An era of dwindling resources has begun and raw materials costs are exploding. Prices of agricultural commodities, metals and energy have been increasing for months. The euro price for crude oil increased by 28% in 12 months, for wheat by 98%, for coal 36%, for gold 35%.
And the price for wood increased in some countries by more than 20%.
What are the reasons for such steep increases?
The factors include our exposure to environmental disaster and climate change induced reappearance of forgotten plant diseases. In addition we have technological disasters like the Deepwater Horizon oil spill and closure of Alaskan oil pipelines. This all leads to market assumptions of supply shortage.
So the price explosion is partly the markets’ reaction to scarce supply, combined now with a recovery in demand.
But according to Darin Newsom of the industry information service Televent DTN, some experts also believe that this price explosion is the result of a “new world order”.
“Ten years ago no-one would have assumed that the natural resources sector could develop into something other than the short-term oriented, volatile, casino-like organism it used to be,” he said. “Who would have thought that 10 years ahead, the issue of natural resources would dominate the financial media and that traded commodity funds would be regarded as the investment vehicle of the future?”
For about five years, investors from other fields and speculators, banks and broker firms have taken on raw materials trading. They don’t have much knowledge about these markets but they do have high expectations. These people who have come to dominate raw materials markets now have an enviable problem: they hardly know what to do with their money!
There is too much excess capital and fund managers are desperately searching for investment opportunities. In the course of their search they produce one wandering bubble after the other; in the markets for property loans, the stock market – and raw materials. This could ultimately result in a crash and prices tumbling again.
But in the meantime, raw materials demand will also soar and cause shortages and a new world order will emerge where they are traded like gold. And this bears considerable negative political risk. Some fear defence of access to scarce resources may even result in war.
Growth of the global economy combined with increased demand and diminished supply will also cause timber prices to rise. Because the whole world requires wood more and more and it is only available on a sustainable basis in a small part of the world.
But the good news is timber will then get the appreciation it has so long deserved (for the benefit of us all, let’s remember 2006 and 2007).
So, despite all that talk about crisis, let’s be optimistic about the future, if not for this year, at least for the next.
