Softening commodities as surge turns to slump
RT: Do you think this is the end of the commodities boom?OH: I think it is much too early to say. I think the fundamentals we have seen in the global economy over the last couple of years support commodities in the long run. What we are having right now is a bit of a reality check from investors with speculative length in these markets, I think, come to levels that were unsustainable. So we have seen quite a bit of scale back from investors at the moment.RT: What's changed so that silver is down 30 percent, oil is down 20 percent, things like coffee and cocoa are also off recent highs?OH: Yes, just the last week we have seen a couple of things happening. First of all the dollar has begun to strengthen again. The weakness we saw over the first few months of this year was one of the drivers behind commodities. But in general we have seen over the last couple of week, the statistics starting to turn a little bit negative, and the market has become a bit cautious about high energy prices and how long we will have before it starts to have an impact on the general activity level, and there are still worries about Chinese inflation. They are still rising and still tightening their monetary policy. So there is a shift from the supply side to worry about the demand slowing down.RT: The saying "Sell in May and go away" is proven to have contain some wisdom. What about this year, are we in for a bad summer?OH: Well it looks like it may be over before the summer at the speed we are dropping at the moment. We saw a similar selloff last year in May in oil, where we dropped something like 21 dollars, which is basically the same as what we dropped last week, and which led a lot of people to expect the worst was over, but clearly now, and it is the demand side we are reacting to now. So the ferocity of the selloff could mean its finished much sooner than expected.”RT: Oil prices have fallen back to where they were in March. But the MICEX is back to December levels, why are Russian equities being hit so hard?OH: Well from a commodity point of view its first of all the very high correlation to the oil price, that has done the main thing. So I mean there might be a little bit of uncertainty as well. We are approaching elections and so on, but the main reason is the high correlation to energy prices in general.”RT: Which do commodities analysts watch more closely, the US or China?OH: I think probably U.S. for the moment because we know that the demand in China has been strong and we are now seeing a slowdown in the U.S. on the gasoline demand especially. So this kind of synchronized growth that we had up until a couple of months ago seems to be stopping a bit. So initially US but obviously we are keeping a very close eye on China as well.