Commodities have found a bottom according to PIMCO. Mihir Worah, chief investment officer at PIMCO, says the commodity price cycle is over. During a trip to Australia, Mr. Worah commented on speculation that commodity prices have bottomed out. “Supply has caught up with demand, and we don't believe commodity prices will go down from here," he said. Recently the price of iron ore has jumped after falling to a recent low of US$47.08 earlier this month. The price for iron ore is now floating around US$54.82 per tonne, up 16.44 per cent this month. US crude oil is also at a monthly high after jumping 2.8 per cent on Thursday, settling at US$58.02 per barrel. It reached a 2015 high of US$58.41 during Thursday’s trading hours. PIMCO’s managing director for Australia, Robert Mead, noted that commodity prices bottoming out was not necessarily a sign of recovery in the Australian mining sector. Once iron ore prices recover, there’s an additional chance of oversupply again. "Anything above $US60, you are going to see a supply response correction,” said Mr. Mead.
Additionally, although oil prices may have bottomed out, prices may not return to previous levels. “If you get a price signal, you'll see more supply come on," said Ryan Lance, chairman and chief executive of ConocoPhillips. "That certainly has the opportunity to exacerbate the problem depending on where demand is." Mr. Lance believes that production has been ramped up so much that it will be able to meet demand in the long run. “If $80-$90 [per barrel] comes back, there's a good chance that $50-$60 comes back as well because of all the new oil that will come online from completed wells. Boom, bust, boom, bust,” he said. Other economists have noted that Australia will not be able to return to its mining based economy boom in the future. "We spent the revenues from the boom as they came in from 2003," said Ross Garnaut, a professor of economics at the University of Melbourne. "That left us high and dry when the Chinese new model of economic growth ended our resources boom."
Author: Imran Valibhoy
Apr 24, 2015
Since Joining the firm in 2006, Imran has worked on a range of M&A and Capital Market transactions in the natural resources, mining as well as projects in the renewable energy sector. Prior to joining Wise-owl, Imran worked at Euroz Securities in Perth, aiding in the advisory and valuation of companies in the mining and industrial sectors in Australia. Imran has a Masters in Banking & Finance from City University's Class Business School in London and a Bacheloor degree in Commerce from UWA.