Death of commodities greatly exaggerated

By Pratima Desai - Analysis

LONDON (Reuters) - To some the six-year bull run in commodities is definitely over, but depressed markets and deep cuts in output may yet set the stage for another bubble.

When that will be is uncertain given the crisis engulfing financial markets, but many investors take the view a significant recovery could be at least two years away.

Before then, many producers of grains, oil and industrial metals will have cut output or gone out of business because the prices they can charge for their products have fallen too far.

"Bubbles have happened in the past and they will happen again," said Ian Morley, a director at fund manager Quantum.

"It's not just hot money, but actually mass self-delusion by people in the market, including the so-called experts."

The battering commodity markets have taken can be seen in the Reuters-Jeffries CRB index .CRB, a global commodities benchmark, which this month fell below 210 points, to its lowest level since 2002. It leapt to a record above 473 points in July.

"People have to invest for the long term, for that you need consistently higher prices," Morley said. "When growth recovers, which will take 12-18 months, prices will head back up."

Large cutbacks have been announced in the production of aluminum, used in transport and packaging, and in nickel and zinc, key ingredients for the steel industry.