Tags: commodity | producers | capacity | prices

WSJ: Commodity Producers Expand Capacity, Depressing Prices

By    |   Tuesday, 10 December 2013 07:31 AM

Commodity makers have been able to figure out ways to increase supply cheaply, helping to push commodity prices down this year after a decade of increases.

The run-up was sparked largely by China's torrid economic growth, which led to concern about a vicious cycle of rising commodity prices.

"It's kind of basic econ 101: scarcity induces some sort of innovation," David Jacks, an associate professor and commodity expert at Simon Fraser University in Canada, told The Wall Street Journal.

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The Dow Jones-UBS Commodity Index has dropped 9.4 percent so far this year.

The most ballyhooed development in commodity production technology is hydraulic fracturing (fracking), which enables the extraction of oil and gas from shale.

But developments abound in other commodity areas too, The Journal reported. The agriculture sector is using higher-yielding hybrid seeds and new areas of land.

When it comes to mining, drilling companies are utilizing diamond-coated drill bits to probe miles below ground. The drillers also are deploying aircraft radar to determine the geology of far-removed locations.

Miners also have discovered they can mix chemicals into minerals to garner more metals from lower-grade deposits, The Journal noted.

Meanwhile, falling commodity prices and stronger regulation are pushing the world's largest banks to cut their involvement with commodities, Bloomberg reported.

"Commodities revenue has been hit by lower client activity and a lack of volatility, combined with enhanced capital adequacy requirements," George Kuznetsov, head of research at London analytics company Coalition, told the news service.

"In 2011-12, revenue declined, mainly due to energy products, while 2013 results have been affected by significant outflows from institutional clients."

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Commodity makers have been able to figure out ways to increase supply cheaply, helping to push commodity prices down this year after a decade of increases.
commodity,producers,capacity,prices
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2013-31-10
Tuesday, 10 December 2013 07:31 AM
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