On 22 April 2015 in London VTB Capital held a roundtable breakfast discussion with members of the research team. This session posed the question: “Can commodities finally begin to bounce back in 2015?”
Wiktor Bielski, Head of London Research, and Neil MacKinnon, Global Macro Strategist, explored recent international trends and their implications for commodities markets, as well as for the wider global economy.
Neil MacKinnon said: “All indicators point to patchy, uneven growth in of 3.6% this year in the global economy. If a bounce-back in the US economy is to happen, it needs to come in the next four to six weeks – but the risk of a downturn remains too great for the Fed to raise interest rates now. As for the Eurozone, an impending cash crunch in Greece is now inescapable. I believe Greece will default in the next few months, followed inevitably by Greek exit from the Euro. Meanwhile the Chinese stock market is undoubtedly benefitting from an explosion in credit, but many will recognise the signs of another bubble – and as we know, bubbles burst. This might be the best it gets for the global economy.”
Wiktor Bielski said: “The current low in commodities prices does not reflect market fundamentals. An initial recovery is likely in 2015, leading to a more sustained pick-up in 2016. Ultimately, we have to look to China to explain what is driving prices. There has been a huge, unprecedented growth in Chinese hedge funds, which are now leveraged at least $300bn. Dalian trading on iron ore futures hit $1trn last year, vastly outstripping the value of real iron ore sales. This is a permanent trend. Financial traders and speculators, not market fundamentals, will continue to drive prices going forwards. It is already having an impact: the price of oil only fell as fast as it did because of speculation, even if it was triggered by a glut in supply. Production should drop with prices this low, but China is producing steel and other metals in numbers we’ve never seen before to fuel its jobs boom. China is quite simply changing the rules when it comes to commodities.”
The event was attended by over 17 financial journalists, academics, researchers and think-tank members.
Head of Press