Commodities super-cycle is ‘taking a break’ – by Eric Ng (South China Morning Post – July 10, 2013)

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Runaway prices in commodities markets have ended, but long-term demand for commodities on the mainland is strong

The commodities “super-cycle”, largely buoyed by Chinese buying, may have ended in terms of runaway prices but robust demand is expected to continue. A more benign price outlook would benefit large commodities consumers and importers like China as it would help contain inflation and promote economic growth.

Eugen Weinberg, head of commodity research at Commerzbank in Germany, said: “Price movements in the market indicate an end to the commodities super-cycle. But we do not believe the super-cycle is coming to an end. It’s just taking a break. “Some 20 million people a year move from the countryside to the cities, triggering a huge demand for better infrastructure.”

Michael Haigh, global head of commodities research at the French bank Societe Generale, said: “We do not think the current commodity super-cycle is over, but it is not as super. It is common to have cycles within super-cycles.”

The super-cycle that began around 2002 was driven by a combination of strong demand from emerging nations and low supply growth. Since last year, growth in global demand has weakened as a result of the sovereign debt crisis in many developed nations, while new supply caught up with demand because of strong investment during the latter years of the boom.

Mark Pervan, global head of commodity strategy at Australia & New Zealand Banking Group, said commodity prices peaked in the current cycle in early 2011.

Prices at the time were pushed up by infrastructure-led investments sanctioned by Beijing and global easing in monetary policies, to counter the impact of the global financial crisis in 2008-09.

With new leaders in Beijing shifting their attention from quantity-focused to quality development, lower growth is being tolerated, resulting in slower demand growth for energy and metals.

A research report by Deutsche Bank said: “China’s domestic structural changes in the coming decade will likely be a negative for the global energy price outlook. As the super-cycle [of commodities prices] ends, there will likely be a considerable tapering of wealth transfer from commodity producers to importers.”

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