Commodities boom may go on for five more yearsBy HANIM ADNANTHE...

Commodities boom may go on for five more years

By HANIM ADNAN

THE global commodities boom is expected to continue for at least another five years, thanks to the growing supply and demand imbalances worldwide as well as huge demand from emerging economies like China and India.

Analysts said commodities like metal, energy and food-based, which are in their fifth-year upcycle, were currently trending upwards after the much-needed correction last month due to the US subprime scare.

They concurred that demand for energy, particularly in Asia, would rise further, which meant the price of crude oil would continue to appreciate and might hit as high as US$100 per barrel in the future.

The inventories of other resources like base metal and food-based oilseeds are depleting as the rapid industrialisation of China, India and certain parts of Latin America spurs demand.

“The growing population in the emerging economies, with three billion people, is putting immense pressure on the planet's resources.

“Just look at the high rate of oil and metal-related exploration activities worldwide to cater for the surge in demand,” said one analyst with a foreign stockbroking firm.

He said supply constraints would support commodity prices in the long term but cautioned that “it is not the right time to be overly bullish about the extent of price gains.”

Analysts contacted by StarBiz hold mixed views on whether the record high prices in commodities – following a rally whose extent had not been seen in over five decades – can be sustained in the current supercycle compared with the normal three-year upcycle.

Many dismissed the idea of a potential bubble in commodities, while some likened the current commodity bull-run to the case of Japanese stocks in the 1990s and the Internet bubble in 2000.


Analysts have pegged the average price of crude palm oil at between RM2,400 and RM2,500 per tonne this year, significantly higher than last year's average price of RM1,510.50 per tonne
SBB Securities senior analyst Ng Jun Sheng said the risks for a bubble in the commodities market were mitigated partly due to the recent correction in most major world commodities.

Local commodities like crude palm oil (CPO), tin, rubber and steel products have had their fair share of price corrections this year but continue to trade on a higher note compared with three to five years ago.

Last Friday, spot CPO saw strong trading at RM2,520 per tonne, followed by tin which was steady at US$14,650 per tonne, while rubber tyre-grade SMR 20 and latex-in-bulk closed at 728 sen per kg and 492.50 sen per kg respectively.

Aseambankers senior analyst Ong Chee Ting expects continued high demand for CPO from traditional markets like China and India.

He said weather anomalies and increased competition between crops for land space had contributed to supply constraints in the global agricultural sector.

“The biggest price driver for CPO will be the rise in demand for biofuel industry, which mostly derives its feedstock from vegetable oil and oilseeds like rapeseed, canola and palm oil,” he added.


Analysts have pegged the average price of CPO at between RM2,400 and RM2,500 per tonne this year, significantly higher than last year's average price of RM1,510.50 per tonne.

On tin, a trader said the commodity hit a record high of US$16,750 per tonne last month before stabilising at US$14,700 per tonne currently.

The price level is much higher than the US$11,051 average per tonne as at end of last year.

The trader said depleting global tin stockpile, continued growth in the Asian economies and the impending implementation of the Restriction on Hazardous Substance legislation by China would continue to boost tin demand this year.

Rubber, meanwhile, continues to perform satisfactorily with the price of tyre-grade SMR 20 stabilising at an average RM7 per kg while latex-in-bulk at above RM5 per kg this year. The SMR 20 hit as high as RM8 per kg in mid-2006 – the highest in 20 years – on supply concerns.

A rubber trader said the price of the commodity would continue to be supported by potential shortages from major producers, Thailand and Indonesia.