The Commodities Supercycle Is Over — Here’s What’s Next – by Ashley Kindergan (The Financialist/Business Insider – July 4, 2013)

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Sluggish global growth and a recent economic slowdown in resource-hungry China have hammered commodities markets this year, sending the price of everything from iron ore to copper tumbling. With those sharp reversals—as well as the Fed’s comments about tapering the size of the United States’ monetary stimulus—fresh in their minds, the 300 clients who convened last week at Credit Suisse’s New York headquarters for the bank’s third annual Commodities Day had plenty to talk about.

With few exceptions, the prices of commodities such as oil products, precious metals and industrial metals have been steadily rising over the past decade in what analysts have termed a “commodities supercycle.” That era is over, Credit Suisse experts say, and they expect prices to remain under pressure at least through the end of the year.

What’s more, the prices of individual commodities will no longer rise and fall together as they have for the last five years, Credit Suisse’s commodities team explained in a June 25 research note (“Commodities Forecast Update: The Return of Fundamentals”). As a result, investors and traders are going to have to focus on the specific supply and demand dynamics for individual commodities.

Copper and iron ore prices, for example, are expected to decline because supplies of both metals are becoming more plentiful at the same time that demand is declining. Copper is used in wiring and electrical equipment, and is thus sensitive to both building activity and demand for electronics. And iron ore is an indicator of industrial activity of all kinds.

Prices of both should soften as China’s building and manufacturing boom cools off. Demand for palladium, on the other hand, should stay strong thanks to the steadily growing Chinese car market, at the same time that labor unrest in South Africa looks likely to slow growth in supply. That points to higher prices.

Attendees at Commodities Day represented a wide variety of investors. Close to one-third were from hedge funds, while roughly one-fourth were institutional investors.

The Year Ahead

Out of four commodity sectors – energy, precious metals, industrial metals and agriculture – energy and agriculture nearly tied (37 percent and 36 percent, respectively) as investors’ pick for the most promising bet over the next year.

Most investors – 41 percent – think commodity prices will remain at their current levels a year from now. Perhaps more telling is the fact that nearly one in four respondents (23 percent) said they had absolutely no idea where commodity prices were going.

One thing is clear, though. Investors don’t expect the market to stabilize. More than half (53 percent) of those surveyed believed volatility would be higher over the coming year than it was in the previous year. About a third of investors thought volatility would stay the same, but only 15 percent thought it would decline.

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