FN: Everybody is talking about commodities and a "new commodity Bull market". The general consensus is that the "China growth story" is responsible for this. Well, yes and no. Chinese demand has indeed picked up, but not because of growth. They’re hoarding.
Macro Man explains the Chinese "growth" miracle in The China Syndrome:
"Drilling down beneath the surface, however, we see a picture that is much less unequivocally bullish for commodities. While overall imports have barely started to recover in value terms, many commodity imports have absolutely skyrockjeted in volume terms. And at the end of the day, the inputs to China’s industrial and investment complex are based on volume, not value.
Macro Man ran a study looking at the import volume of four different industrial commodities, comparing it with the trend of 2003 through mid-2008, a period in which Chinese growth averaged 11%. (Data for coal imports only begins in December 2004.) The results were remarkable."
(The charts over at Macro Man are mind boggling in their implications. You need to see them for the rest of this post to be in context.)
FN: There is something else to consider as well. PRICES. In a free market economy prices are a signal relied upon by both producers and consumers to adjust their behavior on the margin. This is how both supply and demand constantly adjust in a relentless search for equilibrium. When demand exceeds supply the price adjusts higher. The signal to producers is to increase production and to consumers to reduce consumption. Rising prices therefore NORMALLY signal an expanding economy… in other words GROWTH.
Currently, demand has continued to plummet or stagnate for commodities. However, prices have rallied, with oil hitting $71 a barrel. This price is actually incredibly high if taken in a broader historic context… and even more absurd during times of economic crisis.
The question is, if not demand, what then has driven a bid into commodities?
The economic crisis, while clearly global, has severely stressed the