Prices for food, oil and raw materials may have tanked
during the past couple of months, but is the party over for
commodities? Not by a long shot, said a group of executives from
BlackRock Inc., in a press conference Monday at the firm's midtown
Manhattan office.
The game is still about supply and demand, and
despite the recent free fall in prices BlackRock foresees ravenous,
long-term global demand for materials needed to fuel cars, build
infrastructure in developing countries, feed cattle, and power up
laptop computers.
"In the coming months, global growth is
likely to continue to slow but economic development [and] the demand
for raw materials of all kinds that feed that growth are still going to
be a very potent force," said BlackRock President Robert Kapito.
"Either this is one
great big hairy bubble which is deflating, or there's a lot more subtle
fundamentals at play here," said Ewen Cameron Watt, chairman of the
company's central strategy group. Watt argues for the latter, taking
into account trends that are defying past bubbles and historical cycles
of feast and famine, war and peace.
Watt said the "real shock"
to the global system are demographic shifts regarding urbanization and
changes in diet in places such as China and India. He added that the
strongest long-term story in the whole commodities complex is growing
shortages of clean and available water, a situation he believes will
get inexorably worse during the next 30 or 40 years.
The driving
force behind the commodities boom are lifestyle changes. The U.N., for
example, forecasts global demand for meat will double by 2050, boosting
the need for feedstocks. Meanwhile, countries such as China and India
are thirsting for oil and steel to lubricate and build their
infrastructure development and their rapid urbanization.
"China
is the biggest consumer today of all raw materials except for oil,"
says Richard Davis, a managing director from BlackRock's U.K. resources
team. He said 400 million Chinese will move from the countryside into
cities between now and 2030, a dramatic shift that will consume a lot
of raw materials.
Watt believes that in lieu of a depression,
oil prices are unlikely to drop beneath the marginal cost of production
at $70 to $80 a barrel, and it could be higher given short supply.
Dan
Rice of BlackRock's U.S. global resources team said various factors are
going to keep oil supply tight, including its growing use in creating
electricity as coal supply is restricted.
BlackRock currently
oversees about $56 billion in active and passive commodity strategies
in agriculture, energy (oil, gas and coal), alternative energy,
precious metals, and mining.
That
certainly hasn't been reflected in the recent months. The Dow Jones AIG
Commodity Index has plunged about 24% since early July after nearly
doubling in the past five years, while the Goldman Sachs Commodities
Index sank about 23%, BlackRock reported.
BlackRock: Party's Still On With Commodities
October 2, 2008
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