WE’RE still in a super commodity cycle — except that Credit Suisse says it’s a “super down” cycle.
And have we got further to fall? Perhaps, considering that oil prices are still 35 per cent above their 40-year inflation-adjusted norm, and minerals are 41 per cent above.
Real commodity prices are not that low. Credit Suisse shows that, in real terms and over a trajectory of the past 50 years, present prices are still well above the norm. In fact, on only four occasions since 1964 have commodities in real terms been higher than now: during the two oil shocks of the 1970s, then in the 2007 culmination of the recent commodity boom and finally during the temporary recovery surge after the GFC. We’re still well ahead of what miners and oil drillers received right from the early 1980s through to about 2005.
The one piece of good news in the Credit Suisse report is that iron ore prices might soon level off. In the previous iron ore bear market prices fell 54 per cent. This time they are down 55 per cent.
What has got the analysts at Credit Suisse really worried, though, is the Chinese triple bubble: credit, real estate and investment. China’s private sector debt to GDP ratio is 30 per cent above trend; property prices are down six months in a row; China’s investment share of GDP is now 48 per cent, significantly higher than in Japan and South Korea at similar stages in their industrialisation.
“We think there is a high probability of a hard landing for China at some point over the next three years,” the report concludes.