The “super cycle” of gains across commodity prices may be coming to an end as raw material production rises in response to higher prices and as China’s dominance in demand recedes, according to Citigroup Inc.
Commodity markets are reflecting “increased differentiation as a group,” the bank said in a report e-mailed today. While China’s demand for raw materials continues to dominate the outlook for individual commodities, it is “no longer the monolithic force” it was in the past decade, the bank said.
“China’s increasingly differentiated impact across commodities is providing abundant evidence that the coordinated commodity super cycle of the last decade may be coming to an end,” New York-based Edward L. Morse, the global head of commodities research, said in a report today.
The Standard & Poor’s GSCI index of 24 raw materials has increased fourfold since 2001, gaining every year except for a 43 percent drop in 2008. Copper and oil rose more than fivefold since 2001 and corn almost tripled. The gauge is up 4.9 percent this year.
“Precious metals are slowing down from their rapid appreciation of 2009 and 2010,” the bank said, adding that industrial metals are entering “what may be a more supply abundant phase.”
The shift is eroding the appeal of “long-only” investment strategies, according to the bank. The investment cycle has been completed for North American natural gas, bringing “an explosion of supply and lower prices,” with similar cyclical investment trends under way across base metals, Citigroup said.
Base Metal Demand
Slower growth in China means less demand for base metals, while the country’s increased investment in raw-material assets and reforms in domestic refining and fabrication are also slowing the pace of usage growth, according to the report. China accounts for 40 percent of copper consumption and 11 percent of oil demand, according to Barclays Capital and the International Energy Agency.
China’s economy expanded 8.1 percent last quarter, less than the 8.4 percent anticipated by economists surveyed by Bloomberg, government data showed April 13. Chinese Premier Wen Jiabao cut the nation’s economic growth target to 7.5 percent last month, the lowest since 2004.
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