Because this time “it’s different”. Last night witnessed some aggressive rebounds in commodity prices thanks, in part, to a new Goldman note assuaging rising concerns for commodity prices emanating from the imminent Chinese slowdown. There are some days when Wall Street really does take the cake.
Buy the China led dip. The bullish commodity thesis is neither about Chinese speculators nor Chinese demand growth. It is about scarcity and the DM-led recovery. Prices retraced 3% after Chinese warnings over onshore commodity speculation, yet the fundamental path in key commodities such as oil, copper and soy beans remains orientated towards incremental tightness in H2, with scant evidence of a supply response sufficient to derail this bull market.
China has lost pricing power. The velocity of the DM demand recovery means that China is no longer the marginal buyer dictating pricing, as it is crowded out by the Western consumer. The market is beginning to reflect this, as copper prices are increasingly driven by Western manufacturing data rather than Chinese. This is a reversal from the 2000’s, with China now the incumbent consumer as the US was when emerging Chinese demand squeezed out marginal US consumers.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
