Will China drive the next boom?
Just a few years after the last great global commodities supercycle ended, economists and investors are watching relatively obscure metals such as vanadium, cobalt and lithium as possible harbingers of another commodities boom. The metals are key components of batteries used in electric vehicles, which are growing in popularity. The last supercycle – an extended period of steadily rising commodities prices – was driven primarily by China’s explosive economic growth and its appetite for raw materials and agricultural products to fuel that growth. As the Chinese economy decelerated starting in 2013, a wide range of commodities prices tumbled, and exporting nations bore the brunt. Now, China’s heavy investment in the manufacture of electric-vehicle batteries may cause another turnaround.
Some key takeaways:
Commodities supercycles can be a mixed blessing for exporters, creating a rollercoaster effect and leading to considerable human misery.
Many exporting nations have been able to navigate the most recent downside of the cycle because they created rainy-day sovereign wealth funds during the price run-up.
The falloff in global oil prices that began in 2014 was caused in part by the development of new techniques for extracting oil from shale rock formations, commonly known as fracking.
Resources for Further Study
Mansharamani, Vikram, “Boombustology: Spotting Financial Bubbles Before They Burst,” Wiley, 2011. A financial expert offers a multi-disciplinary approach that relies on economics, politics, psychology and biology to identify and evaluate financial bubbles. The author, writing at the height of the China boom, correctly predicted why it was unsustainable.
O’Sullivan, Meghan L., “Windfall: How the New Energy Abundance Upends Global Politics and Strengthens American Power,” Simon & Schuster, 2017. A Harvard professor of international affairs and former adviser to President George W. Bush explains how the shale oil revolution that produced a worldwide energy glut made the United States more energy self-sufficient, prevented Russia from becoming a petro-superpower, strengthened China’s advance across Eurasia and weakened Middle Eastern and Africa oil states.
“Australia is the new frontier for battery minerals,” The Economist, Nov. 25, 2017, https://tinyurl.com/
Batovic, Ante, “Five countries most affected by the oil price crash,” Global Risk Insights, Feb. 21, 2015, https://tinyurl.com/
George-Cosh, David, “Miners Look to Cash In on Cobalt Demand,” The Wall Street Journal, Jan. 1, 2018, https://tinyurl.com/
Onishi, Norimitsu, “African Economies, and Hopes for New Era, Are Shaken by China,” The New York Times, Jan. 25, 2016, https://tinyurl.com/
Porter, Eduardo, “Slowdown in China Bruises Economy in Latin America,” The New York Times, Dec. 16, 2014, https://tinyurl.com/
Ramkumar, Amrith, and Ira Iosebashvili, “Electric-Vehicle Bulls Shake Up Metals Markets,” The Wall Street Journal, Dec. 10, 2017, https://tinyurl.com/
Reports and Studies
“Exposed: Child labour behind smart phone and electric car batteries,” Amnesty International, Jan. 19, 2016, https://tinyurl.com/
Spatafora, Nikola, and Irina Tytell, “Commodity Terms of Trade: The History of Booms and Busts,” International Monetary Fund, September 2009, https://tinyurl.com/
The Next Step
“China’s economy set to slow to 6.5 percent in 2018 as government turns off cheap money: Reuters poll,” Reuters, Jan. 16, 2018, https://tinyurl.com/
Duguay, Andrew, “Why The Death Of Manufacturing In China Means A Positive Economic Outlook In 2018,” Forbes, Jan. 23, 2018, https://tinyurl.com/
Huang, Cary, “Why A Cooling In China’s Economy Would Be A Good Thing,” South China Morning Post, Jan. 27, 2018, https://tinyurl.com/
Frangoul, Anmar, “Electric vehicles: BP invests $5 million in charging business FreeWire,” CNBC, Jan. 31, 2018, https://tinyurl.com/
Nickelsburg, Monica, “Seattle City Light installs first city-owned electric vehicle fast-charging stations,” GeekWire, Jan. 30, 2018, https://tinyurl.com/
Patterson, Scott, “Driven by Electric-Vehicle Demand, Firms Focus on Cobalt,” The Wall Street Journal, Jan. 29, 2018, http://tinyurl.com/
BMO Capital Markets
129 Saint-Jacques St., Montreal, QC H2Y 1L6 Canada
A financial services provider with commodities experts who offer commentary and guidance to journalists and scholars
The CME Group, Inc.
20 South Wacker Drive, Chicago, Illinois 60606
A derivatives marketplace made up of the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange and the Commodities Exchange.
The Heritage Foundation
214 Massachusetts Ave., N.E., Washington, DC 20002-4999
Conservative think-tank that issues studies, papers and analysis on a wide range of public policy issues, including commodity policy.
London Metals Exchange
10 Finsbury Square, London, United Kingdom, EC2A 1AJ
+44 (0)20 7113 8888
The world’s largest market in options and futures contracts on base and other metals; traces its origins to the opening of London’s Royal Exchange in 1571.
Peterson Institute for International Economics
1750 Massachusetts Ave., N.W., Washington, DC 20036-1903
Think-tank that conducts research on how to make globalization more beneficial to all; has published scholarly works on commodity booms and busts.
Shanghai Futures Exchange
500 Pudian Road, Shanghai, 200122, China
+86 (021) 6840 0000
A nonprofit, self-regulating corporation that trades in non-ferrous metals, including copper, aluminum, lead, zinc, tin and nickel.
U.S. Commodities Futures Trading Commission
Three Lafayette Centre, 1155 21st St., N.W., Washington, DC 20581
An independent U.S. government agency that regulates commodity futures and options markets.