Commodity Super-Cycle is Back in Full Swing |
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February 1, 2011
Sovereign debt risks, high unemployment, the threat of deflation, regulatory uncertainty. Just a few of the anxieties currently keeping financial markets on edge and which set a less than auspicious backdrop for commodities to stage a strong performance in 2011.
Sovereign debt risks, high unemployment, the threat of deflation, regulatory uncertainty. Just a few of the anxieties currently keeping financial markets on edge and which set a less than auspicious backdrop for commodities to stage a strong performance in 2011.
However, raw materials markets are proving highly resilient to aftershocks from the financial crisis. In markets as diverse as copper, sugar, tin, cotton, gold, palladium and pork bellies, prices have now exceeded the peaks set in the bull market of 2006-2008; oil prices are again trading consistently above $90/barrel, while in the UK the cold snap pushed gas prices to almost double where they were in the run up to Christmas 2009.
Commodities usually perform best in the latter stages of economic recovery: it takes time for the spare capacity and excess inventories built up during a downturn to get worked off. But this cycle looks different. Raw materials shortages, infrastructure constraints and resource nationalism continue to hamper production growth for many commodities, while emerging market demand is already soaring. In the west, policymakers, are leaning heavily toward pro-growth monetary policy and appear unusually tolerant of inflation. The expansion phase of this economic cycle looks likely to exert even more stress on commodity supply than ever before.
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