The death of the commodity super-cycle is premature

The death of the commodity super-cycle is premature

Furthermore, economic factors are once more about to change in the favour of the commodity bulls.

Five years of global economic turmoil, which saw the biggest slowdown in growth across the industrialised world since the Great Depression, is coming to an end. As confidence builds, so too will demand among the wealthiest nations. Instead of requiring fewer raw materials, the world’s most developed economies are poised to increase consumption, just at a time when rapid growth in emerging markets has moderated.

McKinsey points out that despite falling from levels achieved in 2011, average commodity prices are trading around the same levels as in 2008, just before the global financial crisis tore into Europe and the US. The global recovery picking up momentum will see demand increase and the emphasis return to the need for greater investment into production and boosting supply across a range of resources. The consultancy company also challenges the theory that China’s demand for resources, especially energy, is slowing dramatically.

According to McKinsey’s projections, China’s primary energy demand can be expected to grow by more than 2pc per year, which equates to 40pc of incremental global demand up to 2030.

At a time when energy companies and miners should have been pressing ahead with investment plans, most have succumbed to shareholders’ short-term demands and curtailed spending. For consumers, the risk is more price volatility and a return to the dark days when rising commodity prices posed a significant risk to growth and a catalyst for global inflation. Historic underinvestment at the beginning of the past decade in new oil wells and mines resulted in a sudden upswing in prices and a rush of spending to catch up with demand.

But renewed investments and stable prices for commodities won’t be encouraged by a return to the rhetoric of resource nationalism, a doctrine that Labour leader Ed Miliband showed last week with his plan to cap consumer energy bills is not limited to socialist republics and Middle East dictatorships.

Opec chief and Libya’s oil minister to hold court in London

Abdalla El-Badri, secretary general of the Organisation of Petroleum Exporting Countries (Opec), which controls about 60pc of the world’s oil reserves will be in London tomorrow for the annual Oil & Money industry jamboree.

A former Libyan oil minister, Mr El-Badri is coming to the end of a year-long extension to his second three-year term as impresario of Opec. The 12-member group, which includes Saudi Arabia and Iran, will vote when it next meets in December on appointing a new secretary general, or if they can’t agree on a candidate, ask Mr El-Badri to remain at the new Vienna headquarters for another year.

In London, he won’t be the only Libyan oil man to be attracting the interest of some of the world’s most powerful oil executives. Libya’s new oil minister, Abdulbari Al-Arousi, who was included at the last minute on the event’s agenda, will be in high demand as continued security problems have seized up the nation’s exports.

The first cargo of oil in almost a month was shipped from Libya’s main Zawiya port (pictured) late last week after demonstrations by oil plant guards had forced the cancellation of exports from several of the country’s Mediterranean terminals. Restoring Libya’s exports to 1.13m barrels a day of high-quality crude from the current trickle will be vital to keep petrol and diesel prices in check as Europe heads into winter.

Palladium still shines for investors

Precious metals have endured a rough time on commodity markets as investors have shifted assets in readiness for the US tapering its bond-buying programme. However, palladium is one precious metal that is still shining for some investors. The metal, which is 15 times more rare than gold, is used along with platinum in car catalytic converters. In its recent commodities quarterly, Deutsche Bank highlighted the metal as its preferred precious commodity with the best fundamentals. Central to the bank’s thinking is a return to growth in Europe and a dramatic weakening in both the South African rand and the Russian ruble, which has lowered production costs.

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