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China’s Economic Roller Coaster Generates Commodity Pricing Turbulence

August 26th, 2013 | by Morris Beschloss | Comments

 

Never before in the history of the 350-year-old Industrial Revolution has one nation’s demand so totally influenced the turbulent global commodity pricing, whether industrial, commercial, residential, or even agricultural. Although some observers might put the U.S.A. into such historical focus, this worldly influence was America’s in the 1950′s, and then only for an abbreviated time period.

In today’s world, with twice the world’s population (7.2 billion), and several times its overall developmental status, China’s relative impact on the globe’s near $75 billion gross domestic product of goods and services is far greater and long-term dynamic than even that of the mighty U.S. in the post World War II period. This is based on the fact that this Southeast Asian economic super star is still in the middle stages of its ultimate, and incomprehensible eventual development.

Although picking itself up from the economic ground floor in 1990, the heretofore unparalleled super cycle binge that phenomenal growth cycle China has been on didn’t evolve into high gear until the turn of the millennium. The decade starting in 2003 turned into a 10-year GDP growth of 250%, with most of its early efforts focused originally on excavation of limited natural resources. It was followed by an even more incomprehensible expansion into the world’s number one position of converging into commercial and industrial manufactured finished goods, mostly for exports.

This “super human” effort not only resulted in the transfer of 30 million potential workers from the countryside to the urban sector, but placed demands on the world’s supply of commodities, the likes of which have never before been beheld. With global capacity of everything from oil, iron ore, copper, coal, steel, rare metals, and a vast array of agricultural products with which to feed a 1.4 billion population (almost one-fifth of the world’s population as a whole), prices shot up accordingly, as potential suppliers reorganized their capacities to feed this fast-growing demand maw. For example, copper prices sextupled in the 2003-11 period, as China was consuming 40% of the world’s red metal, more than double the amount it consumed in 2003.

Even though this “super-cycle” has allowed China to grow by an average of double digits since its original conception 30 years before, the cost of production (15 to 20% a year) has brought this previously torrid pace down to a still world-dominating high single digit level most recently. This evolution has kept its previously global-leading level in place, with a 7.5% annual growth— topping all other world nations.

China’s sagacious leadership has steered its ship of state from primary dependence on exports to an evolving consumer demand, frantically attempting to catch up with the world’s most civilized populations. This has put a temporary pall on key commodities, dropping prices of copper, iron ore, coal, and steel demand recently as much as 30%, compared to last year. The one big exception is oil, of which China counts 60% of the growth in world demand. But its $100 plus top prices per barrel have also benefitted from the turbulence encompassing the bulk of the OPEC nations, and other oil producers experiencing geopolitical problems.

With a recent improvement in China’s production statistics, lower commodity prices seem to have joined in a simultaneous rebound.

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