Commodities have in recent years emerged as an increasingly important asset class for investors, something that reflects their critical role as enablers of global growth. The demand for raw materials, including soft commodities, is on a secular, remarkably persistent upward trend. Even though a renewed global downturn would reverse some of the momentum in demand, the impact would likely be fairly ephemeral, as suggested by the global experience in 2008-2009. Speaking at the Commodities Week event in Dubai on Dec. 5, Dr. Jarmo T. Kotilaine, chief economist of the National Commercial Bank, said “the dramatic economic take-off and sustained rapid growth of the emerging economies has taken global resource use to unprecedented heights. For a number of key metals and fuels in particular, China has single-handedly emerged as the key driver of demand. This rapid growth, which has to an extent been further amplified by the widespread use of subsidies in many emerging economies, has resulted in rapid and remarkably persistent commodity price inflation globally as the supply side has struggled to keep pace.” Even if emerging markets naturally remain vulnerable to global economic weakness, growth in these economies is significantly underpinned by demographics as well as domestic investment and increasingly even consumption. In China, the authorities are strongly committed to ensuring annual growth of at least 8 percent and have proven willing to interfere even fairly aggressively to achieve this objective, he said. Even though some of the rebound in raw materials prices was due to the large-scale stimulus spending and monetary easing by the leading economies the world over, underlying demand in most cases proved very resilient. The recognition of these trends has in turn fueled significant product development in the area of commodity-based derivatives, funds, and other investment vehicles. A growing number of especially institutional investors are now allocating a significant - and typically expanding - share of their assets to commodities. Economically speaking, the past decade has seen one the most impressive commodity booms of all times. Under the circumstances, there is little indication of a sustained slowdown on the demand side. “The global population is continuing to grow while increasing prosperity is engendering an increasingly resource-intensive life style. As industrialization, urbanization, and construction fuel the demand for industrial inputs and energy, the demand for food is being driven by demographics and higher living standards. This tends to translate into significantly more caloric diets dominated by meat rather than grains and vegetables, something that puts a far greater strain or productive resources,” Kotilaine said. This robust demand growth has highlighted the increasingly obvious limitations created by finite endowments and rising extraction costs for many raw materials. Even renewable agricultural products are often faced with competing claims on land use, whether through urbanization or biofuels, and potentially unsustainable claims on water resources. They, moreover, remain vulnerable to extreme weather phenomena. The logistical challenges of trade remain legion in an environment where the marketable surpluses are often declining. Due to this tightening demand-supply balance, the IMF price index for fuels increased by an annual 14.7 percent in 2001-2011, while the metals index rose by an even faster 15.5 percent. The prices of food and beverages advanced at an annual 8.9 percent over the same period. From the perspective of policy makers, these structural trends pose the risk of persistent, structural inflationary pressures and social challenges. Food and housing costs tend to be felt most acutely in emerging markets and towards the lower end of the income distribution. Internationally, these trends also create increasingly obvious challenges for the global system of trade. Protectionism in resource-rich countries, whether to boost their terms of trade or to manage supply disruptions is a potential threat to global trade and growth. Food security is emerging as an especially sensitive area as more and more countries become reliant on imported food. Export restrictions during the period of elevated global food inflation in 2008 highlight the risks involved. These growing resource constraints have in turn acquired an international dimension as the leading resource users, above all China, engage in international investments and acquisitions to diversify and deepen theirs supply sources. Such thinking is underpinning prices as well, since even short-term corrections tend to be taken as tactical opportunities for building up reserves, a trend that has been particularly obvious in the case of the Chinese government and even some companies.