Morgan Stanley says commodity supercycle a myth

Traders.pngMorgan Stanley’s head of emerging markets seems to share the blog’s belief that the current oil and commodity ‘supercycle’ is simply a speculative frenzy.

Writing in the Financial Times, Ruchir Sharma notes:

“The daily news about falling oil prices is the beginning of a major shift in the global economy: the end of the “commodity supercycle”, the idea that the rise of emerging markets led by China would continue to drive up prices for oil and other commodities, from copper to corn….

“The oil bulls build their forecasts on the assumption that the mass, rapid rise of the big emerging markets will continue for another decade or two. But their boom was unprecedented – almost freakishly unusual – and is now breaking up, with Brazil, Russia, India and China all slowing markedly.”

He also confirms our argument in chapter 3 of Boom, Gloom and the New Normal that markets have become dominated by speculators:

“The commodity mania spawned a new industry of investment funds that allow even lay people to trade in commodities. The total invested in commodity funds has more than doubled over the past five years to more than $400bn in 2011. The daily volume of trades in energy futures is now a staggering 25 times higher than daily global demand for energy. Speculators rule the markets”

The problem is, of course, that the damage has already been done. As the blog worried back in October 2010:

“But once the party has ended, and the computers have been shut down for the night, it will be the real world of the chemical industry that will have to pick up the pieces.”

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

,

Leave a Reply