Deutsche Bank Sees ‘Subdued’ Commodity Prices as Supercycle Ends

Deutsche Bank AG said commodity prices are poised to remain in “subdued territory for years to come” after a bull run that drove prices up almost fourfold in the last 12 years.

Banks from Citigroup Inc. to Goldman Sachs Inc. have called an end to the commodities supercycle as the economy in China, top user of raw materials, grows at a slower pace and the country shifts to consumer-driven growth. The Standard & Poor’s GSCI Index of 24 raw materials fell 2.5 percent this year after almost quadrupling since 2001.

“Many of the factors and fears that drove the supercycle have dissipated in the last few years,” Deutsche Bank’s economists Taimur Baig and Jun Ma said in a report e-mailed today. “Emerging markets demand is robust but not as insatiable as once thought, especially with China’s appearing to be slowing down. Fear of a global spike in inflation due to exceptionally loose monetary policy has proven to be unfounded.”

Commodity prices began to lose momentum in 2011 despite signs of “global tail-risk abating” and economic recovery, the bank said. There are sufficient “pockets of demand” and failures on the supply side to provide a floor to commodity prices, the analysts wrote, adding they are not forecasting a commodities “bust.” China accounts for a quarter of global commodities demand, according to Deutsche Bank.

Prices will “remain lackluster for many years to come” on weak consumption as global oil demand is projected to grow by 1.5 percent a year at most, companies ramp up output after years of elevated prices and growth in key markets including China becomes less commodity-intensive, the analysts wrote.

Energy prices will also be impacted by growth of shale production in the U.S. and potentially “sizable” shale gas production in China in the next four to eight years, they said.

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