Analysts feel the commodities super cycle is not behind us, but global population growth will see the centre move from China to other areas of the developing world.
Groningen – Despite pronouncements that the era of high commodity prices is coming to an end and concerns that China’s economy is finally beginning to show signs of fatigue, there are still a number of commentators that see some legs left to the commodities super cycle.
The commodities super cycle, as a concept, began coming to the fore about a decade ago, around the same time that China began to crouch down in preparation for its massive industrial leap forward. And, over the last 10 years we have seen significant growth in the prices of certain commodities. As the table below from Standard Chartered illustrates – bear in mind that these prices are estimates given that we haven’t yet come to the end of 2012 but the trend has undoubtedly been up.
From the table it is clear that the commodities that have risen the most in price terms over the last decade are the ones most in need during the Chinese industrialisation. But it does not provide the whole picture. It is important to view the so-called super cycle through the lens not only of the commodities used to build railways and roads and cities but, also with an eye to the demographic shifts that propel such industrialisation.
Not only was there, within China and other parts of the developing world, a move from rural to urban areas, there was also the growth in income and consumption that comes with the burgeoning growth of of a middle class.
As head of commodities research at Natixis Bank, Nic Brown, explained to Mineweb, “There’s a second force at work here which is also important which is what happens as people’s incomes change – the changing consumer habits of a growing middle class in countries like China.”
Speaking on Mineweb.com’s Metals Weekly podcast, he explained that when you have an expanding urban middle class with rising incomes, you get very sudden and very substantial changes in spending habits.
“You get big increases in demand for household durables – that’s white goods, brown goods, transportation – and this is heavily resource intensive and is taking place still very much in China.”
The question now becomes, how will a slowing China affect the overall commodities sector?
Brown, maintains that while the days of 10% growth in the Chinese economy are almost certainly over, it is important to remember that “7.5% growth in absolute terms is more significant now than the 10% plus growth rates we were getting four or five years ago.”
For the rest of this article, please go to the Mineweb.com website: http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=155366&sn=Detail&pid=102055