There was no commodity "supercycle". Passive commodity investment vehicles, bought commodities because their prices were increasing.
Recall (in a previous post) that a large investment bank proclaimed oil was going to 200 almost immediately prior to the start of the crash.
Investments must be sold in order to book profits. Creating a demand for others to sell into is a wonderful business.
By Ambrose Evans-Pritchard
Last Updated: 7:37PM GMT 10 Dec 2008
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The bill has now fallen due. Tom Albanese, the chief executive, is cutting 14,000 jobs and slashing investment by $5bn over the next year in a frantic effort to lower debt. " He cited the "unprecedented rapidity and severity of the global economic downturn."
The last straw may have been a push by China to cut iron ore contracts for 2009 by 82pc, although almost every part of Rio's portfolio has been savaged by the metals crash. The trio of copper, lead, and zinc have now fallen by over 60pc since peaking in the summer. They have dropped further – and faster – than they did during the Great Depression from 1929 to 1933.
It has been an article of faith in the markets that the commodity bust would be over quickly, followed by a V-shaped recovery as the Malthusian dearth of oil, metals, and food, reasserts itself – and as the industrial revolutions of China and India trump falling demand in the Old World.
But the "Supercycle" thesis itself is now being called into question. The World Bank's global outlook this week suggested that credit excess had pushed commodity prices far above their sustainable level in this cycle. "Over the longer run, the price of extracted commodities should fall," it said.