Commodities bottoming as the great Mike Masters inventory liquidation runs its course

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It all came to a near halt with the world wide inventory liquidation. Now flows are resuming but will be at lower levels than before, reflecting lower demand.

Prices should recover over time to something above replacement costs.

Look for deteriorating real terms of trade for the US as the modest fiscal adjustment adds to demand, and import prices grow faster than export prices, led by Saudi crude pricing.

Shipping Index Surge Signals Commodity Currency Gains

by Ye Xie and Candice Zachariahs

Feb 17 (Bloomberg) — Shipping costs have more than doubled this year, so it may be time to buy kroner, Aussies and loonies.

The 147 percent jump in ocean-transport prices is evidence that China’s $580 billion stimulus plan will lift raw materials, said Ihab Salib, who oversees $3 billion at Federated Investments Inc. in Pittsburgh. That would benefit countries exporting them, so Salib is “actively trading” Norway’s krone and Australian and Canadian dollars, nicknamed Aussies and loonies.

Salib and other currency traders have started using the Baltic Dry Index’s global gauge of raw-material shipping costs to help make such decisions. The index and the value of a basket of those three resource-rich countries’ currencies are increasingly moving in tandem — 96 percent of the time in the past year, up from 84 percent in the past decade, data compiled by Bloomberg show.

“Historically, the Baltic Dry Index is a good leading indicator for commodity prices,” said Salib, who declined to detail his investments. “Commodities are very depressed right now, and they offer good long-term value. Once they come back, these currencies should do well.”

The shipping gauge is a sign that China’s stimulus spending on housing, highways, airports and power grids will have impact beyond its borders. By Feb. 28, it will have spent 25 percent of its stimulus budget, Deutsche Bank AG said Jan. 20, predicting the country’s economy will grow at a 12 percent annual rate between the fourth and first quarter, after shrinking 2.3 percent between the third and fourth.

Oil Rebound

China is the world’s biggest consumer of copper and iron ore and has helped each rally this year by about 10 percent, benefiting Australia and Canada, which account for 10 percent of world production of the two metals. Oil,Norway’s top export, will average $66 a barrel in the fourth quarter, up from an average of $40.62 since Jan. 1, according to the median forecast of 34 analysts surveyed by Bloomberg. China is the world’s second-biggest energy user.