Chinese demand had ended a century of steadily falling raw-material costs for rich-world consumers
中国的需求终结了富裕世界消费者稳步下滑了一个世纪的原材料成本
Sep 24th 2011 | from the print edition
LOOK OUT ON any day from Pier Two at the Tubarão Port complex in Brazil and you will see at least half a dozen ships on the horizon. The queue of waiting vessels allows the port’s loading manager, Leonardo Barone, to keep its three piers in constant use. Tubarão is owned by Vale, the world’s largest iron-ore company. A record 104m tonnes of ore was shipped from here last year.
Back from the water’s edge a phalanx of huge dumpers unload iron ore from the trains arriving from Vale’s mines in Minas Gerais. The 905km railroad carries 40% of Brazil’s rail freight on just 3% of its track. A standard freight train on this line has 252 carriages and three locomotives. Around 4,000 carriages are emptied in Tubarão each day.
The unloaded ore is blended and stockpiled in a vast yard enclosed by fine-mesh screens to stop the dust from blowing towards the nearby city of Vitória. Then it is scooped by giant rotating buckets onto a moving belt and conveyed to a long chute at the pier where it is poured into the hold of a waiting vessel.
The port’s construction in the mid-1960s was sponsored by steelmakers from Japan. Today Brazil’s main customer is China, which takes 15% of its exports (mostly iron ore, soyabeans and oil), up from almost nothing ten years ago. The cargo that the ships are queuing up for at Tubarão has become far more valuable. Iron ore now fetches $178 a tonne, compared with $13 a tonne in 2001.
Broader measures of raw-material costs have jumped as well. The Economist’s index of non-oil commodity prices has trebled in the past decade. The recent surge has reversed a downward trend that had lasted a century. Industrial raw-material prices fell by around 80% in real terms between 1845, when The Economist began collecting data, and their low point in 2002 (see chart 3). But much of the ground lost over 150 years has been recovered in the space of just a decade.
This has raised the incomes of commodity-rich countries such as Brazil and Australia as well as parts of Africa. It has also caused even sober analysts to speak of a “new paradigm” in commodity markets. Even though GDP has slowed to a near-standstill in many parts of the rich world, the price of crude oil is close to $100 a barrel—as high in real terms as after the oil shocks of the 1970s (see chart 4).
What accounts for this turnaround? The price spikes over the past century were linked to interruptions in supply, notably during the first world war. But recent price rises have been too broad-based and long-lasting to be adequately explained by frost or bad harvests. Nor is it obvious that producers are hoarding supplies. At Tubarão everybody is straining to get the ore onto the ships more quickly. Valuable time is lost in docking and in starting the loading.
Optimists bet on human ingenuity to spring the Malthusian trap, as it has done so often before
乐观主义者押注人类智慧能突破马尔萨斯陷阱，就像过去已经多次发生的一样
There is a more straightforward explanation for the scarcity: the surge in commodity prices is simply the result of exploding demand and sluggish supply. The demand side has been boosted by industrial development unprecedented in its size, speed and breadth, led by China but not confined to it. Growth in emerging markets is both rapid and resource-intensive. The IMF estimates that in a middle-income country a 1% rise in GDP increases demand for energy by the same percentage. Rich economies are far less energy-hungry: the oil intensity of OECD countries has steadily fallen in recent years.
China’s appetite for raw materials is particularly voracious because of the country’s size and its high investment rate. Though it accounts for only about one-eighth of global output, China uses up between a third and half of the world’s annual production of iron ore, aluminium, lead and other non-precious metals (see chart 5). Most of the energy for Chinese industry comes from coal—a dirty fuel that contributes to China’s poor air quality. Its consumption of oil roughly tallies with the economy’s size but is likely to grow faster than GDP as China gets richer and buys more cars.
Supply has struggled to keep pace with this burgeoning demand. The world’s iron-ore production has doubled over the past decade but prices have risen 13-fold. The metal content of copper ore has been falling since the mid-1990s as existing mines are depleted. This mismatch between demand and supply is an age-old problem in commodity markets. It takes years to find and develop new mines and oil reservoirs and to build the infrastructure (rigs, pipelines, railways, ports) to bring the commodities to market. Supply responds slowly to price increases and delay often leads to excessive investment which then depresses prices.
The extractive industries had only just recovered from such a binge when prices began to rise again. By the start of the millennium a long bear market in commodities had purged the excesses of the 1970s, says Dylan Grice at Société Générale. The sector was poised for contraction but instead faced the biggest and fastest industrialisation in history.
The supply of commodities is again slowly catching up. The big reserves are mainly in remote and sparsely populated areas. That is in part why the economies of Australia, Canada, Brazil and sub-Saharan Africa have been growing quickly. Brazil is blessed with timber, exceptionally fertile land, metal ores and now oil reserves—though the biggest of these are in hard-to-reach places, far off the coast and in deep water beneath a layer of salt. There is now a shortage of geologists who can help with the search for oil. OGX, an oil firm founded by Eike Batista, a Brazilian magnate, has tempted some retired ones back to work.
Brazil’s offshore oil will be expensive and difficult to recover. If this is what the world is relying on, say the pessimists, the shortage of oil is truly critical. They argue that the resource limits to growth first noted by Thomas Malthus in the late 18th century still apply. Optimists bet on human ingenuity to spring the Malthusian trap, as it has done so often before.
The imbalance in commodity markets is likely to persist at least until resource-hungry countries become richer and new supplies come on stream. In the meantime the surge in emerging-market demand will continue to hurt the advanced economies. The rise in oil and commodity prices has pushed up inflation in rich countries and acted like a tax on consumers.
The IMF reckons that a 10% rise in oil prices knocks 0.2-0.3% off global GDP growth in the first year, but the impact on a big oil consumer like America is twice as large. The sluggish growth in America’s economy in the first half of this year was due in part to higher oil prices, which in turn were caused partly by strong GDP growth in China (though supply disruptions also played a role).
The commodities boom has also made monetary policy more complicated. Inflation targets allowed governments and central banks to argue that price stability and full employment were complementary goals. If too many workers were idle, that would bear down on prices and allow central banks to keep interest rates low to boost spending and jobs and to guard against deflation. For a decade after 1997 China’s effect on world prices had made life easier for the rich world’s central banks. Imports of cheap goods from China brought down prices in America and elsewhere, keeping inflation low. But now that Chinese wages are rising, the effect of the country’s rapid industrialisation on world commodity prices is pushing up rich-world inflation.
Because of the persistent rise in commodity prices, inflation has not come down even though there is lots of slack in most advanced economies. The textbook response to commodity-led inflation is to regard it as temporary and ignore it. But that becomes harder if it persists and raises expectations of future inflation. In Britain, for instance, inflation has been above the Bank of England’s 2% target for most of the past four years, yet interest rates have been close to zero. Some complain that the inflation target has simply been abandoned.
Commodity prices are acting as regulators of global growth. The emerging markets are first in the queue for supplies because they are often able to use each extra barrel of oil or shipload of ore more gainfully. Their demand raises prices and lowers real incomes in the rich world, which gets crowded out. Rich countries had become used to unlimited access to cheap raw materials: prices had been falling for a century or more. Now there is competition for primary resources. Producers are benefiting and rich-world consumers are suffering, at precisely the time when they are also increasingly anxious about job security as China and India rise and rise.
