Keeping the Faith
As recovery falters and trading restrictions loom large, will investors keep faith with commodities?
THE GLOBAL RECOVERY – what there is of it in many parts of the developed world – is in a dangerous new phase. This deteriorating economic outlook was born of rising concerns about the health of sovereigns and banks.
By Guy Isherwood
– are feeding negatively on each other. If growth continues to lose momentum, balance sheet problems will worsen, fiscal sustainability will be threatened, and the scope for policies to salvage the recovery will disappear.”1 As a consequence, everyone has been downgrading their
... in contrast to their equity counterparts, analysts remain relatively bullish
Global activity has slowed,
downside risks have increased, and the rebalancing of demand needed for sustainable global growth has stalled. As new IMF chief Christine Lagarde recently reminded us: “In key advanced economies, the necessary hand-off from public to private demand is not taking place. The fundamental problem is that weak growth and weak balance sheets – of governments, financial institutions, and households
forecasts for economic activity in the next two years. And it was not just equities that bore the brunt of the consequent market sell-off. Oil and copper, key commodities for economic growth, did just as badly. The volatility in August reflected the uncertainty of the global economic outlook, and price
declines showed that investors were basically writing off growth in the developed world for this year and fretting about renewed recession. But what has been marked about commodities is that, in
contrast to their equity counterparts, analysts remain relatively bullish. However, the case for commodity gains still rests on ongoing demand from the developing world and no recession in the United States and Europe. And, despite all the negative news out there, the global economy will continue to grow. So does recent price volatility in commodities represent a fundamental turning point? Well, as long as China manages a soft landing, the demand outlook still appears robust, say Barclays Capital. “Inventory levels and spare capacity are wearing very
Commodity Demand Growth Has Slowed ... But Still in Positive Territory
15% 25% 35%
-25% -15% -5% 5%
Q2 07 Q2 08 Q2 09 Sources: ICSG, IISI, JODI, Barclays Capital 6 September 2011 Q2 10
Global demand growth for selected commodities (Quarterly, y-o-y)
9% 7%
N.Am Euro
3% 5%
Steel Copper
Oil -1% Q2 11 Steel Copper Oil 1% Asia
H1 Demand Growth Varied Widely By Region & Commodity
Regional demand growth rates for selected commodities (H1 2011, y-o-y)
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