Commodity `Super Cycle' Remains in Place
2006-06-29 12:42 (New York)
June 29 (Bloomberg) -- The commodity ``super cycle'' remains in place because energy and mining companies have failed to invest in expanding production capacity, said Philip Richards, the chief executive officer of RAB Capital Plc.
``There haven't been any big surges in supply. It's a worrying situation, which means prices will be sustained at higher levels over a longer time,'' Richards said at a conference in London today.
``I still believe there is a lot of upside in commodities.'' Commodity prices, as measured by the Reuters/Jefferies CRB index of 19 commodities, have dropped 6.3 percent from the index's May 11 record as central banks in the U.S., Europe and China raised interest rates.
Growing demand from China, whose economic growth has averaged 8.8 percent in the past five years, combined with under-investment in production, has spurred the longest rally in commodity prices in five decades. Oil rose to a record $75.35 a barrel in April, copper to $8,800 a metric ton last month and gold to the highest in 26 years.
``We believe the bull market in commodities is just beginning and has a long way to run,'' Richards said. ``It was perceived that after two or three years of gains in commodities, it was time to get out. This perception is entirely wrong.''
RAB's Special Situations Fund, its largest, has a 90 percent holding in energy and mining companies and returned 61 percent in the past year. The fund was also the best-performing European managed equity strategies hedge funds in April, returning 14 percent. The publicly traded hedge fund manager has $4 billion under management.
Takeovers such as Phelps Dodge Corp., the world's third-largest copper producer, purchase of Canadian nickel miners Inco Ltd. And Falconbridge Ltd. for about $37.4 billion ``doesn't add to mining capacity,'' Richards said.