Commodity Supercycle Seen Continuing on Emerging Markets Demand
Raw materials have been in a supercycle since 2001 and the average length of each phase since the late 1700s has been almost 21 years, Chris Watling, chief executive officer of London-based Longview Economics, said today at a World Commodities Week conference in the U.K. capital. The Standard & Poor’s GSCI spot gauge of 24 commodities erased this year’s gain yesterday after entering a bull market in the third quarter.
Emerging market and developing economies will grow 5.3 percent this year, compared with 3.3 percent globally, the International Monetary Fund said Oct. 9. The Washington-based group estimated growth of 7.8 percent for China this year and 8.2 percent next year. Raw materials, as measured by the S&P GSCI, have risen for most of the past decade, making annual advances in 11 of the last 13 years.
“It’s all about what’s happening in emerging markets,” Moyo, a former Goldman Sachs Group Inc. economist, said in a presentation at the conference. Improving wealth levels “have implications for what we’ll eat” and more people will want consumer products, she said.
Moyo pointed to more urbanization globally as why there will be higher demand for some commodities. Increasing urbanization in China, the biggest user of industrial metals, means more demand there for consumer-driven commodities, Richard Elman, chairman and executive director of Hong Kong-based commodity supplier Noble Group Ltd. (NOBL), said at a London Metal Exchange conference in London Oct. 15. Arable land, needed for growing foods, covers about 11 percent of the world, Moyo said.
The GSCI gauge of commodities fell 0.5 percent since the beginning of January. The last annual decline was in 2008. The MSCI All-Country World Index (MXWD) of equities gained 9.8 percent this year. Treasuries returned 1.7 percent, a Bank of America Corp. index shows.
After slowing for seven quarters, China’s growth will gain for the following four quarters, based on the median of estimates from economists compiled by Bloomberg. After industrializing nations have used metals for infrastructure, they start consuming more farm products and energy, Watling said. Those commodities will make new highs in the current supercycle, while copper and steel probably won’t, he said.
“I’m a great believer that the supercycle has more to go,” he said. “Next year is going to be a tough year. Global growth is struggling. I wouldn’t be overly bullish on a six- to nine-month view.”
Many commodities may have peaked, Marc Faber, publisher of the Gloom, Boom & Doom report, said in a presentation at the conference. He recommended holding physical gold and silver and said he’s “not so keen on other commodities.”
Investors boosted holdings in bullion-backed exchange- traded products to a record this month and gold is heading for a 12th consecutive annual gain as central banks from the U.S. to China pledged more stimulus to bolster economies. Federal Reserve policy makers conclude a meeting today.
Coffee, sugar and cotton are the worst performers this year in the S&P GSCI. Wheat gained the most, while corn and soybeans reached records, as the U.S. endured its worst drought in more than 50 years.
“I remain fundamentally bullish,” said Moyo. “The rise of wealth across emerging markets is a key driver. The commodity supercycle still has a long way to go.”
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