“In the meantime it’s a painful time to be holding commodity company stocks. The latest major deal to hit the buffers is Vedanta subsidiary, Sterlite’s (SLT) proposed offer for former US copper giant Asarco which itself is struggling to get out of bankruptcy,” Marc Courtenay wrote in Seeking Alpha.

To get a better picture of the slump in commodities one has to only look at the observation made by Duetsche Bank in its recent report on carbon emissions. Europe’s industrial carbon emissions are expected to fall by about 100 million tonnes next year compared with last year.

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While this is good news for those eager to fight climate change and global warming, the news itself implies that the recessionary phase could last longer than expected. Now the news that Dubai property prices could also be hit by slowdown is indicative of how far commodities sector would also be hit by the development.

In recent times, the demand for several categories of commodities, including cement, metals and steel, were linked to the property boom in the UAE region.

In China, several indicators point to lower GDP growth in 2009 to 9.7% from 12 per cent in 2007. The downfall in steel prices, several related commodities and housing sales is indicative of the weakening demand for commodities and consequent global growth prospects.

Steel prices in China have fallen about 20 per cent over the past three months and there are reports of small steelmakers being forced to close because of shrinking demand, Financial Times reported. China’s GDP growth for the three quarters of 2008 is at the lowest for the past four years at 9.9%. China accounts for close to 10% of global crude demand and in recent times has been a major driver of demand growth.

China represents up to one-third of overall demand in industrial metals and two-thirds of demand growth in industrial metals. OPEC said China’s total oil product imports declined sharply by 236,000 barrels a day in August compared with the previous month. China National Petroleum Corp said China’s oil demand growth will slow by the end of this year to 4% on the year, down from a rise of between 5% and 6% in the first three quarters of this year.

DEFLATION

Now USA and several others are facing the prospect of an imminent deflation which is the opposite of inflation. That’s when prices start falling for commodities across the board. In some commodities at least, they have become a reality worldwide.

While it is good news for consumers, economists are not often enthused by such developments. If prices fall to such levels that cost of production is not covered, companies will start laying off people and cut production which could further hit aggregate demand in the economy. Recession, depression, downturn, meltdown, slowdown, deflation, boom and bust… we are certainly going through interesting times.

Tailpiece: ''The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it, will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part." (Marc Faber in his recent monthly report).