A great bear market in raw materials

published 23 July 2015

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%.

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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?

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.