A very different kind of super loop

Like many industrial revolutions, China’s long-term prosperity depends on bringing people and things into cities. This contributed to the “super cycle” of commodities in the 2000s. Approximately one billion people enter the global economy, which increases the demand for iron, copper and oil. The factory needs raw materials and workers.Although the country’s population Probably fell last year Although China’s official census data to be released on Tuesday may have otherwise stated, commodity prices are still rising.

On Monday, the Singapore iron ore futures price hit a record high in US dollars. Rose 10% in the day’s trading. The metals used in steel production are not alone.Copper prices are also hit Set a new high.Aluminum prices have risen wood. The price of palladium used in automotive catalytic converters has risen. Even the prices of agricultural products such as crops and livestock are higher.

Although China may not have played a role in the last stage of the surge in commodity prices, there is another prediction Super loops are not without foundation: Attempts to reduce fossil fuel emissions in advanced economies and the increase in US infrastructure spending will mean increased demand for certain metals and other materials. Copper and lithium are essential for the manufacture of electric vehicles. The green transition has also had an impact on supply. Few fossil fuel companies invest in exploration and production as they have done in the past.

Currently, short-term factors are at play. The blockade means that consumer spending in rich countries has shifted from services to goods, thereby increasing the demand for raw materials used to produce consumer electronics. At the same time, closures (such as the freezing of a closed refinery in Texas) caused bottlenecks. This, combined with the faster-than-expected reopening, has led to increased consumer demand in rich countries. Commodities are also attracting investors, who are looking for a way to bet on economic recovery and hedge against inflation.

When these factors begin to fade, longer-term trends need to be considered. Even if China’s population is declining, it is becoming richer and richer. Although government investment spending on infrastructure that requires steel and copper is helping to promote an immediate recovery from the coronavirus pandemic, eventually shifting to a balance of consumer spending will boost sales of cars and white goods. The reduction in state government spending on high-speed rail does not mean the end of demand for industrial metals.

The governments of rich countries, Led by the United StatesIt also plans to increase investment in ports, roads and expressways in infrastructure. This will also stimulate demand. Therefore, the internal combustion engine will be replaced by an electric internal combustion engine and an infrastructure for charging the battery will be established. The green revolution will require the same materials as the industrial revolution.

However, not all. Although oil prices have risen along with lithium, this partly reflects a decrease in supply. The OPEC cartel limits production and may increase production as prices rise.But other Oil and gas major When the pandemic last year forced the end of international travel and other economic activities, spending was cut; many people are preparing to adapt to a world with lower structural needs. Since 2015, U.S. shale, which has met most of the global demand growth, has ceased to grow.

China’s role as the world’s factory in the 2000s lifted everything up. If the super cycle is to be repeated, and the price increase exceeds its long-term trend, it will not be an exact replica. This time, the stories for different products may be very different.

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