Commodity Surge: China's Slowdown

While I don't see expectations of an ongoing boom in commodities changing in any way over the long haul, in the short term we could definitely see a period of time when commodities will be out of favor, as demand stalls.

Leading the way in commodity demand is China, and they are definitely looking like they're going to be slowing down. China is estimated to account for over 40 percent of the commodity demand in the world.

Much of this is coming about because of the vulnerability of China to the slowing consumer product demand in America, which much of its growth is dependent upon. If America slows, China slows, and there's no way around it.

This will cause a period of slowing growth in China, although it'll definitely keep growing, as the momentum they carry can in no way be stopped. It's a matter of how fast they grow, not if they grow.

Before the pullback of consumer spending in America, China was expected to grow in 2009 by between percent and 10 percent. Now it's more likely that'll drop by a percentage point or two to around 7 percent to 8 percent. While that's not shabby, it's pretty huge when you consider the size of China's economy.

This will definitely hit a variety of commodities companies like miners, who in many cases are betting everything on China. Companies like BHP Billiton and Rio Tinto will definitely be hit hard, and already have, as they've already lost 10 percent of their market value, equal to about £10bn. It's suspected that this isn't through yet either, and we'll see more pain before we start to see a gain.

What all this may mean for commodities investors, is the growth period could extend longer than thought, while the pace of growth slows down. That could me less volatility (once things settle down), but smaller yearly gains; at least for the next couple years.

There of course will always be exceptions to that, but that probably will be the general rule.

Don't forsake the idea of commodities, just watch the market and be ready to dive in again when things start to turn around.