Article Analysis - Commodity Prices



Article Analysis - Commodity Prices

Introduction

The commodity prices have been bullish lately but recently due to global economic and structural changes there it has been observed that markets are losing their trends of being bullish and future outlook is very bearish. The cause of the price uproar was the robust economic growth experienced by China in 1999. The Chinese economy has been going through several structural changes lately due to which the orientation is diverting towards local consumption rather exporting goods and services. This structural transformation is going to hit the global commodity prices and markets. Experts at Deutsche Bank believe that these structural economic changes will be affecting the prices negatively and will create a downward pressure on the commodity prices (Kwok, 2013).

The strength of dollar will play a vital role in maintaining the prices of the oil market. Experts believe that traders who are trading in dollar will not be able to demand high prices for the commodities. Global players will be affected by the reduced prices which primarily include Olam, Noble and Wilmar. Although Olam has been investing in edible nuts business but it was not significant enough to provide a good future projection of its earning. On the other hand noble was hit by the losses in the agricultural segment. However some analysts believe that commodity super cycle will remain intact for another 20 years and these small downturns have been cyclical and are deemed normal within the super cycle which is prevailing currently.

China economy slowdown how it will get affected

Chinese slowdown cannot affect the developed economies in the short run. The only exception lies for the commodity exporting groups. China has been continuously on the verge of decline. Current growth rate clocked in at 7.5% as compared to previous year which was 7.7%. Initially it was believed the seizure of Chinese Powerhouse will be having a global impact on the developed economies. However this is not the case, Chinese growth is primarily dependent on the American and European Imports of goods and services. The decline in Euro zone and US economy had lead to decline in growth rates from double digits to single digit which was alarming. Chinese premier had initiated an investigation in to the debt structure of the government which had lead to grave concerns of the individuals which is to be believed is more that 25% of the GDP (Guild, 2013). It is suspected that Chinese economy might not be able to pay back those debts. This could also lead to surfacing of corruption and malpractices which means that the company has been able to develop. Commodity exporting countries will be affected greatly by the Chinese growth decline primarily due to decline in demand of commodities. The commodity prices have been falling and are expected to decline over the period of time. The growth in the developed world will turn around the Chinese economy because China is dependent on their imports. The growth in developed economies is ...