Commodities super-cycle still has legs

ETF Securities has said that the commodities super-cycle, which started in the late 90s, is far from over and the fundamental drivers of it are still in force.

Nitesh Shah, an analyst at ETF Securities, said that recent commodity price weakness was a result of business cycle fluctuations and commodity-specific supply increases, not a change in structural fundamentals. He commented: “The weakness in many commodity prices over the past year has led a number of commentators to call the end of the commodity super-cycle. However, most commentators are in fact referring to the near-term outlook for a few specific commodities rather than the longer term trend that characterises a super-cycle. Rising urbanisation and increasing wealth in large-population emerging market countries will drive commodity- intensive consumption and investment over the longer-term, and supply constraints will likely keep upward pressure on prices.”

On the main drivers of the super- cycle, Shah said that the emerging market demand for commodities would continue for another 10 to 20 years, as GDP in India and China continues to increase. In addition, supply constraints will support prices over the longer term, Shah said, while rising affluence in emerging markets will also drive global consumption of commodities higher.