Here’s Why You Should Ignore The Commodity Bears

Date 09/07/2008

The Right Side

Garry White

Demand is rising by exploding populations - and resources are in finite supply

The long-term bull story is still intact

Commodity prices have fallen in the last two days, with oil falling as much as $9 a barrel. This has prompted many commentators to call the top of the commodity bull market… but I think they are wrong. No market, whether it be bull or bear, moves in a straight line. There are bearish times in bull markets and bullish times in bear markets… that’s the way the world works.

The global economy is creaking – and this has rightly caused concerns over global growth and demand for goods and services, this has caused the fall. However, the long-term commodity bull market is still intact… and it’s all down to rising population and rising affluence in developing countries. This is one juggernaut that cannot be stopped.

This coming Friday is World Population Day. This year the agency has decided to focus on the pointless task of stemming the tide of humanity by promoting contraception. I think this is a mistake.

The areas seeing the largest population explosion are in countries where large families are traditional - almost expected. I do not think they will not be able to change these cultural practices. It should have focused on solving the current food crisis instead; it may have had more of a positive effect.

Runaway population growth is here to stay

Despite this focus, the UN’s concerns about the impact of runaway population growth are very real. It predicts that the global population will soar to 9.4bn souls by 2050 from 6.7bn now. Much of the growth is expected to occur in the least-developed countries. Their population is expected to increase to 1.7bn in 2050 from 800m. This is important because as countries develop, they consume more. According to the UN, the richest 20% of the world’s people consume 86% of all goods and services, while the poorest fifth consume 1.3% of goods and services. As the poorest people see their wealth increase, which they undoubtedly will, they will consume more and more.

The agency predicts that 9 countries will account for half of the 2.6 billion increase, namely: India; China; Pakistan; Nigeria; the DRC; Bangladesh; Uganda; Ethiopia; and the all-consuming USA.

The commodities supercycle will be supported by these rising populations... there is no escape.

The more people there are in the world, the more we are going to need more of everything. It’s that simple.

The demand side of the equation will continue to soar, but this will smack into the thorny issue of supply… is there enough water… copper… fuel?

Supply issues have already sent the prices of basic goods skyrocketing... iron ore prices have risen by around 100% in the last year, with gains in certain food prices rising by a similar amount.

The most important issue to remember is that the Middle East and Asia are growing more populous and getting richer by the day. All of this new demand will have to be supplied with “stuff”. That means food, materials and energy. Demand is soaring for all finite resources and that’s why I believe the commodities supercycle will run for years and years. It’s not over yet.

To discover the best ways to profit for the soaring global population and its effect on global commodity prices click here

Regards,

Garry White
Editor
Smart Commodities UK

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