The long party for commodity producers is so over
Marketplace - 08/25/2015
There’s a history of super cycles, according to economist Bilge Erten of Northeastern University. In a recent paper, she found long commodity booms often were built on colossal demand: from the U.S. reconstructing itself after the Civil War, and from Europe and Japan rebuilding after World War II.
Then they ended, Erten says, just as China’s industrial peak has come and is going, too.
“In the future, it won’t be China that’s going to be demanding more and more commodities,” Erten says. “So there doesn’t seem to be another country that’s going to be another powerhouse, that’s going to demand all these commodities.”
She figures prices may stay low for a while. Producers of commodities like copper, silver and coffee have overinvested and produced oversupplies. And in the oil market, too many drillers are hanging on. So the glut continues.
“Now we are in the downturn for only about three years,” Erten says. “It could last another five to 10 years, potentially, in terms of the historical trend.”
If that’s the case, the big resource countries that partied the last decade — Australia, Brazil, the oil states — will have to find something else to sell in the next.