SINGAPORE – Commodity prices are rising, but whether this lasts for an extended period – known as a super cycle – depends on China, an economist said Thursday.
The last super cycle occurred in the mid-2000s before the global financial crisis and peaked in 2008 as China grew into a commodity power plant.
Prices for commodities such as oil and base metals have rebounded sharply from last October on positive news about Covid-19 vaccine trials, Vivek Dhar, mining and energy economist at the Commonwealth Bank of Australia, told CNBC’s Squawk Box Asia. “”
“Well, the question we are or are not talking about regarding Supercycle is still in the hands of China in our view,” he said.
“China accounts for about 50% to 60% of the mining raw material demand. So if we are talking about supercycles, I would say what China will do in 2021 will be the key question.” “Said Dhar.
He explained that the rise in commodity prices began on the basis of Beijing, which was providing infrastructure incentives in 2020. It is unknown whether this dynamic will continue until 2021.
“This idea of a super cycle – there is definitely a case that can be made for it – but we think China really holds the cards. Until we see political support – and the next five-year plan really prioritizes the commodity-intensive sectors as opposed to service sectors or consumer sectors we just don’t believe in this Supercycle story right now, “said Dhar.
This is in contrast to investment banks JPMorgan and Goldman Sachs, who are optimistic about an upcoming commodity super cycle.
As of Thursday, base metals traded higher on the London Metal Exchange, with copper gaining 2.57% to $ 8,606 per ton, aluminum up 1.23% to $ 2,141 and zinc up 2.17% to $ 2,877.
Oil rally
Oil prices traded higher in recent sessions until an energy crisis and freezing weather hit the US
During Friday’s Asian trading session, US crude fell 1.49% to $ 59.62 a barrel. But since November the price has gone up almost 69%.
On Thursday, the global benchmark Brent last traded 1.25% to USD 63.13. Similarly, Brent is up 68% since November.
The Commonwealth Bank has set a target price of $ 65 per barrel for oil prices by the end of the year, which, according to Dhar, already looked like a low forecast.
“The expectations for a Covid-19 vaccine are certainly very positive for oil,” he said. “Around two-thirds of oil consumption is linked to mobility and transport. Anything that is positive on the Covid-19 front has an enormous positive impact on oil prices and expectations of oil demand.”
He added that the oil producers’ decision to keep supply stable and reduce some supplies had led to an increase in energy prices.
“Demand is certainly critical, but the supply side has proven to be very, very structurally supportive. That was why this oil price rally beat our forecast to hit $ 70 by the end of the year,” said Dhar.
