The problem is there is too much supply and the demand has not increased in proportion to the Output, these massive miners, BHP, Vale and Rio are pumping at full steam to compensate for the depressed price of the commodity. I think there need to be a little like OPEC.. Cut production ever so often to ensure price is kept up.
If they had such a cartel , who would determine the share of production , and the system could not bring itself into equilibrium , I think the commodoties fairly represent the fundamentals at the moment , with China in its sub 7% growth. Whats interesting is that India is fast growing and when they start to gain some momentum in the next 2 to 3 years , I think we will see a renewed commodity run
I agree, India will be the next area that should see a commodity boom.. Have been to India and they need trillions of dollars investment in infrastructure.. I think the world is overplaying the China story.. China is massive and if you see the commodity purchases it actually increased in volume compared to the prior period and since the reports are prepared on a value basis it skewed at the actually story.. ofcourse the value will be lower as the commodity prices lost >50-75% of there value in the year.. I think we should concentrate on the volume as that is more indicative of usage.
I think we must be careful to not look at quantity consumed in isolation, as due to the increase in consumption , there were alot of new supplier, miners etc , so the supply increased , and when comparing the surplus now it can be evident there is a slow down which results in a decrease in the value as such , What is needed is for the smaller mines to halt production ,what i would recommend is a structure as follows , fixed costs are unavoidable , so thats a sunk cost , cut production to the extent that variable costs are significantly lower, but keep labour as essentially labour is a fixed cost , get into refining and hopefully once the supply glut is decreased we see a turn around. Its a little ambitious I know , but sometimes we need crazy to create a change