Once the full picture of a divergent economic recovery becomes clear, commodities will likely fall from the stratosphere
It has been surprising to see just how far commodity prices have soared beyond what could be considered real economic growth. Much of the rebound has been a result of the base effects from the pandemic plunge, but there are other factors at play as well.
The largest is China’s stockpiling efforts, which seem to have peaked in most commodities. But there are secular changes to consider, including the greening of infrastructure, that could indeed result in strong bull markets for select commodities such as copper.
As a reminder, in past boom/bust cycles for the highly volatile commodities sector, we typically see bear markets bottom out when the Commodity Research Bureau index hits -15 per cent year over year, while bull markets peak around 24 per cent.
In this highly distorted pandemic-induced supply crunch, the CRB index is more than double that historic benchmark, having surged 52 per cent year over year to the end of April.
The primary reason is that a year ago, in the face of global lockdowns shuttering wide swaths of economic activity, the index had collapsed to its lowest point since May 2009, so a sharp yearly swing to the upside was inevitable off that base.
For the rest of this column: https://financialpost.com/investing/david-rosenberg-why-the-commodity-supercycle-narrative-is-overblown