The Commodity Lag: How 2010 Prices Result from 2007

More interesting information from the IMF's World Economic Outlook:

Before getting to the outlook, note some of the dynamics. The mildest cycle was for agricultural raw materials, followed by beverages (coffee, tea) and food. These are generally materials with rapid supply response to rising price. You want more coffee? Plant more bushes. Metals has a a much longer response time, as you prospect for ore, build or expand mines, increase refining capacity, and perhaps wait for ore-carrying ships to be built. Oil has the longest response time.

The outlook? We've had quite a bounceback, and stronger global economic activity should be positive for prices. But don't forget that we'll continue to have new production capacity coming on line for energy and metals. Those long time lags of supply response mean that we'll have greater supply in 2010 because of the high prices in 2007. As a result, I forecast only moderate growth of commodity prices.

Comments

[JeffDB:]

Perhaps, but expenses and amount of energy needed to extract them is going up in real terms.

For instance, the energy return on energy invested has steadily gone down in the oil industry. Years ago it was 100:1 units of energy for each unit of energy expended. It is now down to about 11:1. Even as we find new sources (ie. in very deep water, or in the Arctic & Antarctic, or non-conventional high-cost sources such as tar sands, shale etc., the older, cheaper sources are depleting.

Oct 10 03:29 PM

[User 422955:]

I've been reading about potash. I think it is following the same pattern. There could be an over-supply in '10 or '11.

Oct 10 07:36 PM