Daniel Rohr: No country matters more to commodities than China. And within China, no single industry matters more to commodities than real estate. Much of the weakness we have seen in commodities over the past several months originates in the Chinese real estate market.
In the first five months of 2014, residential floor space sold declined 9%, meanwhile, residential floor space for sale increased 25%. So, on one hand we have got deteriorating demand, and on the other we have increasing supply, which sets the stage for weakness in the months to come.
That's bad news for the economy as a whole given how much of Chinese urban household wealth is tied up in real estate, how leveraged banks' balance sheets are to the fortunes of real estate, and how tied local government finances are to real estate.
And of course, if it's bad for China, it's bad for commodities, which is why we see further pressure on prices of commodities in the months to come, and why we'd suggest that if investors are going to have positions in mining stocks, they invest in those with very low costs, companies like BHP Billiton, Rio Tinto and Vale.