Commodities had a roller coaster January, rising early in the month based on China-consumption hopes and then crashing down in the second half.As a result, pro investors are now aggressively shorting commodities according to Goldman Sachs.
They could make a killing. Chinese consumption growth prospects are slowing and massive inventory levels need to be worked down some day. Thus commodities will be under substantial pressure unless North American and European demand can some how pick up China’s slack, and eat through huge accumulated inventories:
Malcolm Southwood @ Goldman Sachs: Our metal trading contacts report short-selling from hedge-funds and CTAs on a scale that we’ve not seen since the price collapse of 2H2008. Producer selling has also figured, and together these influences are forming an evolving counterweight to predominantly long index-fund investments.
One of the major concerns affecting market sentiment in the second half of January has been the notion that government action to slow China’s economy will impact the country’s demand for raw materials. We feel confident that real consumption of raw materials in China will hold up well, but we are of the view that tightening liquidity and relatively high metal prices will deter further stock-building of base metals for the time being…
This means that China’s imports of all base metals in 1H2010 will be considerably lower than in the pcp. In our opinion, this puts the spotlight very much back on the developed economies, in that we need to see a significant improvement in demand for raw materials in Europe and North America to contain further inventory builds.
(Via Goldman Sachs, Base Metals: Suddenly… Nobody Wants ‘Em!, Malcolm Southwood, 29 January 2010)