Capital Economics warns of commodity declines

Commodities investors should be wary of a sharp price fall on a sudden drop in demand from China, Capital Economics warns.

Imports of industrial metals and agricultural products to the Asian country have risen dramatically, leading to widespread confidence in further price hikes in the assets. However, the research consultancy believes imports could be too high for demand to sustain. "This is only sustainable if there has been an implausibly large and rapid increase in the commodity-intensity of economic activity," it says. "The much more credible explanation is that Chinese firms and especially state agencies have been taking advantage of lower prices after the commodity bubble burst last year to accu...