Raw Material Growth Remains in Weakening Phase
A cyclical upturn in resource sector equity prices needs a more robust global growth outlook but growth in raw material usage rates is edging lower. The strongest growth in raw material usage usually occurs in the earliest stages of an economic recovery. Subsequently, growth rates subside as momentum reverts to the norm. In the current cycle, peak growth occurred in 2010. The chart summarises the current situation by averaging usage rates across several key commodities - aluminium, copper, zinc, nickel, lead, steel and oil - since 2010 ( in the blue line) and for each cycle since 1960 (in the red line) for the same group of products. As markets advance through this slowing growth phase, a rebalancing that will result in a change in price expectations becomes increasingly difficult to achieve.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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