The commodity supercycle: myth or reality? Part 1

Since 2001, commodities have experienced a powerful bull market. No matter which commodity, they have all gone up in price: precious metals, base metals, coal, uranium, oil, natural gas, grains, potash. The list goes on and on, and the price charts all look the same: they start somewhere on the bottom left, and move up to the top right-hand corner. With a powerful bull market now in its eighth year, some market commentators have asserted that this is a “commodity supercycle”, a bull market like no other. Is the commodity supercycle for real, or is it just one more commodity bull market the likes of which we have seen before?

One authority on the subject is Marius Kloppers, CEO of Melbourne-based BHP Billiton (BBL-N, BLT-L), the world’s largest miner. BHP Billiton has made a pre-conditional merger offer to Rio Tinto (RTP-N, RIO-L), another mining giant, which was rejected by Rio Tinto’s board. In an interview in the Wall Street Journal in late March, Kloppers compares the present commodity boom to those which occurred during the colonial age and after the Second World War. He says that the present boom is even bigger. Not only does it involve the industrialization of China; it also involves India and large parts of southeast Asia. Kloppers says that new people are entering the modern industrial age, and massive urbanization processes are under way, so commodity demand is strong. With such a bullish outlook, no wonder BHP Billiton is trying to merge with Rio Tinto.