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By Benedicte Gravrand, Opalesque London:
Commodities stocks were at capacity in 2008 (i.e. everything that was produced was sold), commodities reached the top of their price range, inventories were low, people told Opalesque around the coffee table at Wednesday’s Jetfin conference on commodities and energy in Geneva.
Now, lower demand in commodities, the credit crisis and low inventories may lead to higher demand next year and price hikes – as production will need time to catch up with demand. The optimistic view for 2011-2012 is that stocks will be at capacity again. Although it is difficult to predict as commodity markets are unpredictable for day to day (swayed by politics, weather, GDP, inflation… which affect prices and demand).
But not everybody is optimistic.
Krom River: expect more commodity price shocks
Chris Brodie, founder of Zug, Switzerland-based hedge fund house Krom River (which used to be based in London), explained to his audience at the conference the way to understand commodity price behaviour:
- Commodities are mean-reverting - as they are priced off the marginal cost of production, which fluctuates due to the economic cycle, technological innovation, new discoveries and political events.
- Commodities, when supply-stressed, are priced off the marginal cost of consumption and experience price shock.
- Once consumption has bee...................... To view our full article Click here
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