Are Global Commodities Markets Getting an Advance Look at Peak Demand?

Commodities prices have been cooling recently, and fingers are being pointed toward China, Europe, and the US.

According to data compiled by Reuters, China's oil demand fell in April to its lowest level in six months. Implied oil demand fell 0.5pc in April to 9.31m bpd.

All of this has helped the price of Brent crude contracts to fall to around $112 a barrel now, compared with its high of $125.28 in December.

One-month futures in West Texas Intermediate (WTI), the US benchmark, are now trading at about $97 compared with their February closing high of $110.56. _Telegraph

Commodities fell to nearly two-year lows last week, measured by a widely used benchmark, prompting investors to ponder whether the massive rally that began in 1999 may be faltering.

China is cooling down at the same time the U.S. is struggling to heat up, clouding the outlook for the world's two biggest consumers. And producers of some raw materials have ramped up supplies enough to create at least temporary gluts, particularly if appetites falter. _WSJ

If the economies of the large importing countries are slowing, prospects for a renewed rally in commodities look unlikely.

How much of this tri-continental economic hiccup can be blamed on inflated oil prices? Certainly when oil prices rise above the level that markets can tolerate over the long term, demand destruction begins to set in.

More analysts are becoming pessimistic about China's near-term growth prognosis. If China is not able to pull the global economy, it is not likely that Europe or Obama's US can do much better.

SG Research highlighted both a slowdown in property investment and electricity consumption, with the latter indicating a broad-based deceleration in economic activity. Not only did the growth rate in total property investment more than halve to 9% year-on-year in April, but there are also now signs the property slowdown is spreading to consumption as well. Household appliances recorded the lowest growth rate among major retail categories.

Power-production growth — a figure frequently used as a proxy for the health of the wider economy — had almost stalled, growing just 0.7% in April. In SG’s opinion, this latest batch of data activity “scream out for easing.”

...It has been suggested before that current property curbs designed to slow the market will not be removed until the new government is in place, and the same goes for Beijing coming up with a substantial stimulus effort.

. Meanwhile, another wild card to distract Chinese leaders is the possible collapse of the euro and what this would mean for the competitive position of China, which ships approximately 20% of its exports to the euro zone.

CLSA in a new strategy note said a euro collapse is looking increasingly likely. Perhaps then, Beijing’s caution is warranted, as it is just keeping its powder in reserve for when it really needs it._Marketwatch

China is experiencing other problems of a political nature as well, which may create some blowback on the economy.

Only a few people are pointing toward an actual collapse in global commodities markets, but it would be wise to hedge your bets.