In his latest note Citi's Edward L Morse writes "the commodity super cycle is over."
That is a monumental call, given how popular the long commodities trade has been.
Why the turn?
Basically, it's all got to do with China. First, the economy is slowing down, and second as China rebalances its economy it is becoming less dependent on commodities.
"Going forward, Citi forecasts that China’s overall real GDP growth might steadily fall from +9.2% in 2011 to +5.5% by 2020. Furthermore, overall investment growth, which averaged +13.6% from 2001 to 2009, would decline to only an average of +6.2% from 2013 to 2020, a slowing by a factor of roughly a half.
...Both the overall slowing and the restructuring of the Chinese growth model should mark a watershed in global commodity markets, if only because China had played such an outsized role in global commodity markets in the past decade. For many industrial metals, China in fact was responsible for all of net global demand growth after 1995, and also is one of the largest global consumers of energy, grain, and soft commodities."
These two charts tell the story. The first one shows how China's growth will switch from commodity-intensive government investment to household spending. The second shows how this shift affects the total demand of various commodities.
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