As the market turmoil starts to dissipate, the commodities market, along with related exchange traded funds (ETFs), may be assisted by China’s desire to hoard basic materials.
The current surge in commodity prices maybe a result of strong purchasing by China, but most of the buying has been to build stockpiles. This kind of buying isn’t seen as sustainable in the long run, reports Keith Bradsher for The New York Times.
Commodities and shipping executives note China’s recent purchases of commodities that include iron, aluminum, copper, nickel, tin, zinc, crude oil, canola and soybeans. China is storing these commodities for several reasons: in anticipation of higher prices in annual contracts, for strategic reasons or to insulate domestic producers from any potential falling global prices.
J.P. Morgan (JPM) calculates that China’s iron ore imports were 33% higher in April year-over-year. Crude oil imports were up almost 14%, aluminum oxide imports were up 16%, refined copper imports jumped 148% and coal imports climbed 168%.
There are some economists that are bullish on commodities, citing the eventual recovery of the U.S. and European economies, while others think this is just the beginning of another commodity bubble. Whatever it is, watch the trend lines for signals.
- PowerShares DB Base Metals (DBB): up 30.3% year-to-date
