The stock markets have rebounded from the depths they plumbed in May and June, the bond markets too have prospered as yields fell after the US Federal Reserve stopped raising rates, but there’s one class of assets that still bear the scars of the meltdown in May. The commodities market is yet to recover from the drubbing it took earlier this year. In fact, commodity indices have tumbled even more as a result of the recent sharp fall in crude oil prices, and the energy-heavy Goldman Sachs commodity index is down 13 per cent this year. Of course, as the table shows, commodity prices have shown divergent trends. Food prices, for instance, have gone up thanks to a drastic fall in wheat and corn production. As a result, the food index is well above the May level.

On the other hand, the index for all industrials is at a lower level than in May.

Indian commodity indices show the same pattern. The MCX metals index, for example, is well below the levels reached at May-end, while its agricultural index is higher, much of the rise occurring in October. Some metals, such as zinc and nickel, are also at multi-year highs. But there’s no doubt that much of the sheen has gone from the once high-flying metals sector.

Does that mean the commodity cycle has turned? When the extraordinary commodity bull run started three years ago, it was hailed as the start of a decades-long super-cycle, which would drive commodity prices to extraordinary peaks. Goldman Sachs’ prediction that the price of oil would go up to $100 a barrel was part of that theory.

The idea was that the rapid development of countries such as India and China had created a huge new source of demand for commodities. This was especially true for China, with its manufacturing-led growth. Over the 2002-05 period, China’s share of the total growth in global consumption of industrial materials was: 48 per cent for aluminium, 51 per cent for copper, 110 per cent for lead, 87 per cent for nickel, 54 per cent for steel, 86 per cent for tin, 113 per cent for zinc, and 30 per cent for crude oil.

So why have commodity prices started falling? Simply because US growth is slowing down, while the Chinese government too has said that it will try and cool the Chinese economy. As industrial growth cools, so will the demand for energy and metals. Add to that the fact that there was a huge increase in investment in commodity funds in the past year. According to AIG, about $100 billion is invested in the Goldman Sachs Commodity Index and the Dow Jones AIG Commodity Index. Some of these funds will ebb and flow with the momentum.

But is the fall in commodity prices a buying opportunity? International independent research outfit BCA Research believes that the fall in energy prices certainly is. In a recent research note it said, “The deceleration in oil production is striking given that the number of operating rigs has climbed by almost 50 per cent since 2004. Moreover, Opec has already reacted by cutting output to defend prices. The next upleg in oil prices awaits a re-acceleration in leading economic indicators, but we nevertheless view the setback in energy plays as a buying opportunity and recommend overweight positions in energy-related equities.”

The outlook for metals is less rosy. According to the IMF, while consumption growth of copper and aluminium will remain strong, rising supply will offset this demand. It forecasts copper and aluminium prices to decline by 57 per cent and 35 per cent respectively by 2010.