Commodities prices look set to rise further. Their steady increase was interrupted only briefly by the economic crisis. Germany's chemicals industry will continue to be faced with rising prices in the future. For this reason investment in more efficient plant must not be postponed. Also, every type of economically viable technology must be employed that can help save or replace commodity input. A case in point is biotechnology and its use of biomass. Biotech offers great potential and Germany's chemicals industry should not miss this opportunity.

Commodities markets worldwide have seen prices rise over the last few years. The global economic crisis has led to a temporary price slump, though. Meanwhile, commodities prices have picked up again markedly. The impact is particularly heavy on Germany's chemicals industry as it requires a broad mix of commodities and is dependent on imports.

Supply and demand on world markets are the factors determining the prices of major commodities such as crude oil, platinum and lithium. Both China's appetite for commodities and economic growth in the other BRIC countries are permanently pushing up demand. China, above all, needs raw materials for infrastructure measures as well as residential and commercial construction in its still growing M1-cities (home to over one million people). As regards supply, the degree of concentration in the commodities industry is also pushing up prices, as e.g. 79% of world platinum production takes place in South Africa and 60% of the world's lithium comes from South America. Pent-up demand will continue to be strong in China and other emerging markets for a long time to come, so commodities prices look set to rise further. Moreover, the global economic recovery is already creating stronger demand.

Oil, as a case in point, highlights the German chemicals industry's reliance on imported raw materials: Germany covers almost its entire demand for oil via imports. Nearly 60% is used to produce fuels. 15% is needed in the production of chemical products while the remainder is used to generate power. This spurs competition for the use of oil, which will continue in the foreseeable future. Alternative drive technologies will help save fuel. For cost reasons, however, both the industrial countries and the emerging markets will continue to depend on conventional combustion engines for a long time to come. So rising car sales in emerging markets will probably also mean rising fuel sales.

David Fuller's view It has been fashionable to dismiss talk of a secular bull market for commodities over the last year and a half, not to mention a possible commodity supercycle. Concern over deflation and slow GDP growth are justified, at least for OECD countries. However there is larger world out there where countries have experienced V-shaped economic recoveries and strong growth, led by China and India. Both of these countries have populations approximately equal to or even larger than the OECD. Most developing (progressing) economies are growing faster than the OECD and they have a combined population of approximately 5.5bn. No wonder the demand for all commodities is increasing. Moreover, people in the slow-growth OECD countries will still need to eat, heat homes, recharge gadgets and drive cars.

Over the last decade and counting, supply has often struggled to keep up with the growing demand for commodities. Arguably, the recession has hit production more than consumption. When commodities plunged in 2H 2008, producers of most resources cut back because there income was falling and the future less certain as people talked about depression. Development plans were shelved and staff reduced. Even as the global economy has improved, financing in countries with damaged banking sectors has been less available and more expensive. Consequently, the "supply inelasticity meets rising demand" theme, often mentioned by Fullermoney before the recession, is evident in the mostly rising price trends that we see for commodities today - Continuous Commodity Index (Old CRB), CRB US Spot Metals and CRB Raw Industrial (RIND) Spot Index. Clearly, the previously weak US dollar has not been the only factor driving commodity prices higher as some have suggested. As former TCS delegates will recognise, breaks in the progressions of higher reaction lows will be required to question these uptrends.

This should be good news for those of us who have retained our mining shares, and I am still not persuaded by the argument that we should be out of metals in favour of agriculture commodities. A few of the softs have done very well but are certainly not cheap today, as you can see with sugar (note the weekly key reversal) and cocoa. However staple foods such as grains and beans have remained in what I assume are choppy base formations. They look somewhat oversold today, as you can see from the DJ-UBS Agriculture Index, but the sector tends to lag until poor crops and speculation cause prices to suddenly spike higher. It is very nice when one is fortunate enough to catch one of those whirlwinds but the norm is to endure contango costs during the long wait.

Fundamentally, the rising demand story also applies to agricultural commodities. However, there is little supply inelasticity, except those caused by adverse growing conditions. Flood a mine and it can be out of commission for years. Flood a field and it may damage the crop but farmers will replant at the earliest opportunity. Technology has enabled improved production of industrial commodities, particularly for previously inaccessible oil which is mainly offshore or gas trapped in shale rock, but supplies remain finite. In contrast, biochemists and agronomists have dramatically increased food production with the help of fertilizers, pesticides and especially the development of higher-yielding, disease and drought-resistant plants. Fertilizers and pesticides cause pollution problems, as do most forms of mining (another argument for investing in the water industry) but the latest genetically modified foods can further reduce these hazzards. The "Frankenstein food" hype has lessened and countries with large, hungry populations, such as India, can greatly increase their food production with GM crops and modern farming techniques.

Nevertheless, the North American and European spring crop cycles will soon be with us, providing more interest in corn, beans and cotton. The latter has already moved higher on export demand. There will be more trading opportunities in this sector but to repeat Fullermoney's mantra for this sector: Don't pay up for commodities.