What's going on?

While stock prices have mostly recovered from the summer�s turmoil, the price of many commodities (like oil and copper) remain under severe pressure. Specifically, copper hit a six-year low on Wednesday!

What does this mean?

Copper isn�t alone; zinc also hit a six-year low this week and oil is once again near recent lows (it was down more than 3% on Wednesday alone). There are a number of problems. One is that there is too much supply right now and supply cuts have only just begun. Supply cuts are when miners/drillers cut back on their mining/drilling. While cuts have been announced by big miners�like Glencore, those cuts appear to be neither large enough nor are they happening quickly enough. As importantly, demand for these commodities remains weak largely as a result of China shifting to a more consumption-based economy (see above article on Alibaba). Finally, the rising US dollar is hurting: �commodities are priced in US dollars, so their price goes down as the US dollar goes up (see our article on gold).

Why should I care?

1. The bigger picture: Low prices can be good for the average person. It�s a lot cheaper to fill up your car with gas than it was 14-months ago. A lot of the savings get spent on other things, like home improvements or eating out in restaurants. This is one reason why some �consumer� companies like Amazon have been good investments this year.
2. For commodities prices: It�s the end of a commodity �super-cycle.� China�s massive boom was behind the huge increases in commodity prices that occurred from (roughly) 2000-2012. But demand from China has dwindled as the composition of its economic growth has changed: it now needs far fewer commodities. Thus, future commodity supply needs to decrease to reflect that demand is lower. This is the process playing out right now � and it looks like it has further�to go.