Has China’s Economic Shift Really Ended the Commodity Super-cycle? New Worldwatch Institute analysis examines global commodity price trends and China’s role in shaping global markets

Washington, D.C.—-The most recent economic “super-cycle,” a decades-long trend of rising commodity prices, has been influenced by the surging growth of China since the turn of this century. Now, as China begins its shift from an export-led growth model to a model based on internal investment and consumption, the super-cycle has slowed. Despite this shift, however, commodity prices suffered a notable drop in 2013 but remained high compared to historical averages, suggesting that the super-cycle may have been and continues to be driven by other substantial global factors, write Worldwatch Institute’s Mark Konold, Caribbean Program Manager, and Jacqueline Espinal, intern with the Climate and Energy Program (www.worldwatch.org). Commodities markets are composed of physical goods and raw materials that are bought and sold in large quantities on exchanges around the world. Global commodities markets fell an average of almost 9 percent in 2013, continuing the 2012 slowdown of the most recent super-cycle. Critical commodities groups-including energy, metals, and foodstuffs-are closely watched as a bellwether of the overall commodities market. Since introducing environmental targets to reduce carbon emissions, China has been diversifying its energy sources. However, recent price stability in the oil market continued in 2013, despite uncertainty regarding output from conflict-stricken producers such as Iraq and Libya. Further, widespread use of fracking technology, although contentious, has significantly reduced the price of natural gas. So while China may have affected global energy markets, many factors may be playing a role in determining overall prices. Metals prices continued their recent downward trend, sliding 33 percent since 2011. Last year, gold saw its biggest annual drop since 1981. China’s economic rebalance was supposed to usher in lower demand for imports, including metals like copper and iron ore. But an additional 260 million rural citizens are expected to relocate to urban areas in China, which will sustain a higher need for such resources. Geological factors and higher energy prices, the latter being a main input for metals production, also have contributed to this sustained price level. Despite a 7.1 percent drop in 2013, food prices remain at historic highs. In China, environmental strain has led to increased imports of wheat, corn, and rice to support a growing population. Although this does affect global markets, it appears that a wider range of factors is keeping food prices up, including high demand for livestock feed, renewable fuel standards (supporting fuels that rely heavily on agricultural products as inputs), declines in global buffer stocks, and policy choices such as export bans in some regions. Further, increasing extreme weather events due to global climate change have negatively affected agricultural yields, exacerbating high prices. Clearly, China’s choice to become a more consumer-driven rather than an export-driven economy has affected areas such as energy, metals, and food. However, data from all countries continue to suggest that more than just one factor creates a “super-cycle,” as price levels remain significantly higher than they have been in decades past.