When politicians around the world talk about an global economic rebound and it actually happens, the laws of supply and demand are not far away. In the laws of supply and demand, when there is great demand for a good or service the price goes up until new companies come into the market and cause too much supply and then the market sorts itself out. As prices rise, alternatives are found to ensure all those in the supply system can actually make money. If for example, it something was a component costing 10 cents and now it costs a dollar, research and development will find another material doing the same thing costing less because some companies can not pass the higher prices to their consumers.
In an article by Tim Shufelt, Goldman Sachs released a report saying Copper is the new oil. The price of copper on the London Metal Exchange is close to its record high set in 2011, at the writing it was $9,965 a tonne. The reason for the increase is the demand from China.
While some factories left China, many have remained and China’s factories are operating while the rest of the world is in semi-shutdown. In the rest of the world, copper demand drop by 6.4%, but in China demand increased by 4.8%.
In an normal year China consumes half the world’s supply of copper. If you are a bull on copper, you would expect demand to pick up in the rest of the world coupled with a recent estimate suggested 60% of current investment by major global copper producers is aimed at maintaining existing projects, rather than expanding production said David Burrow, president and chief investment strategist at Barometer Capital Management.
Linking to dividend paying stocks, if you own commodity stocks you need to pay attention to supply and demand because the price of commodities rises and follows with the simple supply and demand charts. If you own a company that has services, it can increase prices, for your investments are prices increasing or the same?
There are more questions than answers, till the next time – to raising questions.