Endgame for commodity boom

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New Delhi, Aug 17: eight years. The automobile industry’s exhaust control equipment use 60% of the world production of the metal. Similarly, nickel futures at the London Metal Exchange are again pointing down by 2.20%. The only short-term exception is copper, taking on the effect of a slowdown in the world’s largest mine in China.

The most visible signs of the tanking of the global commodity cycles became visible in July as crude oil prices that had spearheaded the surge, eased by a massive 26% from its all-time high of $147 a barrel to touch $109 in less than a month.

That movement has now been mirrored in all commodities. The turnaround has been dramatic and almost sudden and has caught traders and government unawares. All global commodity indices, like the UBS Bloomberg CMCI Index of 26 raw materials, had advanced for six consecutive years. That index is now down 18 % since July 3. Speaking to FE, V Shummugham, chief economist at MCX, said, “For the last few months, due to volatility in the equity markets, too much of money was chasing the commodity markets. The price correction is now taking place and the commodity prices are going back to fundamentals.”

The two factors that had pushed commodity prices were the meltdown in the US equity markets that began last year and the boom in developing countries of Asia, basically China and India. But last week traders in China, the world’s biggest oilseed consumer, have dropped orders for almost 150,000 tonnes of palm oil and soybeans on weak domestic demand plus prices. This washout process, meaning dropping of orders when prices slip, has begun to impact big Chinese traders also, agency reports said.

A Bloomberg report said vegetable oils have dropped on China’s Dalian Commodity Exchange by 3.2% on top of a 4.8% earlier drop. This is a ten-month low. Similarly, palm oil for January delivery fell 4.2% down 28% in the past month.

Palm oil, which reached an all-time high of 4,000 ringgits in March, is now trading at just 2,600 ringgits per tonne in Malaysian exchanges, a drop of 35%. In India, too, the other major global consumer of palm oil, supply is comfortable with the government finding no takers for its 1 million tonnes of edible oil imports this month.