S&P/ASX 200 Index (ASX: XJO) mining shares have broadly had a good run in 2022.
While the ASX 200 is down 5% year-to-date, mining giant BHP Group Ltd (ASX: BHP) has seen its shares gain 14%.
Rival iron ore giant, Rio Tinto Limited (ASX: RIO), meanwhile, has gained a whopping 21% since the opening bell of 4 January.
The ASX 200 miners, and others, have received a healthy tailwind from rising inflation figures. More so as many analysts have been reporting that in times of rising prices, commodities are the place where investors want to be.
But Damien Klassen, head of investment at Nucleus Wealth, believes much of the hype surrounding a new commodity super cycle is overdone.
Why China's numbers look bearish for ASX 200 mining shares
If the heat comes off commodity prices like iron ore, it will throw up some unwelcome headwinds for the ASX 200 miners who have benefited from resurgent prices.
In analysing the outlook for commodities, Klassen, as reported by Live Wire, took a close look at Chinese inflation figures.
According to Klassen, Chinese inflation indexes released last week were once again weak. "Consumer price inflation has been weak for more than a year now," he said. Adding that last week's data " merely confirmed December's downtrend".
Investors need to keep an eye on Chinese producer price inflation, which has been stoking inflation concerns around the world. Digging into that data, he said, "All of the annual growth is in energy and commodities. But, even in those categories, the last three months have seen reversals."
Does Wall Street have an agenda?
We've certainly heard plenty of bullish commodity analysis coming out of some major US brokerages.
And Klassen believes Wall Street may be spinning its own story.
"The Wall Street narrative is that the only thing that will save your portfolio from inflation is commodities," he said.
Before investing in commodities or ASX 200 mining shares, there are some things to consider, atop the fact that Chinese inflation numbers point to a reversal of the global inflation story.
According to Klassen, "Most commodities are close to their all-time highs. So you are not starting from a good place. Effectively, you are buying high and expecting prices will go higher."
Then there's the supply and demand imbalance.
As the world has reopened from COVID closures, demand for commodities has outpaced the industry's ability to ramp up supply. Particularly as there are still many hurdles in place from the ongoing pandemic.
"It may be a price super-cycle. It is not a volume super-cycle," Klassen said. He added (quoted by Live Wire):
Supply volumes struggle to keep up with booming demand in a real commodity super-cycle. But that is not the case now. Prices for most commodities haven't risen on the back of booming volumes. They have increased because of supply shortages and disruptions. If supply disruptions end and higher prices spark increased supply, prices will reverse quickly.
He also expects increased knock-on effects to impact commodity prices from a major slowdown in China's property sector. "Housing starts are down 30% over the last few months. But slowing starts take some time to filter through to commodity demand. The effects are only just beginning."
As for investors in ASX 200 mining shares banking on US inflation driving the commodity super cycles, Klassen cautioned, "US wage inflation is the most important factor for continuing inflation. That story is not yet determined. But higher US wages do not automatically mean higher commodity prices."
