Global Commodities Super-Cycle

Submitted by Craig Strzelecki on 5 May, 2008 - 21:12

Like many of those who are engaged in this kind of trading business, I strongly believe that we are presently in the super cycle of the global commodities as we generally see the commodity prices upward trend that is expected to remain the same way for at least 10 years. This is important to keep in mind before we can really examine the different factors that influence the trends of the global commodities. While we may corrections that are only short-term, the substantial growth in the trend is still ahead of us. To say it simpler, because the earth’s resources are finite and never-ending, the demand for this resources will continuously grow.

The commodity prices may be affected directly by many different factors. The very first factor which also causes too much influence on the commodity prices is the rapidly growing demands in some developing nations. The growth in the economy of the developing nations is continuously being strengthened and this causes the pressure on the commodity prices to go up. Moreover, even if USA is forecasted to suffer from a mild recession, the economies of the BRIC or Brazil, Russia, India and China continue to grow thereby causing a continuous growth of the demand for the soft and hard commodities.

An example of this would be the ongoing construction of more than 55,000kms of India’s motorways and this long motorway would require a substantial amount of resources. Apparently, a great number of the India citizens are looking forward to drive along these new motorways and this adds up in the energy resources demands. Likewise, the size of the city of Brisbane has also a monthly construction. The same thing goes for a coal-powered energy plant opening in China every week. The demands nowadays are continuously getting stronger and stronger and there is no reason for the demand to abate soon.

To look at the demand in a regional perspective, Asia and USA has an approximately similar daily consumption of crude oil. However, the US population is only approximately 10% of that of Asian population. Considering the population weight of the US, its demand for resources will continuously rise up if Asia’s economy will grow and develop frantically.

Another factor that influences the commodity market is the geopolitical tension. This is possible when the companies that produce the commodities worldwide are governmentally managed and operated. Turmoil and chaos also causes the pressure on commodity process to go up especially that chaos and turmoil causes an uncertain regional supply. Sad to say, the world is no longer safe and peaceful plus the fact that the conflict happening around the world will put too much pressure on the commodity prices.

Coincidentally, the law of supply and demand explains further that the increasing demand and the limited supply of energy resources focusing more on the effects of the non-renewable fuels burning in the environment has also been moving towards the development of green energy sources that will serve as an energy alternatives.

The development of different bio-fuel which requires the use of corn and sugar in the production has also put a rising pressure on the commodity prices. Ethanol is an example of these bio-fuels.

Agricultural products like coffee and livestock are some of the most common soft commodities and the demand for these commodities have also been high because they have been a support among the growing populations worldwide. Moreover, the changes in the dietary habits of people in many developing nations has helped increased the demands for these products among the nations with established economies. Let us use China as an example. The habit of drinking coffee has increased among Chinese people. In fact, Starbucks, one of the leading coffee shops in the world has a plan to put up 5000 branches in China. Can you imagine how much increase an additional 1 billion people will add up to the demand?

On the whole, I am not the only one who believes that the increase in the commodities will not stop soon or in the near future because presently, the world is just starting towards the continuous rising trend in demand and prices. In fact, with other factors such as industrialization and global conflict, the future demand for commodities is expected to be more stimulated.