What the end of the commodity supercycle means for Canada – by Glen Hodgson (Globe and Mail – April 8, 2015)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Glen Hodgson is senior vice-president and chief economist of the Conference Board of Canada.

It appears more and more likely that the global commodity supercycle has come to an end. While the recent collapse in oil prices has attracted much of the focus, prices for many commodities across the board have softened. These commodities include energy, metals and agricultural products, all of which are important to Canada. No one has a crystal ball but if the commodity supercycle is indeed winding down, Canada will surely be affected.

As The Economist magazine has regularly reminded us, aggregate commodity prices fell in real terms (with the impact of inflation removed) for most of the 20th century. Prices then took off in 2002-03 with China’s growing integration into the global economy. Robust Chinese economic growth and infrastructure development essentially added a one-time boost to demand for resources of all types, and prices responded accordingly.

Between 2003 and 2008, many commodity prices effectively doubled or more in real terms. Turbulence and instability in commodity prices also grew during that period; financial markets increasingly saw commodities as an instrument for speculative investment, not just a product to be bought and sold to meet end demand.

Following the generalized price drop during the 2008-09 recession, commodity prices recovered into 2010; but many commodities have seen their price tail off since then, due to the combined forces of a tepid and fragile global recovery, financial instability in the European Union, ever-growing efficiency in energy and other resource use, and a steady stream of new commodity suppliers.

Each market segment has its own story to tell and the market price on a given day will come down to demand and supply conditions in each specific segment. But over all, it looks increasingly like the commodity supercycle has come to an end.

What next? First, let’s recognize that prices are not necessarily returning to pre-2002 levels. Over all, it is reasonable to expect real commodity prices to remain stronger than long-term historic trends, but below their recent highs.

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