The Rising Influence of Rising Affluence

[jbog]

biotech researcher:

Supply growth will overtake demand growth this year for the first time in a long time,” said Christian Lelong, a Sydney-based commodity analyst with Goldman Sachs Group Inc., which predicts prices to average $108 this year and slide to $80 in 2015. “You will start to see some signs of surplus probably during the course of the second quarter.”

Classic supply-demand. More capacity has to come out of the world before this stops.

While anything can happen, I see Iron Ore as a commodity with some very unusual producers and circumstances. What makes it unique at this point is that there are numerous sources that have a cost basis of somewhere in the $90-$100 equivalent range (China itself) and then there are producers who can supply ore for $35 and make money.

While yes supply will exceed demand, once the price breaks that $100 threshold and the expensive producers cut back we automatically return to demand exceeding supply. Oil is in the same situation in the states now.

It's interesting to follow.