Saturday, March 30, 2024

Commodities about to cycle upwards

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Population and economic growth in India are potentially the drivers of the next commodity super-cycle, BlackRock investment strategist Thomas Taw says.
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Nearly two-thirds of its people are under 35 and India could become the world’s most populous nation by 2030, with a growing middle-class.

Previous super-cycles have followed a pattern that suggests the prices of agricultural commodities could rise steeply during the 2020s.

At present, the five groups of commodities – energy, precious metals, industrial metals, agriculture and livestock – are coming to the end of a decline phase in the current super-cycle, now 24 years long.

Four commodity super-cycles have occurred since the beginning of the 20th century, Taw described to an NZX Virtual Global Dairy Seminar.

The first was driven by the industrialisation of the United States until 1932 and lasted 33 years from the beginning of the rise in prices of energy and metals, through the peak in 1904 and into a long decline that ushered in the Great Depression.

The second and the third cycles both lasted 29 years, the second dominated by World War II and the third by the reindustrialisation of Europe and Japan.

The fourth and current cycle began in 1996 with the rapid industrialisation of China, and prices topped out in 2011 have been in a decline phase since.

Taw says the five major commodity groups have behaved differently during 2020 in response to covid-19.

Energy has fallen by 38%, industrial metals and agricultural commodities have been steady, livestock is down by 10% and precious metals have soared 26%.

He says this is not a typical cyclical bear market, but an adverse event driven one.

The momentum is not the business cycle but the printing of enormous amounts of money by central banks, firstly for recovery from the Global Financial Crisis and lately in response to covid-19.

Should rising inflation appear from next year onwards, then commodities tend to perform well.

Taw says inflation changes historically have had a big influence on commodity prices.

Disruption to supply chains, particularly if the China and the United States trade dispute worsens, has the potential to drive inflation.

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