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When looking at commodity prices, investors tend to have short memories.
Words like “crash” and “collapse” have been thrown around with frequency in recent days and weeks. The panic appeared to hit a high point on Monday morning, when commodities fell sharply in the early hours before rebounding through the afternoon.
But experts noted that the current market action does not rate as anything close to a “collapse.” To see what that looks like, one only has to look back six years.
After the global financial crisis unfurled in the fall of 2008, oil prices plunged below US$35 a barrel, copper dropped to about US$1.20 a pound, and gold bottomed out at close to US$700 an ounce. Many of the world’s top producers were struggling to make much (if any) money at those prices.
By comparison, the latest commodity volatility barely qualifies as a blip. US$66 oil, US$2.90 copper and US$1,150 gold are prices that those industries can easily live with. Even iron ore, which has plummeted almost 50% in 2014, is priced at a level that guarantees massive profits for the world’s three major producers.
Of course, it is possible that commodity markets could get much worse — last week, oil patch financier Murray Edwards predicted crude prices could drop to US$30. But most people still consider that a huge longshot.
“When people talk about US$40 crude, I think they’re getting a little carried away,” said Patricia Mohr, commodity market specialist at Scotiabank.
“We are not in the midst of a terrifying global recession like we were in 2008. It’s just lackluster, modest global economic activity with some soft spots, being Japan and the Eurozone.”
For the rest of this article, click here: http://business.financialpost.com/2014/12/01/why-volatility-in-commodity-prices-is-still-nothing-close-to-a-crash/