were motivating force behind the high level demand and production of steel.
China is no longer exporting steel to an unnecessary degree and steel inventory levels are experiencing a decline indicating a real increase “off-take”. However, there was a growth in the Chinese steel year-on-year production at 10.4pc.
The Bank of America agrees in so far as the stronger-than-expected steel sector in China’s ongoing government investment in infrastructure and expanding iron ore supplies for a lesser cost for producers. This turn of events should continue to encourage China’s iron ore imports and therefore dry bulk freight demands over the next few years.
The present drop in prices is perhaps caused by hubris in the executive suites among the leaders in the mining industry. The expansion in commodity means more profit soaring much more than what it seemed like a relentless spending extravaganza as well as spending astronomical sums on acquisitions. This unavoidably led to an excess of supply and series of write-downs.
Investment decisions in the mining district were significantly very different from those in most other businesses mainly because of their respective long-term nature. It can take an estimated 10 years or more to get a valid mining permit, set-up construction and get the products to the market and by than span of time, the market is probably a much different place. The long-term fundamentals that provide the theory still remain unbroken with the global population growth will persist to rise despite the economic cycle being rather erratic.
Even copper is looking to experience a substantial surplus with more metal being mined than what is actually demanded. This basically means that we are most likely to experience a leap in price of basic materials although trading will remain to be highly volatile in the succeeding months.
Presently, investors are now halted by a difficult choice with regards to their commodity investments. Each of the metals mined have their specific outlook in terms of supply. Investing in commodities are considered profitable, however they still need to be wary in their decision making.
The price of gold
The ongoing tensions over the Syrian conflict pushed gold above the $1,433 an ounce this week with its highest level since the second quarter. The metal’s safe haven was an appeal which the Prime Minister considered a defeat in the Commons over taking military action which still resulted in the weaker price of $1,395 against the even lower price of $1,180 during the mid part of the second quarter.
The US Federal Reserve’s possible announcement of tapering its massive quantitative easing efforts in the coming weeks ahead, furthering the upside at this point is seemingly restricting the limitations. Despite the given circumstance, many analysts are optimistic that the worst period of selling gold over the past decade is finally coming to an end.