Commodity Super Cycle isn’t dead, emerging nations keep it alive: ETFS
Commodity super-cycle that began in 1990′s is far from over and it will continue to be driven by resource intensive urbanisation, industrialisation in emerging countries, according to an analysis by ETF Securities Ltd. It said that analysts have shown a tendency to confuse short term correction in prices denoting end of super cycle while such cycles have to be defined over a larger time frame extending to three to four decades.
ETFS said that the world has seen four major super cycles in the past 160 years with bull cycles ranging from 30-40 years and the immediate two previous super cycles were driven by growth in USA (1870-1913) and post war Japan from 1946-1973.
Global growth will moderate in next ten years but rising percapita income in large population emerging countries will drive commodities demand higher. Consequently, higher prices will provide the incentive to boost production, use of scarce resources efficiently with innovation and adequate investment.
Rising affluence in emerging markets will drive demand for finished goods which in turn will push up demand for commdoity inputs globally.India and China would witness a moderation in growth to 5.6% and 6.4% respectively from 2011-2030 from 5.8% and 9.3% respectivley in 1995-2011 period. Despite this both economies will see a tripling of their GDP by 2030, the report added.
Another argument favouring continuing super cycle are the supply constraints seen across commodities. Energy consumption is expected to show signficant growth while OPEC has large proven reserves of crude oil – they have n interest in seeing prices falling while among precious metals platinum and palladium are in short supply.
Risks to super cycle
China aging super cycle could impact growth in one of the fastest growing economies but that could be counter balanced by the India’s younger population with an old age dependency ratio of only 12 in 2030. In course of time, China’s aging population could become massive consumers of goods while India’s rising young population would produce the goods needed by China, the ETFS report said.
Technology advances can disrupt the commodty super cycle. Once aluminium was expensive than gold but improvements in production technology enabled the industrial metal to be produced cheaply. Technological changes which lower cost of production, can also increase demand for the commodity, the report added.
Source: Commodity Online