China’s Hunger for Commodities Wanes, and Pain Spreads Among Producers – by Clifford Krauss New York Times – January 9, 2016)

http://www.nytimes.com/

Chile is expanding its largest open-pit copper mine below the northern desert to dig up 1.7 billion additional tons of minerals, even as metal prices plummet around the globe.

India is building railroad lines that crisscross the country to connect underused coal mines with growing urban populations, threatening to dump more resources into an already glutted market.

Australia is increasing natural gas production by roughly 150 percent over the next four years, as energy companies build half a dozen export terminals to serve dwindling demand.

Across the commodities landscape, this worrisome mismatch mainly traces back to the same source: China.

For years, China voraciously gobbled up all manner of metals, crops and fuels as its economy rapidly expanded. Countries and companies, fueled by cheap debt, aggressively broadened their operations, betting that China’s appetite would grow unabated.

Now everything has changed.

China’s economy is slumping. American companies, struggling to pay their debts as interest rates rise, must keep producing. All the excess is crushing prices, hurting commodity-dependent economies across emerging markets like Brazil and Venezuela and developed countries like Australia and Canada.

The geopolitical and financial consequences of this shift have shaken investor confidence. Concerns over global growth intensified in recent days, when weakness in China prompted a stock sell-off around the world.

The commodities hangover, the dark side of a decade-long boom, could last for a while.

Multibillion-dollar investment decisions made years ago on big projects, like the oil sands fields in Canada and iron ore mines in West Africa, are just getting up and running. Facing huge costs, companies cannot simply shut off projects. So the excess could take years to work through.

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