Commodity prices are set to fall. The oil glut engineered by the...

Commodity prices are set to fall. The oil glut engineered by the market (certain sectors)has promted a re think in strategies in China and India with Europe being the initiator of a move to curb speculation in essential commodity prices as a tool to reduce foreign exchange holdings in countries like India and China who refuse to free float their currencies.

China did indeed reduce its foreign exchange levels but not to the extent the Americans are claiming to have forced it to. China has its own reserves of oil abroad under its control as the US does for its own economic safety.

The Chinese are now likely to reduce their voracious appetite for iron ore, bauxite and coal having already stocked up significant physical quantities, identified adequate alternative suppliers (south America and Africa) and have acquired by futures contracts enought to keep them going for a while whilst they pressure us to reduce our costs.

Forecast:

Coal, Iron Ore and Bauxite prices will fall significantly within the enxt 6 months. There is nothing that text book economists hired by the banks and major commodity producers can say that will convince us otherwise. The writing is on the wall and unless a significant fall in the dollar (AUD) occurs soon or Australian producers decide to cut prices by at least 30% (yes 30%) we will see an accross the board fall and a corresponding weakening of our economy.

I would'nt be as optimistic if I held stocks in the major miners. I would however make the most of my holdings and sell to the optimists however misguided their perceptions are.