turbulent environment), it reflects the results gathered elsewhere of a more general malaise in attitudes – itself a new, more pervasive, condition in this marketplace.
Super-Cycle Sunset? The past century has seen four clear periods
of rising commodity prices – coinciding with WW1, WW2, the OPEC oil price shock, and the current rise of China. “Most of the rest of the time, commodity prices have either generally trended downwards (and over the course of the last century, almost all have fallen in real terms) or have moved in different directions from one another,” explains Edward Morse and his team at Citi. The reason behind generally lower commodity
prices over time is well documented: primarily technological innovation and globalisation outweighing population and economic growth. The rise of China changed all this as it
asserted itself as the key driver of the current cycle post the new Millennium. This dominant consumption position was played out particularly across the industrial metals and bulk commodity markets – “and especially in the steel sector,” according to Citi. However, “The Chinese driver has largely
played out,” they assert, and there are two ways they show how over-extended China is as a driver of the commodity cycle. First, Chinese steel consumption per capita
(over 500 kg per person per annum) and as a percentage of GDP (7% of GDP, three times the global average) is – to say the least – very high compared to the rest of the world. “It is, moreover, at around the peak levels of consumption per capita reached in 1974 in the aftermath of the rebuild after the second World War in Europe (400 kg), the US (600 kg) and Japan (750 kg),” Citi explain. Secondly, the domestic investment story lying behind this has reached an “unprecedented percentage of GDP” (50%). In contrast, the peak of Japanese investment to GDP was 38% (reached in 1970) and Korean investment to GDP was 40% (reached in 1991). While Chinese demand could remain relatively
strong, IT CANNOT continue to rise at the same speed as in the past, Citi insist. And with no other demand driver of the same magnitude available, the super-cycle for them is now over. “Whilst this [take up of demand] may be possible in the future, it has not been the case in the past,” say Citi, who, for example, show that from 1999 to 2011, emerging market demand for steel has grown in line with emerging market
investors and their managers
24 - 25 October 2012, ETC Venues, St Paul's London, UK
Part of the Diversified Asset Show, the 8th annual World Commodities Week brings institutional investors together with both passive and active commodity vehicles as well as industry-leading analysts to explore the outlook for this asset class.
Over 60 speakers confirmed including:
Diversified asset opportunities for
Bob Greer
Executive Vice President PIMCO
Frans de Wit
Head of Commodities PGGM
Dambisa Moyo Author of ‘Winner Takes All: China’s Race for Resources and What It Means for the World’
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