Commodities | Dec 11 2008
By Rudi Filapek-Vandyck
It has been hard to ignore the release of the latest update on the global economic outlook by economists at the World Bank.
Not only does the update confirm the ongoing trend in sliding expectations for 2009’s global economic growth -the latest World Bank estimate is for a paltry 0.9% only- but the economists have also joined a small but growing minority in the market who believe that August 2008 marks the end of what shall be known forever as the Commodities super-cycle 2003-2008.
Consider the following quote from the report:
“Speculation that the global economy is moving into a new era of relative shortage and ever-rising commodity prices is unlikely to be borne out. Over the next 20 years, slower population growth and weaker income growth are expected to ease global growth and future demand for commodities.”
In other words: we hope you enjoyed it, but don’t expect it to come back – ever.
The Financial Times in London has jumped on the World Bank report with a “yes, sir-no, sir”-story of their own, in an attempt to place what happened between 2003-2008 in a broader, historical context. The story has generated some interesting snippets of information, such as the following paragraphs:
“The sudden plunge [in commodity prices] poses a fundamental question: is this just a temporary blip within an upward trend, with prices likely to rebound in the medium term, or is it the conclusion of another commodities cycle of boom and bust, with a period of relatively stable prices coming ahead?
“The common belief in the industry itself, and among most Wall Street analysts, is that the market is undergoing a correction but that the boom years have not ended. As many point out, the main drivers of what many have come to see as a commodities super-cycle – such as strong pent-up demand in emerging countries and supply constraints caused by a lack of investment over the past 20 years, along with the rise in resource nationalism – are intact. The current drop is, in the words of one senior mining executive, a “reset” of the boom, not the end of it. Prices will rebound, in this view, and continue rising.
“But a growing minority disagrees with this rosy view.
“Some executives in the natural resources industry agree – in private.
“Whatever the disagreements, pessimists and optimists see eye to eye on the next 12-24 months: it looks grim for commodities.”
Certainly enough material to digest and have a good think about.