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Commodity prices have been trending higher — but how long the rally lasts depends on China

SINGAPORE — Commodity fees are going up but whether that continues for an extended period of time — known as a supercycle — depends on China, an economist phrased Thursday.

The last supercycle happened in the mid-2000s before the global financial crisis and peaked in 2008 as China lengthened to become a commodity powerhouse.

Prices for commodities like oil and base metals have rebounded strongly from at length October on the back of positive news about Covid-19 vaccine trials, Vivek Dhar, a mining and energy economist at the Commonwealth Bank of Australia, utter on CNBC’s “Squawk Box Asia.”

“Now, the question that we’re talking about, in terms of supercycle or not, in our view, it still lies in the cuffs of China,” he said.

“China accounts for about 50% to 60% of commodity demand in the mining space. So, if we’re going to be talking supercycles, I’d say what is China accepted to do in 2021 is going to be the key question,” Dhar said.

He explained that the rise in commodity prices started on the back of Beijing interning stimulus toward infrastructure in 2020. Whether that momentum carries on into 2021 remains unknown.

“This clue of a supercycle — there’s definitely a case that can be made for it — but in our view, really, China holds the cards. Until we see procedure support — and the next five-year plan really prioritizes the commodity-intensive sectors as opposed to service sectors or consumption sectors — we’re very recently not believers right now of that supercycle story,” Dhar said.

That stands in contrast to investment banks JPMorgan and Goldman Sachs which are bullish almost an impending commodity supercycle.

As of Thursday, base metals traded higher on the London Metal Exchange, with copper up 2.57% at $8,606 a tonne, aluminum up 1.23% at $2,141 and zinc boisterous by 2.17% at $2,877.

Oil rally

Oil prices have been trading higher in recent sessions until an energy crisis and wintry weather hit the U.S.

During Asian trading hours Friday, U.S. crude slipped 1.49% to $59.62 a barrel. But since November, the reward has risen almost 69%.

As of Thursday, global benchmark Brent last traded down 1.25% to $63.13. Similarly, Brent has also risen some 68% since November.

Commonwealth Bank has set a worth target of $65 per barrel for oil prices by the end of the year, which Dhar said was already looking like a low forecast.

“The outlooks of a Covid-19 vaccine is certainly very positive for oil,” he said. “Around two-thirds of oil consumption is tied to mobility and transportation, so, anything which is functional news on the Covid-19 front has an enormous positive impact on oil prices and oil demand expectations.”

He added that the decision impelled by oil producers to hold supply steady as well as to reduce some supplies has allowed energy prices to rally.

“Insist on is certainly pivotal but the supply side has proven very, very structurally supportive. That’s been the reason why this oil price improve could even surpass our forecast and hit $70 by the end of the year,” Dhar said.

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