SINGAPORE – Commodity prices are going up but whether that continues for an extended period – known as supercycle – depends on China, an economist said Thursday.
The last supercycle occurred in the mid-2000s before the global financial crisis and peaked in 2008 when China became a commodity powerhouse.
Prices for commodities like oil and base metals have bounced strongly since last October on the back of positive news about Covid-19 vaccine testing, said Vivek Dhar, a mining and energy economist at the Commonwealth Bank of Australia , on CNBC’s “Squawk Box Asia”. “
“Now, the question that we are talking about, whether or not, in terms of supercycle or not, is still in the hands of China,” he said.
“China accounts for about 50% to 60% of commodity demand in the mining space. So, if we’re going to talk supercycles, I’d say what China is going to do in 2021 is is a key issue, “Dhar said.
He explained that the rise in commodity prices began behind Beijing promising a stimulus towards infrastructure in 2020. It is not yet known whether that trend will continue until 2021.
“This idea is a supercycle – there is certainly an issue that can be made for it – but in our opinion, in fact, China is holding the cards. Until we see policy support – and The next five – year plan really prioritises the product – intensive sectors, rather than service or consumer sectors – we just don’t believe right now in that supercycle story, “said Dhar. .
That’s different from investment banks JPMorgan and Goldman Sachs which are bullish about upcoming commodity supercycle.
On Thursday, base metals traded higher on the London Metal Exchange, with copper up 2.57% at $ 8,606 per tonne, aluminum up 1.23% at $ 2,141 and zinc higher by 2.17% at $ 2,877.
Oil Rally
Oil prices have been trading higher in recent sessions until the U.S. energy crisis and freezing weather hit
During Asian trading hours on Friday, U.S. crude slipped 1.49% to $ 59.62 a barrel. But since November, the price has gone up almost 69%.
On Thursday, global benchmark Brent traded last down 1.25% to $ 63.13. Similarly, Brent has also risen about 68% since November.
The Commonwealth Bank has set a price target of $ 65 per barrel for oil prices by the end of the year, which Dar said was already looking like a low forecast.
“The prospects for the Covid-19 vaccine are very optimistic for oil,” he said. “About two-thirds of oil consumption is related to movement and transport, so anything that is positive news is on Covid’s face. -19 has a positive impact on oil prices and oil demand expectations. “
He added that the decision taken by oil producers to keep supplies stable as well as reduce some supplies has allowed energy prices to accumulate.
“Demand is certainly critical but the supply side has been very structurally supportive. That is why this oil price rally could exceed our forecast and hit $ 70 too. end of the year, “said Dhar.