Commodities prices reaching the end of a bumper run
The surge in global commodities prices could be over amid recent central bank efforts, China's slowdown and higher agricultural output
The biggest advances in commodities this year may be over because of mounting concern that policymakers are not doing enough to bolster economic growth at a time when producers are expanding supply.
The Standard & Poor's GSCI gauge of 24 raw materials will end the year at 677, little changed from now, based on the median of 10 investor and analyst estimates compiled by Bloomberg. The index is about 2 per cent lower since the European Central Bank (ECB) unveiled an unlimited bond-purchase programme on September 6, and 4 per cent below its level when the Federal Reserve pledged a third round of debt-buying a week later.
That contrasts with a 92 per cent surge from the end of 2008 up to June last year as the Fed bought US$2.3 trillion of debt in two bouts of quantitative easing. The impact will probably be smaller this time, Barclays says. Prices are already in a bull market, the 17-nation euro zone is contracting and China has slowed for six consecutive quarters. Europe and China represent about 60 per cent of global copper demand and about a third of crude-oil consumption.
"The investment demand that might be driven by people's changed perception after Fed action is not going to sustain a further long-term move of the commodity complex," said Michael Aronstein, the president of Marketfield Asset Management in New York who correctly predicted the slump in prices in 2008 and the rebound in 2009. "The longer you keep prices in all of these sectors elevated, the more supply you recruit."
The S&P GSCI rose 2 per cent this year, heading for a fourth consecutive annual advance. Soya beans and wheat led the gains after the worst US drought since 1956. The MSCI All-Country World Index of equities jumped 13 per cent and the US Dollar Index, a measure against six major trading partners, dropped 1.4 per cent. Treasuries returned 1.4 per cent, a Bank of America index shows.
Commodity assets under management reached US$406 billion at the end of July, from US$399 billion at the start of the year, based on Barclays' estimates of money tied to exchange-traded products, medium-term notes and indices. Assets reached a record US$451 billion in April last year.