Eye on Commodity Prices

[Joanne98]

There was an interesting "buzz" on Minyanville on Thursday about commodity prices. Here goes from Minyan Peter:


Three things that caught my eye this morning:

The WSJ reporting that Valero (VLO) is cutting back refining output because of a surplus of supply.
Oil trading flat/down despite the announcement of a terrorist bombing of a major Iraqi pipeline.
The CME announced an increase in commodity trading marginrequirements.
While discrete events, all again raise the question of peaking consumer
commodity prices. Two things to keep in mind:

First, commodity price inflation has been cited repeatedly by the Fed as a concern. And given the view of many that the most recent price rises are a function of rampant speculation (versus fundamental demand) I would not underestimate

a) the pressure placed on the CME to increase margin requirements by banking regulators to curtail speculation

b) how stability in commodity prices (let alone price declines) opens up the Fed's ability to drop short term rates further without pummeling the dollar.

Second, while everyone will likely cheer commodity price declines as the savior of the US consumer, asset deflation, whether in housing, commodities or anything else is like Kryptonite to the banking industry. And don't forget, too, how much lending (particularly M&A related) has been done in the past five years in support of commodity related companies - particularly in Asia.

At least to me, commodity price deflation eliminates any notion of decoupling.
Death Spiral Becomes Born-Again Experience....Continued>>>
http://globaleconomicanalysis.blogspot.com/2008/03/eye-on-commodity-prices.html

The commodity bubble is bursting and it will hurt the banks.

[DJ13]

1. The commodity bubble is bursting and it will hurt the banks.

What a shame.

:sarcasm:

[Art_from_Ark]

3. I personally think that the news of the commodity bubble's demise

is greatly exaggerated.

Fewer new mines are opening up, older mines are tapping into lower grade ore, China, India and others are becoming major consumers, former supplier nations are becoming consuming nations and are reducing or curtailing exports of key commodity metals, and dollars and other fiat currencies are being printed like newspaper inserts.

[Zynx]

4. The problem is a global industrial slowdown led by the U.S., Europe, and Japan

will undoubtedly curtail demand dramatically. Together they are still the bulk of industrial output.

[Art_from_Ark]

5. The slowdown will be a blip on the commodities screen

I think it's very unlikely that the economies of the US, Europe, and Japan crash at the same time. The US will be hurting before too long, and I think that's why a lot of countries are trying to decouple from or at least reduce their dependence on the US economy. China and India will still be hunting for resources to satisfy their own domestic needs, and other countries are entering the picture as well.

[selador]

2. good on ya

i'm a futures trader, and i really enjoy minyanville. the commentary there is EXCELLENT. it is certainly light years ahead of your average prattle.

their emphasis on risk management, and sound emotionless trade management is also refreshing