There has been a lot of debate about the end of the “Commodity Supercycle” in recent days. The subject came up along market speculations that a hard landing will take place in China, and that the “miracle” is “over. The premise here is that if the infrastructure development of China is over, then surely the so-called “Commodity Supercycle” is over.
Natural gas prices hit their lowest price levels since 2002 during the current decline at $2.289 in the March contract but has recovered by as much a 18.5% since Monday after Chesapeake Energy Corporation (the US’ second largest natural gas producer) said it will reduce dry gas drilling activity and production with immediate effect.
There is a disconnect between what the market is pricing in for raw industrial materials and our view for a U.S. and China recovery to develop in the early part of 2012, at least. That means we see upside risk to the base metals prices early in the year if Chinese policy continues to shift from inflation fighting to pro-growth and the U.S. economy’s solid inroads in manufacturing will be sustained in early part of H1.
We believe that the new bull phase in equities is completing its first major correction. Despite the incomplete resolution of the euro debt crisis, signs that China and U.S. economies will fare modestly well for the rest of 2011, plus a Fed promise to intervene in case of external shocks or growth decline, will support the rally until Q1 2012
The global economy has been experiencing a mid-cycle industrial led pause, which in our view is about to end. This will not develop into a recession mainly on account of continuing expansion in emerging economies and a modest improvement in the U.S. Global GDP growth this year will probably be 3.6%, vis-a-vis 5.% in 2010.