The major long-term theme in commodity markets for the last decade has been the commodity super-cycle. It has not disappeared, it has expired with the changes in economic growth around the global. The 2000-2008 period will be noted as a special global growth period with the ascent of emerging markets. This was the time where everyone was talking about the BRICs and the growth of the middle class in emerging markets. China grew at extraordinary rates and there was no global crisis for almost eight years. In commodity markets, under investment meant that supply could not keep up with demand. Prices moved above marginal cost and new investment began.
Move forward post-crisis, trade fell off a cliff in 2009 only to rebound smartly along with global growth. We may not have seen as strong a growth cycle in the US but the rest of the world showed strong gains. However, these growth gains did not continue in 2011-12 and now global growth is less than the 2000-08 average. BRIC GDP is lower, global GDP is lower by at least a third, trade is about half the average, global confidence has fallen, and manufacturing is down.
In fact, commodity prices seem to better represent the real economy than the global stock markets. Commodity markets which represent immediacy is showing weakness while forward looking markets like stocks is showing strength.
The super-cycle is following the lack of super growth. There should be no surprise here.
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