The current and history’s third commodities super cycle, which began in 2000, is far from over, and the major factors supporting it — population growth and rapid urbanization — would easily stay with us for another 15-20 years, according to a senior analyst at Societe Generale.
While acknowledging that “nobody really defines what a commodity super cycle is,” and the current period might not be “as super,” it is “not uncommon to have cycles within super cycles,” Michael Haigh, SocGen’s New York-based Global Head of Commodity Research, told a media round table in Singapore Monday.
Just as prices go up and down during those cycles within a super cycle, different commodities rise at different times, Haigh suggested, implying not all commodities needed to be consistently high all the time to define a super cycle.
Price controls, the lack of investment, insufficient production and technological innovations are some of the reasons commodities behave differently during a super cycle, he said. Copper is the best commodity to study in super cycles, Haigh said, noting that the base metal continues to trade significantly above its 90th percentile long-run cost of $4,500/mt.
Monday’s London Metal Exchange copper settlement price of $6,765/mt puts it around 50% above its 90th percentile cost.
Fellow base metal aluminum is faring the worst, trading around 20% below its 90th percentile long-run cost. However, others are comfortably above their costs — zinc (around 8%), lead (51%), nickel (14%) and tin (23%), Haigh noted.
Haigh said he was bearish copper and “fairly constructive” of aluminum and nickel.
Light sweet crude benchmark Brent of around $107/barrel Tuesday is nearly 19% above its long-run 90th percentile cost, which Haigh pegged at $90/b. “We are mildly bullish on Brent for the next six months,” he added.
In support of his optimism over the continuation of the current commodities super cycle, Haigh cited global urbanization projections by the United Nations, which have 5 billion people living in cities by 2030, compared with 3.4 billion now. Urbanization bumps up demand for base metals as well as energy, the analyst noted. CHINA HARD LANDING
Meanwhile, a hard landing in China would choke off 1.2% of global GDP growth and would create a “turmoil in the financial markets and commodity markets,” exacerbating all commodity price moves. Haigh sees such an occurrence as absolutely “devastating” for the base metals complex and energy commodities.
However, he underlined that SocGen’s analysts are putting a relatively small 20% probability on a hard landing in China, which they define as 3-4% GDP growth rates for the country.
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