Analysts differ on timing and effect of the end of commodities ‘super-cycle’
Commodities, the lifeblood of the British Columbia economy, are at the beginning of a long, downward trend that is bound to affect both government and households, says a Simon Fraser University economist.
“We have seen the best days in terms of dramatic increases in commodity prices,” David Jacks, an economic historian at the university, said in an interview.
He said commodities, particularly minerals and energy, are characterized by long-term trends related to global industrialization and urbanization. That growth runs up against capacity constraints, particularly in minerals and energy, leading to rising prices. New capacity to meet the new demand then leads to prices easing.
The current cycle, which has been going on since 1998, is being driven by Asian, specifically Chinese, economic growth and urbanization. Jacks has written a paper, From Boom to Bust, on the super-cycle, which he prepared for a recent conference in Australia on commodity price volatility. Jacks said his is not the only voice warning that commodities are beginning to trend downward in price — investment bankers Goldman Sachs and Citybank have done the same.
However, commodities analyst Patricia Mohr, who writes a monthly research report for Scotiabank, said she thinks it’s a little early to be talking about the end of the super-cycle. Prices are softening, and they may remain soft for several years, but new capacity for metals like copper is limited beyond 2017, and prices are expected to pick up after that.
Further, economies like China have not matured yet, she said, citing the fact that only 70 people per thousand own cars in China compared to 793 per thousand in the U.S. and 580 per thousand in Japan. Automobiles, she said, consume huge amounts of metal and energy. For the short-term, rising prices in March for commodities such as natural gas, heavy oil, and oriented strand board have pushed up Scotiabank’s commodity price index for that month.
“It depends very much on what you are looking at,” she said of commodity prices.
Jacks said he does not expect a dramatic price collapse in minerals and energy, but that prices will ease off their highs.
“This is not an entirely bleak story. I don’t think it is going to be a collapse in the commodities complex. But a little caution is warranted.”
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