Morgan Stanley Analyst: Commodities Super Cycle Ending

Wednesday, 30 May 2012 07:46 AM

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The bull run in commodities markets during the past decade is coming to an end thanks to cooling demand from China, says Ruchir Sharma, Head of Emerging Markets at Morgan Stanley Investment Management.

Raw materials like oil and grains and metals like copper have soared in recent years thanks to voracious demand from once red-hot emerging markets, especially China, although the global slowdown has crimped the need for commodities that fuel global growth.

"China's growth is downshifting to a lower plain, it's very commodity-intensive phase of growth is coming to an end. This to me marks a big decade of increase in commodity prices coming to an end," Sharma tells CNBC Asia’s "Squawk Box."

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"I suspect that we're headed now for two decades down as far as commodity prices are concerned. This is the sunset of the big commodities super-cycle," Sharma says.

Cyclical factors play a role as well.

For 200 years, commodities tended to spend two decades in decline followed by a decade of gains.

Today's prices show the decade of decline may be now — copper prices are down 13 percent over the last three months, CNBC adds, while Brent crude and gold prices have dropped 14 percent and 9 percent, respectively, which will drag on producer countries.

"Australia, Brazil, Russia — I think all these economies will have to cope with lower commodity prices over the coming decade compared to the big windfall they enjoyed over the past decade," Sharma adds.

The U.S. economy remains sluggish, while Europe remains engulfed in a two-year-old debt crisis that is threatening to escalate, which is cutting into demand from factories in China.

China's economy may be growing less, but growth is growth, and the government has yet to phase in urgent policies such as fiscal and monetary stimulus measures, leading experts to point out that China is not headed to a crisis of some sort.

"I don't think we're back in that kind of acute crisis phase," Richard Boucher, deputy secretary general of the Paris-based Organization for Economic Co-operation and Development (OECD), tells Reuters.

"The Chinese authorities have a whole variety of tools to use to stabilize the right level of growth... I think signs that Chinese growth is stabilizing at a steadier level, a more sustainable level, would be good for everybody."

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