THE dramatic rise in global commodity prices that started in 2003 took everyone by surprise. For 30 years, commodity prices had fallen steadily in real terms. There had been brief periods of rising prices, but these upswings had become increasingly modest, and their duration shorter.
It was soon clear the 2003 upswing was different. Prices of raw materials rose rapidly, and soon reached previously unimaginable heights. In five years, the oil price jumped fourfold, to $130 per barrel, while copper rose from $0.60 to $3.50 per pound.
These prices were driven by rapid growth in China. Whereas developed countries had for decades shifted to less resource-and energy-intensive sectors, growth in China was focused on substantial infrastructure investment and construction. These called for large inputs of steel, metals and energy. Global growth, therefore, became much more resource-intensive. Experts predicted a new, long-term “supercycle”, in which rising raw material prices would last a generation or more.
Sceptics cautioned that although raw material producers had initially been slow to react, increased production would eventually grow at a rate that would surpass demand. But such concerns were ridiculed by supercycle enthusiasts, who insisted demand growth would continuously outpace supply. The pattern of rapid demand from China, they argued, would be replicated in India and then Brazil.
Oil, mining and other raw material producers around the world expanded operations, investing heavily in new production. But things were changing. By about 2013, it became obvious that supply would soon overtake demand for many commodities. This coincided with an unexpected slowdown in China’s growth. Commodity prices plummeted. In 2015, the oil price followed suit, plunging to less than $50 per barrel.
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