Commodities prices resume their upswing
Monday, 17 August 2009
NEW YORK, Aug 16: A decade-long rise in commodities prices - the so-called supercycle - is about to resume, market bulls say, driven by rising industrial demand, a weaker dollar and production constraints, according to Investmentnews.
If recent performance is any indication, the upturn already may have begun.
The Dow Jones-UBS Industrial Metals Subindex is up 57.4pc year-to-date through Aug. 12, and 75.1pc since its low on Feb. 23.
By contrast, the Standard & Poor's 500 stock index is up 48.7pc since its low on March 9.
The rise in commodities prices comes after a decline of 36.6pc last year as measured by the Dow Jones-UBS Commodity Index, which tracks returns on futures contracts for a mix of energy, metals and agricultural commodities. During the same period, the S&P 500 fell a comparable 38.5pc.
"We've always been in a supercycle, and we remain in a big supercycle," said Francisco Blanch, a London-based commodity strategist at Merrill Lynch & Co. Inc. of New York.
Already, while still in the midst "of a deep recession, we've [got] oil at 70" dollars per barrel, up from around $32 late last year, Mr. Blanch said, and copper at $2.70 per pound, double its low at the end of last year.
"I see no sign that the long-term run has ended," said Bruce McCain, the chief investment strategist of Key Private Bank, the wealth management unit of KeyCorp in Cleveland, linking the trend "to the very rapid growth in emerging markets."
The price recovery "is just the beginning of another commodity price rally, which is ... likely to be even more extreme than in the past," according to a research report released this month by The Goldman Sachs Group Inc. of New York.
Goldman estimates that by the end of next year, commodities markets are likely to be back to where they were in mid-2008, "when severe supply constraints forced the rationing of demand to keep the markets balanced," the report said.
Industrial metals, including copper, zinc and nickel, have been some of the biggest movers of late. These metals typically lead during an economic recovery, in anticipation of a resurgence in manufacturing, analysts said.
Demand for metals is picking up, and inventories of commodities overall have been trimmed after about nine months of production cutbacks, Mr. Blanch said.
Observers said that China has been a big source of demand for metals, but it is unclear who the buyers are and whether they are industrial users or speculators.
Although demand has picked up, it isn't time to go hog-wild yet, warn commodities bears, noting that the recovery has been sluggish and may peter out into another economic downturn.
The metals markets "are getting ahead of themselves," said Edward Meir, a senior commodity analyst at MF Global Inc. in New York, and are simply showing an anticipation that the economy is recovering. "There's nothing fundamental to it," he said.
As to the larger theory of a commodity supercycle, "it all depends on your point of view of the [economic] recovery," Mr. Meir said.
A rapid recovery would likely drive prices higher, while a double-dip recession could take prices down and retest the lows from last year, he said. Mr. Meir anticipates a third scenario - a slow recovery, with some firming prices but no surge.
If recent performance is any indication, the upturn already may have begun.
The Dow Jones-UBS Industrial Metals Subindex is up 57.4pc year-to-date through Aug. 12, and 75.1pc since its low on Feb. 23.
By contrast, the Standard & Poor's 500 stock index is up 48.7pc since its low on March 9.
The rise in commodities prices comes after a decline of 36.6pc last year as measured by the Dow Jones-UBS Commodity Index, which tracks returns on futures contracts for a mix of energy, metals and agricultural commodities. During the same period, the S&P 500 fell a comparable 38.5pc.
"We've always been in a supercycle, and we remain in a big supercycle," said Francisco Blanch, a London-based commodity strategist at Merrill Lynch & Co. Inc. of New York.
Already, while still in the midst "of a deep recession, we've [got] oil at 70" dollars per barrel, up from around $32 late last year, Mr. Blanch said, and copper at $2.70 per pound, double its low at the end of last year.
"I see no sign that the long-term run has ended," said Bruce McCain, the chief investment strategist of Key Private Bank, the wealth management unit of KeyCorp in Cleveland, linking the trend "to the very rapid growth in emerging markets."
The price recovery "is just the beginning of another commodity price rally, which is ... likely to be even more extreme than in the past," according to a research report released this month by The Goldman Sachs Group Inc. of New York.
Goldman estimates that by the end of next year, commodities markets are likely to be back to where they were in mid-2008, "when severe supply constraints forced the rationing of demand to keep the markets balanced," the report said.
Industrial metals, including copper, zinc and nickel, have been some of the biggest movers of late. These metals typically lead during an economic recovery, in anticipation of a resurgence in manufacturing, analysts said.
Demand for metals is picking up, and inventories of commodities overall have been trimmed after about nine months of production cutbacks, Mr. Blanch said.
Observers said that China has been a big source of demand for metals, but it is unclear who the buyers are and whether they are industrial users or speculators.
Although demand has picked up, it isn't time to go hog-wild yet, warn commodities bears, noting that the recovery has been sluggish and may peter out into another economic downturn.
The metals markets "are getting ahead of themselves," said Edward Meir, a senior commodity analyst at MF Global Inc. in New York, and are simply showing an anticipation that the economy is recovering. "There's nothing fundamental to it," he said.
As to the larger theory of a commodity supercycle, "it all depends on your point of view of the [economic] recovery," Mr. Meir said.
A rapid recovery would likely drive prices higher, while a double-dip recession could take prices down and retest the lows from last year, he said. Mr. Meir anticipates a third scenario - a slow recovery, with some firming prices but no surge.