A decade-long rise in commodities prices — the so-called supercycle — is about to resume, market bulls say, driven by rising industrial demand, a weaker dollar and production constraints.
If recent performance is any indication, the upturn already might have begun.
The Dow Jones-UBS Industrial Metals Subindex is up 57.4% year-to-date through Aug. 12, and 75.1% since its low on Feb. 23.
By contrast, the Standard & Poor's 500 stock index is up 48.7% since its low on March 9.
The rise in commodities prices comes after a decline of 36.6% last year as measured by the Dow Jones-UBS Commodity index, which tracks returns on futures contracts for a mix of energy, metals and agricultural commodities. During the same period, the S&P 500 fell a comparable 38.5%.
“We've always been in a supercycle, and we remain in a big supercycle,” said Francisco Blanch, a London-based commodity strategist at Merrill Lynch & Co. Inc. of New York.
Already, while still in the midst “of a deep recession, we've (got) oil at $70” per barrel, up from around $32 late last year, Mr. Blanch said, and copper at $2.70 per pound, double its low at the end of last year.
“I see no sign that the long-term run has ended,” said Bruce McCain, the chief investment strategist of Key Private Bank, the wealth management unit of KeyCorp in Cleveland, linking the trend “to the very rapid growth in emerging markets.”
The price recovery “is just the beginning of another commodity price rally, which is ... likely to be even more extreme than in the past,” according to a research report released this month by The Goldman Sachs Group Inc. of New York.
Goldman estimates that by the end of next year, commodities markets are likely to be back to where they were in mid-2008, “when severe supply constraints forced the rationing of demand to keep the markets balanced,” the report said.
Industrial metals, including copper, zinc and nickel, have been some of the biggest movers of late. These metals typically lead during an economic recovery, in anticipation of a resurgence in manufacturing, analysts said.
Demand for metals is picking up, and inventories of commodities overall have been trimmed after about nine months of production cutbacks, Mr. Blanch said.
Observers said that China has been a big source of demand for metals, but it is unclear who the buyers are and whether they are industrial users or speculators.