We are still in a commodities bull market, the current difficult phase for commodities will pass, says director of commodities research at Barclays Capital, Kevin Norrish.

“The bull has been thrown with cold water and it is gasping for its breath, but it won’t be too long before fundamentals return,” he said at the opening of the Mining Indaba in Cape Town today.

Norrish stressed that we were still in a resource constrained environment, while China had to continue its economic growth and urbanisation of 20-50m people every year that supported consumption of raw materials.

He said that in the 1880’s and 1990’s global growth had to range between 3,5%-4% to bolster commodity prices, while 2,5% of GDP growth drove up commodity prices between 2001 and 2008.  

 China’s infrastructure spending package was positive for industrial metals demand and would make the quickest and most significant impact on demand. An example of the impact the spending package could have on industrial metals was the 3mt of extra raillines it has brought about.

“The demand picture may not be as bad as various outlooks suggest and the supply side is responding much faster than during previous cycles,” said Norrish.

He said the supply side reaction that already saw a $30bn cut in capex planned for 2009, would limit surpluses in the market. The outlook for surpluses in industrial metals markets was “benign” with especially small surpluses in tin, lead and copper.  

The first quarter of 2009 saw the bottom of the commodity price cycle, but industrial metals were not recovering yet. Industrial metals were instead “bumping at the bottom” and prices were expected to pick up in the second half of next year.  

“There are some interesting possibilities in these markets,” said Norrish.

 He added that investors started to return to the market cautiously in the latter part of last year after a massive liquidation of exposure to different commodity markets. Investment from the retail sector via exchange traded products has picked up – one of the signs that investors were returning “cautiously”.