Why commodities should concern everyone
Bangkok Post Monday 08 August 2005 - Why commodities should concern everyone
Google's share price is now well into dot.com valuations at more than 80 times earnings _ and this for a company that most of the world could probably live without. So how much would you pay for the last barrel of oil?
Commodities in the 21st century. The benchmark index for tracking commodity prices is the RJ CRB, the Reuters-Jefferies Commodity Research Bureau Index. In its latest revision as of last month, it now contains 19 core commodities that best reflect the world as it is today. Its components can be broadly divided into energy, metals and agricultural.
Significantly, the former practice of equal weighting has ended, so that the index values of these commodities are now based on their significance to the global economy as well as their price, making this a much improved and more relevant barometer.
Crude oil is the largest single component, with 23% of the new index. The combined energy commodities now contribute a total of 39%. Metals weigh in at 20%, including gold at 6%, the second highest weighting after crude oil.
The king of commodities. Although oil has received a considerable promotion in the CRB Index, this has only confirmed what has been a fact for some time. Oil forms the foundation of the entire world economy. Without oil and the other energy commodities, there is no transport, no heating, no mining and simply no developed industrial base. The world as we know it would grind to a halt.
The battle for commodities. Throughout history, commodities have been the prized treasures that have been sought after and fought over by all the great empires. Rubies, diamonds and precious stones brought back from Africa and the Indian subcontinent. Highly prized spices from Southeast Asia and the Caribbean and of course gold and silver.
Dollar-priced commodities. One of the most significant geopolitical developments for commodities was to denominate their prices in US dollars. For those countries that use the US dollar or whose currency is pegged to it, this provides a degree of currency risk management not enjoyed by other countries and which would be extremely painful to give up.
Around the time of its invasion in 2003, Iraq was seeking to exercise its sovereignty by pricing its oil exports in euros. Iran is currently looking at exercising its sovereignty in a similar way against a backdrop of rhetoric that is eerily familiar.
Safeguarding the oil. More than half of the world's proven oil reserves exist in four countries in the Middle East. Iran has the second highest reserves and is currently the only one of the four without foreign troops on its soil.
The recent attempted takeover of California-based Unocal by the Chinese oil company CNOOC highlights the growing concerns of developed countries over energy supply. The fact that Unocal contributes insignificantly to US energy demand did not prevent certain sections of the US Congress from calling for the Chinese investor to be blocked, in the interests of ``national security''.
Oil-producing countries in the developing world are also looking at their production structures. Recognising both the global importance of oil as well as the dependency of their economies on oil revenues, some countries have even raised the spectre of the nationalisation of all energy production assets, with some levying discretionary tax surcharges.
The military coup in oil-producing Mauritania last week further highlights the fragility of the global energy industry.
It isn't just oil. Argentina has just passed an environmental law banning the use of cyanide and mercury in the mining and mineral refining. This will add to production costs as well as slowing supply.
Recent strikes in Zambia, Chile and the US have pushed up copper prices while striking workers at a British Columbian zinc and lead smelting company have helped support prices of those metals.
Commodity-based economies. Those developed countries whose industries are commodity-based are shining examples of the strength and stability of intrinsic-value based economies, despite the existence of real social welfare structures. Australia has the largest uranium deposits of any country, while Australia and Canada delivered more than half of the mined uranium in 2004. Both countries mine gold and Australia has large coal deposits. Canada also boasts more than half of the world's available potable fresh water.
Being commodity-based also helped the Australian equity markets to march straight through the dot.com collapse, while hardly pausing to blink.
The day after tomorrow. The supply and demand balance is found at both its most delicate and most complex with commodities.
The real question is not when do commodities become exhausted but when will global demand exceed the supply of the natural resources that the developed world cannot, or at least will not, live without?
Questions to the author can be directed to Barclay Carrigan International quoting reference RC 20, on 02-653-1971 or e-mail to info@barclaycarrigan.com
Google's share price is now well into dot.com valuations at more than 80 times earnings _ and this for a company that most of the world could probably live without. So how much would you pay for the last barrel of oil?
Commodities in the 21st century. The benchmark index for tracking commodity prices is the RJ CRB, the Reuters-Jefferies Commodity Research Bureau Index. In its latest revision as of last month, it now contains 19 core commodities that best reflect the world as it is today. Its components can be broadly divided into energy, metals and agricultural.
Significantly, the former practice of equal weighting has ended, so that the index values of these commodities are now based on their significance to the global economy as well as their price, making this a much improved and more relevant barometer.
Crude oil is the largest single component, with 23% of the new index. The combined energy commodities now contribute a total of 39%. Metals weigh in at 20%, including gold at 6%, the second highest weighting after crude oil.
The king of commodities. Although oil has received a considerable promotion in the CRB Index, this has only confirmed what has been a fact for some time. Oil forms the foundation of the entire world economy. Without oil and the other energy commodities, there is no transport, no heating, no mining and simply no developed industrial base. The world as we know it would grind to a halt.
The battle for commodities. Throughout history, commodities have been the prized treasures that have been sought after and fought over by all the great empires. Rubies, diamonds and precious stones brought back from Africa and the Indian subcontinent. Highly prized spices from Southeast Asia and the Caribbean and of course gold and silver.
Dollar-priced commodities. One of the most significant geopolitical developments for commodities was to denominate their prices in US dollars. For those countries that use the US dollar or whose currency is pegged to it, this provides a degree of currency risk management not enjoyed by other countries and which would be extremely painful to give up.
Around the time of its invasion in 2003, Iraq was seeking to exercise its sovereignty by pricing its oil exports in euros. Iran is currently looking at exercising its sovereignty in a similar way against a backdrop of rhetoric that is eerily familiar.
Safeguarding the oil. More than half of the world's proven oil reserves exist in four countries in the Middle East. Iran has the second highest reserves and is currently the only one of the four without foreign troops on its soil.
The recent attempted takeover of California-based Unocal by the Chinese oil company CNOOC highlights the growing concerns of developed countries over energy supply. The fact that Unocal contributes insignificantly to US energy demand did not prevent certain sections of the US Congress from calling for the Chinese investor to be blocked, in the interests of ``national security''.
Oil-producing countries in the developing world are also looking at their production structures. Recognising both the global importance of oil as well as the dependency of their economies on oil revenues, some countries have even raised the spectre of the nationalisation of all energy production assets, with some levying discretionary tax surcharges.
The military coup in oil-producing Mauritania last week further highlights the fragility of the global energy industry.
It isn't just oil. Argentina has just passed an environmental law banning the use of cyanide and mercury in the mining and mineral refining. This will add to production costs as well as slowing supply.
Recent strikes in Zambia, Chile and the US have pushed up copper prices while striking workers at a British Columbian zinc and lead smelting company have helped support prices of those metals.
Commodity-based economies. Those developed countries whose industries are commodity-based are shining examples of the strength and stability of intrinsic-value based economies, despite the existence of real social welfare structures. Australia has the largest uranium deposits of any country, while Australia and Canada delivered more than half of the mined uranium in 2004. Both countries mine gold and Australia has large coal deposits. Canada also boasts more than half of the world's available potable fresh water.
Being commodity-based also helped the Australian equity markets to march straight through the dot.com collapse, while hardly pausing to blink.
The day after tomorrow. The supply and demand balance is found at both its most delicate and most complex with commodities.
The real question is not when do commodities become exhausted but when will global demand exceed the supply of the natural resources that the developed world cannot, or at least will not, live without?
Questions to the author can be directed to Barclay Carrigan International quoting reference RC 20, on 02-653-1971 or e-mail to info@barclaycarrigan.com
posted by Marcel at 5:18 PM
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