A great bear market in raw materials

The Bloomberg Commodity index, which tracks 22 hard and soft raw materials, has fallen to a 13-year low.

15-4-23-tractor-634

A bumper US harvest has hit grain prices

Last decade's long bull market in raw materials, often called the "commodities supercycle", is now a distant memory. This week the Bloomberg Commodity index, which tracks 22 hard and soft raw materials, fell to a 13-year low. It is down by almost 60% from its 2008 peak.

Prices fell across the board, with gold sliding to a five-year-low over ten days, its longest losing streak since 1996. Oil tumbled US futures are at a six-month low below $50 a barrel, while Brent crude hit a three-month trough. Industrial metals are ailing too, with copper close to a six-year low. And a bumper US harvest has hit grain prices.

What the commentators said

"You've got unstinting supply increases and a weak outlook for demand across the board," said Michael McCarthy of CMC Markets. Annual growth in China, whose appetite for metals underpinned the supercycle, has fallen to 7%, the lowest since 1990. The recent stock- market meltdown has revived fears of a hard landing. The global picture looks lacklustre too, with the International Monetary Fund trimming its 2015 global growth forecast from 3.5% to 3.3%.

752-bloomberg

US dollar strength driven by the prospect of rising rates is "a big part" of the picture, said Tony Headrick of CHS Hedging. Commodities are priced in dollars, so tend to fall as the greenback rises, and they become more expensive for non-dollar holders.

Yet the dismal mood suggests this could be "peak bearishness", reckoned Orcam Financial Group's Cullen Roche on pragcap.com. Commodities tend to do well in the late stages of a rebound, when wages rise, stoking inflation and faster growth. We're five years into the US recovery. Time to bet on a raw materials rebound?

Recommended

The uranium price is soaring – here’s the best way to play it now
Energy

The uranium price is soaring – here’s the best way to play it now

Uranium, the key ingredient to nuclear power, has been ignored since the bubble of 2006, but now the uranium price is rising again. Dominic Frisby exp…
22 Sep 2021
Why is the UK short of CO2 and what does it mean for you?
UK Economy

Why is the UK short of CO2 and what does it mean for you?

The UK is experiencing a carbon dioxide shortage that could lead to empty shelves in supermarkets. Saloni Sardana explains what’s going on and how it …
21 Sep 2021
How high energy prices are driving up food prices too
Soft commodities

How high energy prices are driving up food prices too

High energy prices aren’t just affecting our heating bills, they’re making food more expensive, too. Saloni Sardana explains what’s going on.
21 Sep 2021
The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021