Wednesday, December 31, 2014

Roubini -- End of The Commodity Super-Cycle

Noted economics commentator and professor at New York University's Stern School of Business, Nouriel Roubini, speaking to regional journalists at the International Monetary Fund forum at Montego Bay in Jamaica on October 24 Roubini said: “Some people debate whether we are truly at the end of the commodity super cycle or whether it is the end for the super cycle in industrial metals as opposed to energy or other types of soft commodities.

“But certainly commodity prices are going down and not just because China is slowing down, but also because there has been significant new capacity investment by many countries after many years of high prices. This is leading to a glut of new supply and new capacity.

Roubini said an initial analysis of the decline in commodity prices may lead to thinking that this would be good for commodity importers and bad for exporters “That first approximation might be correct, but I think there are a number of caveats worth keeping in mind.
• The first one is that some commodity importers also export commodities. A country like Jamaica produces and exports alumina, as well as coffee, rum and sugar. The softness in commodity prices could impact countries that are net importers of oil;
• Secondly, while the fall in the price of oil is positive for the oil and energy importers, it puts a huge strain on a country like Venezuela that is economically and financially fragile. The PetroCaribe scheme effectively subsidizes the price of oil in the Caribbean and this could be threatened or Venezuela could reduce its oil subsidies to the region. If that were to occur, the falling oil prices would be less of a benefit to the region, because the explicit or implicit subsidy from Venezuela is going to be reduced.”

 Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics
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