The pattern of rising commodity prices over the past decade supports our view that the rapidly expanding global middle class has a strong appetite for commodities.
This growing body of more prosperous consumers could have significant impact on global demand and supply. Rising incomes generally lead to increased use of transportation, greater energy demand, and increased consumption of milk and meat which brings additional demand for grains, and thereby dramatic water use increases.
Yet demand for key commodities such as oil and copper are already close to full capacity utilisation rates. At the same time, oil discoveries have lagged oil production and oil continues to decline as a percentage of total energy consumption. There are implications for the ability of central banks to hold back inflation.
Further, the world population is aging, while the labour force looks set to shrink. This would result in a strong rise in the dependency ratio, both in the developed world and emerging economies.
Predictably, the rise of a global middle class will cause a fresh round of accelerating price increases in commodities, resulting in a new spike in the next few years.
Energy, Water & Commodities are undeniably linked and are some of the core themes of our Earth Wind & Fire and AquaTerra portfolios. It is thus that we keep e keen eye on these mega macro trends as they emerge.
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