Commodities Supercycle Boom or Bust?

Posted August 25, 2008

"The worst rout in the history of commodities may be ending, signaling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months." — Madelene Pearson, Bloomberg News

Blogger’s note: Depending on which camp you belong to, the recent dip in prices either means the commodities supercycle has finally reached its end or that commodities are gearing up for another burst and have years of strong growth ahead of them. Not sure what camp you believe? Madelene Pearson of Bloomberg News gives you the chance to look at both sides of the issue.

So what do you think? Will demand weaken enough to send commodities back down? Or will smaller supplies cause even higher prices for commodities markets in coming years? Read on to learn more and let us know your opinion in our comments section.

by Madelene Pearson

Baltimore — (TFN): Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

The worst rout in the history of commodities may be ending, signaling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months as measured by the Standard & Poor’s GSCI index. Only this time, the driver is supply cuts rather than increasing demand.

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Supply constraints are “coming more and more to the fore” and that “will separate the performance of individual commodities,” said Alan Heap, global commodity analyst at Citigroup Inc. in Sydney. “We’re still looking for higher prices next year and in some cases the year after.”

Commodities are in their seventh year of gains, fueled by demand led by China and India and disruptions to mine and farm supplies. A rebound in raw materials from four-month lows may boost profits at BHP Billiton Ltd., raise costs at Nestle SA and stoke inflation, limiting the ability of central bankers Ben S. Bernanke and Jean-Claude Trichet to cut interest rates and revive growth in the U.S. and Europe. Read on to learn more.

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