VIA MEADIA
Walter Russell Mead's Blog
August 9, 2013
Commodity Bust to Bring Down Russia?
Theres a
<http://online.wsj.com/article_email/SB10001424127887323477604579000423245331040-lMyQjAxMTAzMDAwOTEwNDkyWj.html?mod=wsj_valettop_email>must-read
today from energy visionary Daniel Yergin in the Wall Street Journal. He
analyzes the implications of the end of the commodity supercyclethe
rising commodity prices, caused by surging demand in places like China,
that have brought rapid GDP growth to several key players in the global
economy. Some history:
The supercycle began a decade ago, in the middle of 2003. China had already
reported two decades of 10% annual economic growth. In 2000, its growth
began to speed up, fueled by a tilt toward heavy industry. The rapid pace
of industrialization and urbanization led to accelerating demand for
copper, iron ore and other commodities. Chinas economy grew almost two and
a half times from 2003-12. Hence its gargantuan appetite for commodities
to fuel its industrial machine and support the shift of 20 million people a
year from the countryside to cities.
The worlds commodity-supply system, accustomed to excess capacity and
weaker demand for its products, was not ready. Something had to give, and
that something was price. Commodity prices took off at a breathtaking pace.
There was a stumble at the beginning of the recession in late 2008. Then,
as Beijings massive stimulus kicked in, Chinas economy roared back and so
did the hunger for commodities. Copper prices reached their peak in
2011six times higher than in 2003. China was consuming about 40% of the
worlds copper, up from less than 20% in 2003.
As Yergin notes, this locomotive is running out of steam. Chinas outsized
appetite for raw materials seems to have been sated, with its leaders
indicating that growth may be more moderate and powered by domestic
consumption in the coming years. Weve already noted that this slowdown is
being felt in places like
<http://blogs.the-american-interest.com/wrm/2013/06/29/china-slowdown-hits-australia-where-it-hurts/>Australia
and Brazil. Yergin wisely adds Putins Russia to the list of countries that
will be feeling the pinch in the coming years.
Putin has been dancing on a knifes edge in foreign policy. His deft
bluffing and exploitation of President Obamas errors have enabled him to
position himself as an important player in the Middle East, and therefore
in world politics as well. But Russias future is delicately balanced, at
best, and its fortunes are intimately tied to the commodities markets. As
Putin himself said in a recent economics forum, There are no magic solutions.
Finally, the US neednt be too complacent either. The shale boom has been
partly stoked by the same forces, which are now potentially waning. Oil
prices have gone from $20-28 per barrel at the start of the decade to a
sustained $100-$105 today. Right now, these prices are being held up by
chaos in Middle East and Libya. If circumstances change, price shifts could
give US drillers major headaches.
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