The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.
Dambisa Moyo is the author, most recently, of Winner Take All: China’s Race for Resources and What It Means for the World.
The commodity super-cycle – in which commodity prices reach ever-higher highs, and fall only to higher lows – isn’t over. Despite the euphoria around shale gas – indeed, despite weak global growth – commodity prices have risen by as much as 150 per cent in the aftermath of the financial crisis. In the medium term, this trend will continue to pose an inflation risk and undermine living standards worldwide.
For starters, there’s the convergence argument. As China grows, its increasing wealth and urbanization will continue to stoke demand for energy, grains, minerals and other resources. The U.S., for example, consumes more than nine times as much oil as China on a per capita basis. As more of China’s population converges to Western standards of consumption, demand for commodities – and thus their prices – will remain on an upward trajectory.
Worst-case estimates have China’s real GDP growing at 7 per cent a year over the next decade. The supply of most commodities, meanwhile, is forecast to grow by no more than 2 per cent annually in real terms. All else being equal, unless China’s commodity intensity (the amount of a commodity consumed to generate a unit of output) falls dramatically, its demand for commodities will be greater this year than it was last year.
As long as China’s commodity demand grows at a higher rate than global supply, prices will rise. And the rapid economic growth that China’s leaders must sustain to lift people out of poverty – and thus prevent a crisis of legitimacy – places a floor under global food, energy and mineral prices.
To be sure, intensity of use has fallen for some commodities, such as gold and nuclear energy; but for others, such as aluminum and coal, it has risen since 2000 or, as is the case for copper and oil, declines have slowed markedly or stalled at high levels. As the composition of China’s economy continues to shift from investment to consumption, demand for commodity-intensive consumer durables – cars, cellphones, indoor plumbing, computers and televisions – will rise.
There’s also the issue of the so-called reserve price (the highest price a buyer is willing to pay for a good or service).
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/commentary/why-well-never-see-a-20-barrel-of-oil-again/article9831659/%3bjsessionid=J0g0RHRJQvCPfrcV1JgZrYlJ2J61TbhB3wJKXhtlVhqn9pQNDDDL!2120615829/?ord=1