Despite Rising Prices And Demand, Economists Denied That A Commodity Boom Will Occur

Workers are seen carrying out oil palm fruit processing activities which are one of Indonesia's mainstay commodities. (Photo: Doc. Antara)

JAKARTA - Bank Mandiri's Department Head of Industry and Regional Research, Dendi Ramdani, said that the current increase in demand for a number of strategic commodities is estimated to be only temporary. According to him, the increasing demand side which also raised the selling price was not based on strong fundamental factors.

In his analysis, there are two key aspects that make commodities quite attractive at this time. First is the increasing demand factor.

"Although there is an increase in demand, it needs to be seen that the increase is not too high and is still in a limited number," he said in the Media Gathering Virtual Economic Outlook & Industry Second Quarter of 2021, Wednesday, May 19.

Meanwhile, the second aspect raised is the issue of current global liquidity conditions. Dendi noted that a number of developed countries were pouring fiscal incentives to minimize the impact of the pandemic on their respective economies.

This then resulted in the disbursement of fresh funds into the financial market which resulted in abundant liquidity.

For example, he then gave a parable of the United States (US) fiscal policy which approved President Joe Biden's proposal to disburse an incentive of 1.9 trillion US dollars in the midst of a pandemic. This amount is not much different from that of his predecessor, namely Donald Trump, who poured out US $ 2.2 trillion in funds to maintain the country's economic stability.

So, continued Dendi, the current appreciation of commodity prices is also supported by the flood of dollars on the market.

"So I think a supercycle or commodity boom will not happen, and it is very different from the conditions in 2008 or 2009. At that time, demand actually increased, driven by China's very high consumption and their economic growth was growing double digits, quite different compared to now," he explained.

Furthermore, the state-owned bank economist also projects that the shine of commodities will fade as the economic recovery in developed countries begins to reduce their fiscal incentives.

"I believe the correction will definitely occur. If we are optimistic (the handling of COVID-19 will be successful) then by 2022 commodity prices will definitely return to their fundamental level, "he stressed.

For information, currently some commodities have exceeded the price before the COVID-19 pandemic at the end of 2019. A number of these trading products include CPO to around US $ 1,000 per ton from previously only US $ 740 per ton. Then, coal which has a price of 87 US dollars from the previous 67 US dollars.

"Another indicator why I believe a correction will occur is the stable trend in oil prices," concluded Dendi.