Wednesday, September 24, 2014

Best Cure for High Commodity Prices (excerpt)

During the previous decade, there was lots of buzz about the commodity super-cycle. In my opinion, super-cycles should last at least 20 years. If so, then the latest one in commodities wasn’t so super. I reckon it lasted about 10 years, kicked off by China’s joining the World Trade Organization in December 2001 and starting to peter out when China’s industrial production growth peaked at a record 20.7% on a y/y basis during February 2010. It was down to 6.9% last month.

The proponents of the super-cycle assumed that rapidly growing demand for commodities in China would outstrip supplies for a very long time, pushing prices higher. They did rise for a while. But as they say in the commodity pits, the best cure for high commodity prices is high commodity prices. High prices stimulate capacity expansion and more output, which bring prices down, especially if the long-term demand assumptions turn out to be too optimistic.

Today's Morning Briefing: Super-Cycles. (1) No more buzz about commodity super-cycle. (2) China’s super-cycle may be petering out. (3) The best cure for high commodity prices. (4) CRB spot index falling. (5) Capacity expansion. (6) Remember the Baltic Dry Index? (7) Bumper crops in US and China too. (8) US & Canada out-produce Saudi Arabia. (9) Heavy metals weighing on prices. (10) The dollar is weighing on commodity prices too. (11) Chinese government not rushing to stimulate. (12) Super-cycle in Age Wave suggests low inflation and bond yields for many more years. (More for subscribers.)

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