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How Global Growth and Infrastructure Are Driving Commodities

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Posted by Financial Sense

on Thursday, 01 March 2018 06:09

"For the first time in a decade, we are looking at across the board global growth in both developed and developing economies, setting up tremendous demand for commodities". In another on the theme of on incoming bull market in commodities (see Jack Crooks brilliant forecast), that comment above is proven with argument and facts by Richard Mills in this article. Another well worth ingesting - Robert Zurrer For Money Talks

The global economy is booming again after years in the doldrums, commodities are back in a big way, and metals prices are for the most part, way up.

In our last article showing how commodities are the place to be in 2018, we looked at five drivers: inflation, the low dollar, economic growth, the relative undervalue of commodities versus other sectors, and tightness of supply. This article expands on the economic growth argument and explains how commodity prices are being moved by a bevy of infrastructure projects around the world – all demanding “yuge”, as Donald Trump would say, amounts of metals.

But we'll also talk about how insecurity of supply has created a climate of uncertainty around commodities, fuelled by increasing trade tensions that could lead to tariffs and quotas, driving up the prices of some imported metals – further exacerbating supply-demand imbalances. The US is finally starting to get that it must reduce its reliance on foreign metal suppliers, which is great for domestic exploration and mining. But first, let's talk about global growth and what it means for commodities.

Three-Quarters of the World Is Growing

A year ago the global economy was stagnant following the recession of 2007-09, an overhang from the debt crisis in Europe, and slowing Chinese growth which had seen double-digit GDP numbers throughout the 2000s. According to the International Monetary Fund, 75% of the world is now enjoying a full recovery. The IMF predicts global growth to hit 3.7% this year, the fastest rate since 2010.

The World Bank says it’s the first year since the financial crisis that the global economy will operate at or near capacity. Emerging markets will see the lion’s share of growth, 4.5%, while advanced economies including the US, Japan, and the EU will grow at 2.2%. China is expected to grow between 6 and 7%. India, Ghana, Ethiopia and the Philippines will grow more than China, and eight of the 10 fastest-growing countries this year are likely to be in Africa, according to consulting firm PwC.

Goldman Sachs was quoted saying that “rising commodity prices will create a virtuous circle, improving the balance sheets of producers and lenders, and expanding credit in emerging markets that will, in turn, reinforce global economic growth.”

At the end of 2017 the Bloomberg Commodity Index, which measures returns on 22 raw materials, had the longest rally on record dating back 27 years to 1991.

01-bloomberg-commodity-index

 

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