Industrial Insight

Commodity prices should be firm…. | May 16, 2011

The Curious Capitalist
Commentary on the economy, the markets, and business

Think Commodity Prices Are High Now? Just Wait

Posted by Zachary Karabell Monday, May 16, 2011

I just returned from a conference with some of the world’s leading money managers, and one theme was clear: there has been massive underinvestment in the global supply chain of industrial metals and raw materials. This is less about oil and gas than about things like copper, iron ore, palladium, titanium, zinc, rhodium, and a host of other “iums” that are the essential, irreplaceable inputs for the industrial world that we all inhabit and that billions are on their way to inhabiting. Simply put there is yawning gulf between demand and supply, and it cannot be narrowed in the coming decade be bridged by technology or spending.

That means we are in for a period of rising commodity inflation, including oil and of course food as more people consume more calories and crop yields strain to increase. That may not show up in normal ways that we calculate inflation, and it may not affect the decreasing cost of consumer goods in the western world for some time. But it is a challenge for companies, and the only way they can maintain profitability is through a combination of technology, more efficient business models and keeping labor costs in check. In short, low consumer inflation in the United States may be good, but its less appealing twin is the relentless pressure on wages and companies being loath to add costs by adding jobs.

So unless China truly implodes or Brazil stops growing, or hundreds of millions in India and Indonesia stop believing that they have a right to the same middle class lifestyle that has characterized the West for the past century, we are at the early stages of a spike in commodity prices the likes of which we have never seen.

Read more: http://curiouscapitalist.blogs.time.com/2011/05/16/think-commodity-prices-are-high-now-just-wait/#ixzz1MYEiwgmU

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