COMMODITY PRICES CRASH ON LOW CHINESE GROWTH
Resources and agriculture hardest hit; consumer spending to slump
It’s been a tough year for resources stocks.
For much of the past two years steel, coal and platinum futures have been in decline. Now it seems that was just the pre-cursor to a massive market correction that could see stocks fall to less than half of their 2008 highs.
It seems that the ‘falling price boom’ that has characterized commodity prices since the First World War, and saw overall commodity prices drop 84% by the year 2000, is back with a vengeance.
Constantly falling prices due to increased application of technology are now being fuelled by a slowing in demand, already severe due to the continuing impact of the global bird flu epidemic of the past five years.
Agricultural products have experienced the same cut-back in demand. Excess production of soya, maize and cotton cannot be sold, at any price.
“There are mountains of products we can’t move”, says Heng Chu, Chairman of China’s largest agricultural co-operative.
Stocks in the bio-tech and nano-tech industries are holding their value as the success of alternative materials continues to eat into traditional resource demand.
(Read the story behind the headlines in the detailed Analysis/Synthesis section – for subscribers only)
ANALYSIS >> SYNTHESIS: How this scenario came to be
2008: Resource stocks reach new highs
China’s and India’s demands for basic resources (including coal, steel, copper, platinum and other more exotic metals) and for ever more sophisticated year-round agricultural produce has driven commodity prices to an all-time high.
Resource stocks are at a peak. South African, Australian and UK-based holdings have been the primary winners.
2010: Chinese growth figures show slow-down
The Chinese government figures for 2009 have confirmed rumors that have been circulating recently – Chinese growth has now fallen close to 5% p.a. – devastating many industry forecasts.
A massive drop is forecast for the construction industry and there is said to be a massive overcapacity in cement production. As cement manufacture is a major contributor to carbon dioxide levels, Greenpeace have already welcomed this reality and called for lower year-on-year targets for future cement production.
Overcapacity has also bedevilled the Chinese textile, electronics and agricultural industries where automation and government incentives seem to have been unrelated to actual demand.
Chinese unemployment figures are still difficult to verify but it is feared that these numbers could spiral out of control in the next few years.
2011: India continues its boom
It seems that many construction cranes that once characterized the skyline above Shanghai and Beijing are now showing up in Indian cities as the Indian economic renaissance continues apace.
However India’s increased growth is making up for less than half of China’s decline. On balance, global demand for basic resources is on the wane.
2013: Resources fall out of favour
For the past two years there has been a plateau in demand for resources and this month’s volley of ‘sell’ advice from analysts world-wide will not help the situation.
2014: Resource stocks plummet
It’s been a classical butterfly effect.
In India, the passion for gold jewellery has waned with massively increased wealth and rampant capitalism. Consumer attitudes there have changed to more Western signs of wealth.
Coupled with the announcement of the commercialization of several nano-tech materials to replace platinum, diamonds and gold for industrial, electronic and automotive applications the bottom seems to have fallen out of resource stocks.
In 2000 it was the dot.com crash – this ‘market correction’ is already being called an inverse gold rush – the ‘Rush from Gold – and other resources’ and last Monday’s massive fall may turn out to be just another ‘Black Monday’, or a sign of worse to come.
With the emergence of new nano-tech and bio-tech materials this may well be the final nail in the coffin of the Industrial Economy.
Warning: Hazardous thinking at work
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