Commodities were headed for the biggest weekly advance since 2012 last week. Pacific Investment Management Co. said the worst part of the financial collapse is likely over—a big help to mining companies. In response to the boost, Glencore Plc doubled from its record low set last month.
The Bloomberg Commodities Index jumped 4.4 percent this week, following a 10 percent boost in crude oil based on speculation that there will be an increase in demand. Zinc also rallied as Glencore (the biggest producer of the metal) announced plans to cut output by roughly a third.
Raw-materials saw a 16-year-low in prices in August and the rebound is easing pressure on producers who are struggling with high debts and reduced output and shelved exploration projects. Producers have had to stop projects from the Artic oilfields to copper mines in Africa in response to the downturn. “Those cutbacks will help put a floor under prices, according to Pimco, which manages $15 billion in commodity assets. The FTSE 350 Mining Index jumped 18 percent this week, the most in six years.”
Wayne McCurrie, who manages $8 billion at Momentum Holdings Ltd. in Pretoria, South Africa said, “Every single producer has been cutting capex, exploration, no one is building anything new. At some point we’ll start to get equilibrium between supply and demand and perhaps that point is now. The world has had an oversupply problem and oversupply never lasts forever.”
Glencore gained nearly 11 percent in London and has almost doubled from its lows on September 28th. While commodities have certainl showed gains, it remains important to consider the impact of other economies on the market. The largest example is the slowdown in China’s economy—the second largest in the world. The Chinese slowdown will continue to provide “headwinds to prices of industrial metals such as copper, zinc, and aluminum,” according to Goldman Sachs Group. China’s movement away from a, “metals-intensive, investment-led growth model will probably be permanent, damping consumption.”
While China’s demand has slowed, the demand for metal will continue to remain in spite of setbacks. However, being conscious of changes in global markets is important for investors. Understanding how the Chinese economic slowdown can impact stocks can help investors make an informed and profitable decision. If you’re interested in exploring new investment opportunities and want assistance in making the best decision for your portfolio, talk to an expert at Apex Financial Advisors today.