Destruction? Obstruction?“Demand Destruction” so it’s said of the collapse in commodity prices.
The world breathed sighs of relief when the cold war was over. The need for thousands of nuclear warheads pointing in both directions no longer existed. The demands for uranium to produce more weapons were “destroyed” along with dismantling of those warheads to convert to fuel for power generation. Those two elements combined drove uranium prices to the ground for a long time afterwards.
But what has the current financial storm really destroyed?
Supply Side:
Resource projects everywhere are being scaled back or cancelled. Although resources in the ground cannot be destroyed but companies without the financial strength will disappear. The net result is the loss of supply capacity in the coming years following the dissipation of the current crisis.
Demand Side:
Are North Americans giving up their love for automobiles? No evidence yet! When this is finally over, demands for them will rise back to normal levels.
Has China done with their plans to industrialize, urbanize, and mechanize? Far from it, and so is India and all other developing countries.
The demand is still there but currently being held up by the Obstruction to credit flows necessary for commercial transactions to take place. Once this credit freeze starts to thaw, the appetite for fuels and raw materials will resume to previous levels and keep growing as far as we can see due to the expanding middle class and global population as a whole.
This demand reversal will happen much quicker than the development of additional supply of raw materials, which has time lines of years to decade long. Not hard to see – another supply squeeze and price boom in everything that is fuel, raw material or fertilizer.
Don Coxe had this opinion on the future of commodities during an interview with BNN:
“We are cancelling capital spending projects in all directions ……because of what has been done to arrest the process of response, and the next bull cycle will make the first one look somewhat tame.”
Another video worth watching:
https://watch.bnn.ca/#clip124280
“Don Coxe, Global Portfolio Strategist for BMO Capital Markets.
Coxe, a historian and lawyer, served as associate editor of the National Review magazine in New York, practiced law in Toronto and has been chief executive of a Canadian investment counselling firm, research director and strategist for a leading institutional dealer, a strategist on Wall Street and CEO of Harris Investment Management Inc. which, in 2005, was ranked No. 1 overall as the best-performing mutual fund organization in the United States.”
Quoted from The Toronto Star
KT