2000s commodities boom
The 2000s commodities boom, commodities super cycle or China boom was the rise of many physical commodity prices during the early 21st century, following the Great Commodities Depression of the 1980s and 1990s. The boom was largely due to the rising demand from emerging markets such as the BRIC countries, particularly China during the period from 1992 to 2013, as well as the result of concerns over long-term supply availability. As China transformed itself, building entire cities and moving hundreds of millions of people, it developed an insatiable appetite for raw materials. It needed steel to build skyscrapers and railways, and it needed coal to power its factories. There was a sharp down-turn in prices during 2008 and early 2009 due to the 2008 financial crisis and European debt crisis, but prices began to rise as demand recovered from late 2009 to mid-2010.
Oil began to slip downwards after mid-2010, but peaked at $101.80 on 30 and 31 January 2011, as the Egyptian revolution of 2011 broke out, leading to concerns over both the safe use of the Suez Canal and overall security in Arabia itself. On 3 March, Libya's National Oil Corp said that output had halved due to the departure of foreign workers. As this happened, Brent Crude surged to a new high of above $116.00 a barrel as supply disruptions and potential for more unrest in the Middle East and North Africa continued to worry investors. Thus the price of oil kept rising into the 2010s. The commodities supercycle peaked in 2011, "driven by a combination of strong demand from emerging nations and low supply growth". Prior to 2002, only 5 to 10 per cent of trading in the commodities market was attributable to investors. Since 2002 "30 per cent of trading is attributable to investors in the commodities market" which "has caused higher price volatility".
The 2000s commodities boom is comparable to the commodity supercycles which accompanied post–World War II economic expansion and the Second Industrial Revolution in the second half of the 19th century and early 20th century.
Background of depressed prices
The prices of raw materials were depressed and declining from, roughly, 1982 until 1998. From the mid-1980s to September 2003, the inflation-adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. Since 1968 the price of gold has ranged widely, from a high of $850/oz on 21 January 1980, to a low of $252.90/oz on 21 June 1999.The analysis of this period is based on the work of Robert Solow and is rooted in macroeconomic theories of trade including the Mundell–Fleming model. One opinion stated that
"The volatility and interest rates found its way into commodity inputs and all sectors of the world economy."
Hence, in the case of an economic crisis commodities prices follow the trends in exchange rate and its prices decrease in case there are downward trends of diminishing money supply.
Foreign exchange impacts commodities prices and so does money supply: the advent of a crisis will pull commodities prices down.
Boom
A commodity price bubble, known as the 2000s commodities boom, was created following the collapse of the mid-2000s housing bubble. Commodities were seen as a safe bet after the bubble economy surrounding housing prices had gone from boom to bust in several western nations, including the USA, UK, Ireland, Greece and Spain. Advisers claimed that commodity prices could be predicted better than stocks, since they are traded for actual usage and the price is based on supply and demand, while stocks are bought for speculation and news immediately influence prices. Still commodity prices have fluctuated outside predictions.The renewed interest in coal by China's and Taiwan's energy companies and the rise of alternative power sources like wind farms helped modify coal prices over the 2000s.
Chlorine price steadily increased throughout 2007 and early 2008 as demand for PVC and some metals like copper, neodymium and tantalum rose due to the increased growth of the BRIC countries' demand for electrical goods. Russia increased production, but the US offset this with production cuts in the late 1990s and mid-2000s.
Phosphorus, rhodium, molybdenum, manganese, vanadium and palladium are used in high grade steels, oil based lubricants, automotive catalytic converters, chemical plants' catalysts, electronics, TV screens and in radio isotopes. Demand for these metals appeared to be increasing as computers and mobile phones became more popular in the mid to late 2000s. Thulium is used in x-ray tubes and neodymium is used in high strength/high grade magnets.
Molybdenum, rhodium, neodymium and palladium are relatively scarce metals, while manganese and vanadium are, like phosphorus and sulfur, fairly abundant for minor minerals. The major metals such as iron, lead and tin are commonplace.
Recycling of the aluminum, ferrous metals, copper fractions, gold, palladium and platinum in mobile phones and computers had got under way by the mid-2000s. Battery recycling has helped bring down both the nickel and cadmium prices.
Sulfuric acid increased in price 3.5-fold in less than 1 year while producers of sodium hydroxide have declared force majeure due to flooding, precipitating similarly steep price increases.
Food
Corn, wheat, rice, cocoa and Soya beans
Both a rising global population and a sharp decline in food crop production in favour of a sharp rise in biofuel crops helped cause a sharp rise in basic food stock prices. Ethiopia also saw a drought threaten its already frail farm lands in 2007. Cocoa was also affected by a bad crop in 2008, due to disease and unusually heavy rain in parts of West Africa.Rising demand in both India and Egypt helped to ramp up demand for American wheat during the bull market during August 2007. Discounted wheat sold at about £11–£15/t. August 2007, with non-discounted wheat at slightly higher price. The November 2007 wheat futures market was trading at nearly £165/t, with November 2008 contracts at £128.50. The market became rather bearish as non-futures prices froze and stagnated in December 2007. The price of wheat reached record highs after Kazakhstan began to limit supplies being sold overseas in early 2008, but had slowed down by late 2008. Food riots hit Egypt on 12 April 2008, as national bread prices rose rapidly in March and April 2008.
In late April 2008 rice prices hit 24 cents per U.S. pound, more than doubling the price in just seven months. The price of wheat had risen from an already high £88 per tonne to £91 from January to March 2010, due to the bullish market and currency concerns. This led to food riots in places such as Haiti, Indonesia, Côte d'Ivoire, Uzbekistan, Egypt and Ethiopia.
On 31 July, leading economists predicted that food prices, especially wheat would rise in Chad as Russia ended exports due to a domestic drought destroying their wheat and barley harvests. By 3 August, wheat prices stood at $7.11 per bushel due to the Russian export ban.
Fertilizer
There was in increase in the demand for fertilizer from China and India. Also an increase in demand for fertilizer to create biofuels like Ethanol as a Fuel from corn in the United States, Brazil, and Europe. Increased livestock grew demand for more grain and fertilizer causing grain reserves to plunge to a historic low. China put export controls on their fertilizer. Natural gas prices increased a lot during this period and that is used in the process of making some fertilizers. Phosphate prices went up because of an increase in price of sulfur which is an input to phosphate fertilizer.Sugar
Prices rose modestly and briefly because of Hurricane Katrina in 2005 and 2006 but a bigger price climb came later from supply disruptions in India, Brazil, and other places around the world.Paper
Recycled paper
The price of recycled paper has varied greatly over the last 30 or so years.The German price of €100/£49 per tonne was typical for the year 2003 and it steadily rose over the years. By September 2008 saw American price of $235 per ton had fallen to just $120 per ton, The slump was probably due to the economic down turn in East Asia causing the market for waste paper drying up in China. 2010 prices averaged $120.32 at the start of the year, but saw a rapid rise in global prices in May 2010, reaching $217.11 per ton in the US in June 2010 as China's paper market began to reopen.
Fuel
Coal
Coal prices rose to A$73 per tonne in September and then up to A$84 per tonne in the October 2009 due to renewed interest by China's and Taiwan's energy companies.Oil
During 2003, the price rose above $30, reached $60 by 11 August 2005, and peaked at $147.30 in July 2008. Commentators attributed the heavy price increases to many factors, including reports from the United States Department of Energy and others showing a decline in petroleum reserves, worries over peak oil, Middle East tension, and oil price speculation.For a time, geo-political events and natural disasters indirectly related to the global oil market had strong short-term effects on oil prices, such as North Korean missile tests, the 2006 conflict between Israel and Lebanon, worries over Iranian nuclear plans in 2006, Hurricane Katrina, and various other factors. By 2008, such pressures appeared to have an insignificant impact on oil prices given the onset of the global recession. The recession caused demand for energy to shrink in late 2008, with oil prices falling from the July 2008 high of $147 to a December 2008 low of $32. Oil prices stabilized by October 2009 and established a trading range between $60 and $80.
The price of oil nearly tripled from $50 to $147 from early 2007 to 2008, before plunging during the 2008 financial crisis. Experts debate the causes, which include the flow of money from housing and other investments into commodities to speculation and monetary policy or the increasing feeling of raw materials scarcity in a fast-growing world economy and thus positions taken on those markets, such as Chinese increasing presence in Africa. An increase in oil prices tends to divert a larger share of consumer spending into gasoline, which creates downward pressure on economic growth in oil importing countries, as wealth flows to oil-producing states.
In January 2008, oil prices surpassed $100 a barrel for the first time, the first of many price milestones to be passed in the course of the year. In July 2008, oil peaked at $147.30 a barrel and a gallon of gasoline was more than $4 across most of the US. The high of 2008 may have been part of broader pattern of spiking instability in the price of oil over the preceding decade. This pattern of instability in oil price may be a product of peak oil. There is concern that if the economy was to improve, oil prices might return to pre-recession levels.
In testimony before the Senate Committee on Commerce, Science, and Transportation on 3 June 2008, former director of the CFTC Division of Trading & Markets Michael Greenberger specifically named the Atlanta-based IntercontinentalExchange, founded by Goldman Sachs, Morgan Stanley and BP as playing a key role in the speculative run-up of oil futures prices traded off the regulated futures exchanges in London and New York.
The price of oil rose to $77 per barrel on 24 June 2010 as a cyclone begins to form in the south western Caribbean. The price for July 2010 was about $84–$90 per barrel of crude oil.
Oil prices ended the year at $101.80, falling to $100.01 per barrel on 30 and 31 January 2011., then the Egyptian civil war broke out, as it theoretically put the use of Suez Canal at risk. Making matters worse, a gas pipeline to Jordan was blown up by saboteurs in the Sinai Peninsula. Prices remained steady until a dramatic drop began the 2010s oil glut.