As summarized by Dr. Keith Black, Ph.D., CFA, CAIA, Managing Director, Curriculum & Exams, CAIA Association
Investors and suppliers have long sought to understand and predict commodity prices using supply and demand analyses. Historically, commodity demand was measured by the quantity of commodities consumed through food or industrial uses. After the Chinese Property Law was enacted in October 2007, an increasing amount of industrial metals have been placed into storage and used as collateral for loans. Including these warehouse stocks in demand estimates, especially in copper, seem to overestimate the demand for industrial metals in the Chinese market. Investors and suppliers of industrial metals should adjust their supply and demand models to account for the risk of the unwinding of these inventories.