The changes to the supply-and-demand picture, and the recent declines in prices, have ignited a debate over whether the so-called super-cycle in commodities is over—or, at least, is heading for the back-end of the cycle. Raw-materials markets are notorious for going through such periods of scarcity and then glut, sending prices on wild rides.
Commodities fell to nearly two-year lows last week, measured by a widely used benchmark, prompting investors to ponder whether the massive rally that began in 1999 may be faltering.
China is cooling down at the same time the U.S. is struggling to heat up, clouding the outlook for the world’s two biggest consumers. And producers of some raw materials have ramped up supplies enough to create at least temporary gluts, particularly if appetites falter.
From the outset, the rally that began in 1999 was fueled by two diverging forces: Rapid growth in emerging markets sparked fresh demand, particularly from China, which joined the World Trade Organization in 2001. That move opened up hundreds of billions of dollars of trade with China. At the same time, supplies were limited as years of low prices had made producers reluctant to expand their operations.
The situation has since changed. Production has increased, largely from new methods of drilling for natural gas. Crude oil output has risen 16% since 1999, while copper is up 28% and aluminum 94%, according to U.S. figures.