Can India and China support commodity prices? Commodity prices have enjoyed a significant bull run since 2001, buoyed by soaring demand from the mainland and India, the world's de facto manufacturing plants.
However, with the slowdown in the global economy, the resulting impact this has had on commodity prices and the lingering effects of the subprime crisis, some speculation has surfaced as to whether the mainland and India can stop commodity prices from further bottoming out. This speculation has been fuelled by the weakness in the United States economy, which is teetering on the brink of recession, and may affect Chinese and Indian exports.
Despite these fears, the majority of commentators interviewed were confident that demand from the two countries would be sufficient to prevent a price collapse.
'True demand growth has slowed for a significant range of commodities, but I think that the market has been overly focused on the developed part of the world,' says Yu Yingxi, a Singapore-based commodities analyst for Barclays Capital.
She says many of the demand forecasts are based on US markets where, for example, demand for crude has declined steadily for the past year with downward revisions in energy demand figures. This contrasts strongly with China and India, where demand for energy has increased. In addition, many commentators are upbeat about the health of these countries' internal economies.
Lawrence Kook, chief investment officer at Maxford Investment Management, says: 'China and India are not just exporters, they are major consumers. Even though the US and Europe are heading for an economic slowdown, I see emerging markets such as China and India picking up. So this will give us some support for commodity prices.'
