commodity super cycle

From JP Morgan - as ex analyst / metals & energy trader I couldn't agree more. Thought you RDMers would find interesting.

JP Morgan has claimed that the emerging world still has at least 15 years of commodity intensive growth ahead of it, dismissing claims that the world's third 'economic supercycle' is over.

Neil Gregson, fund manager of the JPM Natural Resources Fund, commented: 'Although it is perhaps difficult to believe at present, the third great economic supercycle is underway. Since 2000, emerging market countries have been unlocking their growth potential and facilitating the catch up process. This will last until 2030 and will be commodity intensive throughout.'

Despite a recent slowdown in growth, Gregson insisted that China would continue to bolster commodities as authorities begin to invest in infrastructure again, boosting iron ore, coal and cement. The completion of current projects would also enhance demand for copper, which is used in internal building wire.

Gregson added that China's switch from exports to domestic consumption would lead to greater demand for commodities currently under used in the country such as oil, consumption of which would go up as car ownership increases.

Additionally, he claimed that India still had 'many years of commodity intensive growth in the pipeline' as urbanistation is set to double over the next 15 years with 590 million people expected to live in cities there by 2030.

To absorb this influx of people, Gregson posited that India would have to build between 700 million and 900 million square metres of residential and commercial space and around 350-400km of subway every single year - 20 times the rate seen over the past decade.

Gregson also claimed that a reduction in the supply of many commodities including copper would keep prices high.

He argued: 'Commodity supply has become increasingly inelastic. Accessing resources is more problematic; excess capacity and inventories are declining; and there are technical limits on the speed at which productivity improvements can be implemented.'

Gregson concluded: 'Any growth surprise in North America, Japan or even Europe has the capacity to heap yet further pressure on already ailing supply, keeping markets tight and prices high. The current phase is just a pause in the supercycle’s continuing spin.'