Jim Rogers: Commodity bull market hasn’t gone away

All about supply and demand

While equity traders took a break from selling, Wednesday was another bloody day on commodity markets.

After a tepid attempt at a comeback on Tuesday the base metal complex fell again on Wednesday.

In New York trade copper for delivery in December dropped more than 3% to a low of $2.22 per pound or around $4,895 a tonne, the lowest since July 2009 and down 30% over the past year.

On the LME, three-month nickel continued to slide losing touch with the crucial $10,000 a tonne level and closing down 2% at $9,570 a tonne. Nickel has defied all expectations and is now trading down nearly 40% since the start of 2015.

Like nickel hopes have been high for stronger lead and zinc prices this year thanks to dwindling supply and stockpiles. Instead the metals moved deeper into bear territory with zinc touching a five-year low of $1,686 a tonne and lead prices dropping more than 2% to $1,648 a tonne on Wednesday. The same fate befell aluminum which declined 1.7% to $1,531 a tonne, not far off six year lows hit on Monday and more than 20% since hitting high above $1,900 in May.

Oil was weaker again on Wednesday with West Texas Intermediate trading at a shade over $39 a barrel and Canadian benchmark oil hitting mid-$20s thanks to a widening discount of $14.90 to US crude.

The price of iron ore held up relatively well, staying above the $50 a tonne mark for the sixth week. At $53.10 on Wednesday the steelmaking raw material just managed to hold onto a bull market trading 20% above record lows hit in April.

The current bout of weakness has been blamed on an economic slowdown in China and the aftershocks of a 40% fall on its equity markets over the course of a few short months.

The country forges almost as much steel as the rest of the world combined and China represents more than 70% of the seaborne trade in iron ore and imports roughly 40% – 50% of the world’s base metal production.

Veteran commodities investor Jim Rogers told the BBC’s Radio 4 on Wednesday that while he doesn’t see another China “in his lifetime” he also become one of the first Wall Street sages to begin talking about a bottom for the commodities markets.

Rogers, who co-founded the Quantum fund with George Soros, repeated the old adage that “the best cure for low price is low prices.” Rogers is based in Singapore and spoke to the BBC from Nanjing in China on Wednesday:

“As far as commodities are concerned, it’s about supply and demand, and you’re having huge cutbacks in supply. We’re already having supply problems in some agricultural products and we’re going to have problems with oil products.

“So I don’t think that the bull markets in commodities have gone away forever, because supply is going to be an [issue]. You can have a bull market with flat demand or even declining demand if supply is not there,” he said.

Asked about the time-scale for a recovery Rogers re-iterated his views on farming output and crude oil thanks to “frackers going out of business”, but said due to the “massive expansion” of iron ore supply low prices may be around “for some time”.

As for the stock market falls in Shenzen and Shanghai, Rogers says he’s happy Beijing has stopped trying to intervene in the markets, which is on its way to “finding a good bottom.”

Listen at BBC4 Radio (interview starts around the 17:15 mark)