Issue: Commodities Supercycles Commodities Supercycles

Issue: Commodities Supercycles

Commodities Supercycles

By: Jonathan Broder

Pub. Date: February 12, 2018 Access Date: September 30, 2021 DOI: 10.1177/237455680406.n1 Source URL: http://businessresearcher.sagepub.com/sbr-1946-105734-2879966/20180212/commodities-supercycles ©2021 SAGE Publishing, Inc. All Rights Reserved. ©2021 SAGE Publishing, Inc. All Rights Reserved. Will China drive the next boom? Executive Summary

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. Full Report

A child breaks rocks extracted from a cobalt mine in the Democratic Republic of the Congo. Most cobalt comes from that country, which has been accused of using laborers as young as 7. (Junior Kannah/AFP/Getty Images)

With the stock market swinging wildly and oil stabilizing above $60 per barrel, most investors have not been paying much attention to vanadium. But prices for the obscure metal, which is used in steel production, have been rising steadily – and it’s not the only mover. 1 Over the past two years, cobalt has more than tripled to about $80,000 per ton on the London Metal Exchange as of early February, and commodities analysts predict it will double again by 2020. Lithium prices have nearly doubled since 2014, reaching $9,100 per metric ton by the end of 2017, according to metals brokers. Both metals are used in electric-car batteries. 2 Share prices and investment in several Canadian and Australian companies that are poised to extract these metals have soared as well, even though some have not even started digging. 3 The metals fever has spread to nickel and copper, whose per-ton prices on the London exchange of $13,790 and $7,066 respectively on Feb. 2 were their highest in two years. Analysts predicted demand for vanadium and other metals used to strengthen steel alloys would only grow in the coming years. 4 What does this rally mean? Some analysts say it is driven by the global turn to electric vehicles and investors’ eagerness to get in early on a disruptive technology that could spark a major metals boom. 5 Some of these analysts, such as Nariman Behravesh, chief economist for IHS Markit, a global economic research and consulting firm, say it could even usher in the next commodities “supercycle”: an extended period in which prices climb steadily thanks to a rare confluence of technological change, shortages of the commodities needed to fuel it and huge investments to create new supply. But others, including Edward L. Morse, global head of commodities research at Citigroup, worry about the potential downside: that countries dependent on commodities exports will be flattened by the boom-bust rollercoaster, just as they have been hurt in previous gyrations. Economics scholars say examples of supercycles include the years between the Second Industrial Revolution of 1870 and the financial panic of 1907, and the post-World War II economic expansion that ended with the 1973 Arab oil boycott and an ensuing recession. The most recent was an especially intense and broadly based rally that began in the mid-2000s and ran for a decade, lifting prices for a wide array of commodities ranging from oil to metals to agricultural products. “A supercycle occurs rarely, when all of the commodities are in the same position at the bottom of the [investment] cycle,” says Morse. “It’s like having all the planets align in one straight line as they rotate around the sun.” Some investors are betting that China will spark the next metals boom as it pushes to become a major producer of electric-car batteries. 6 Investors also are counting on a new Chinese regulation that takes effect this year, requiring both domestic and foreign automakers to meet escalating requirements for energy-efficient vehicles. These vehicles also require the use of lighter metals, such as copper and nickel. 7 In addition to the enormous weight that China brings to a potential metals boom, India aims to sell only electric vehicles by 2030, and Britain and France plan to phase out gasoline and diesel-powered vehicles by 2040. In the United States, automakers are sinking billions of dollars into the development of electric vehicles. 8 California has provided additional incentives to both U.S. and foreign automakers with a program that calls for putting 1.5 million zero-emission electrical vehicles on the state’s roads by 2025. 9 Morse cautions that it is still too early to say whether the current surge in metals prices augurs a supercycle. Despite the popularity of battery-powered Tesla automobiles among celebrities, he says there simply are not enough electric cars on the streets yet to determine how much of the market they will capture. Besides, he adds, gasoline remains relatively cheap, internal combustion engines are becoming ever more fuel-efficient and electric charging stations are still scarce. Michel Andre Robe, a derivatives trading professor at the University of Illinois at Urbana-Champaign, adds that even if the move to electric vehicles sparks a major metals boom, other commodities wouldn’t be affected equally, reducing the likelihood of an across-the-board supercycle. For example, while the prices of cobalt and lithium likely would continue to rise with the popularity of electric vehicles, oil would decline, he says. So would prices for some precious metals, such as palladium, which is used in the catalytic converters of gasoline engines. Robe, who works as a consultant for the U.S. Commodities Futures Trading Commission, which regulates futures markets, adds that any metals boom would be “essentially irrelevant” to most agricultural prices. Nevertheless, he says, a boom could indirectly undercut prices for sugar cane, corn and sweet sorghum, all used in the production of ethanol, a gasoline additive. Cobalt Price Has Tripled Since 2016

Prices on London Metal Exchange, 2016-2018

Source: “LME COBALT, Historical Prices Graph,” The London Metal Exchange, Jan. 26, 2018, https://tinyurl.com/yco5v627

The price of cobalt, a metal used in the production of electric-car batteries, has increased by 239 percent since the beginning of 2016.

In any event, investment forecasters predict automakers will soon claim a bigger share of the metals market. According to Citigroup projections, automotive demand for lithium is set to increase by 35 percent annually through 2021. 10 Morgan Stanley predicts that cobalt used in electric vehicles will increase by roughly 450 percent by 2025. And a JPMorgan Chase & Co. forecast has demand for nickel increasing nearly tenfold by the same year, with electric vehicles becoming the second largest user of the metal. The forecast shows demand for copper growing steadily, too. 11 In Canada, the share price for First Cobalt Corp., which has yet to begin drilling for cobalt in an abandoned open-pit silver mine 300 miles north of Toronto, jumped 215 percent last year to 1.23 Canadian dollars (about $1 U.S.). 12 In Australia, the market capitalization of the mining firm Pilbara Minerals rose from 25 million Australian dollars (about $20 million) in 2015 to AU$1.5 billion last year as the rising price of battery-grade lithium made it worthwhile to extract it from Australia’s spodumene mineral deposits. 13 Another Australian company, Clean TeQ, increased in value by 240 percent to AU$838 million last year, based on its plans to produce nickel and cobalt sulfates, both key materials for lithium-ion battery cathodes. 14 “It’s going from that niche space to something that’s kind of inevitable at this point,” said Jay Jacobs, referring to the transition to electric vehicles. Jacobs is director of research at Global X Funds, which offers the Lithium and Battery Technology exchange-traded fund. The fund increased in value by more than 55 percent in 2017. “I just can’t say we’ve really seen something recently that stacks up to this,” he said. 15 Whether such projections turn out to be the beginning of another commodities supercycle remains to be seen. If the forecasters are right, it will mean happy days for the countries that export these metals. But past supercycles also have proven to be something of a devil’s bargain for these countries. The riches they earn during the boom times give way to scarcity and a good deal of human misery when these cycles go bust. In some cases, the misery does not even wait for the bust. For example, most of the world’s cobalt supply today comes from the Democratic Republic of the Congo in Central Africa, where thousands of children, some as young as 7, work alongside adults in the mines, lacking basic protective equipment, according to a 2016 report by Amnesty International, the London-based human rights group. 16 Much of the investor enthusiasm for cobalt companies stems from a desire to find a socially responsible alternative to Congolese cobalt. 17 Looking ahead, a cobalt bust could come if research underway by battery companies succeeds in finding cheaper alternatives to the mineral, some analysts caution. 18 Lessons Learned

The prospect of another supercycle with a wide-ranging impact on metal prices around the world comes just a few years after the end of what many experts consider one of the most globally disruptive and unique supercycles in modern times. In 1993, China roared onto the world’s economic stage as it built factories to produce many of the West’s consumer goods with cheap labor and erected dozens of new cities to house its burgeoning middle class. With China’s economy rapidly expanding, Brazil, Russia,

India and Argentina became major economic players as they met China’s demands for energy, raw materials and food. Prices surged, generating windfalls for the world’s commodity producers. In addition to oil workers and U.S. farmers, emerging economies in Latin America and Africa and petro-states profited. But from 2013 to 2015, China struggled with overcapacity and excessive debt, and Beijing’s central planners recognized the need to shift their investment-led economy to a more consumer-based model. As China’s demand for commodities tumbled, so did global prices. Meanwhile, the development of technology that enabled the extraction of shale oil and gas through hydraulic fracturing of rock, or fracking, along with Saudi Arabia’s decision to maintain peak production levels, severely undercut oil prices. Just as several economic factors had aligned to create the boom, they realigned to set the stage for the bust. Yet when commodities prices fell, experts say, the result was not the enduring, across-the-board busts of previous commodity supercycles. To be sure, the twin blows of reduced exports to China and lower commodity prices pummeled several emerging economies, especially in Latin America and Africa. 19 But for many other commodity-exporting countries, the fallout from the price crash turned out to be manageable, according to experts – in large part because their governments had taken steps during the boom times to make their economies more resilient to recessionary headwinds. Since then, another, more modest type of convergence has occurred. Commodity prices have climbed back to at least 50 percent of their highest levels, sparking some measure of recovery. Meanwhile, the drop in oil prices has stabilized Europe’s economy and prevented Russia from becoming an energy superpower, among other broader geopolitical consequences, according to Robert D. Kaplan, a senior fellow at the Center for a New American Security, a Washington think tank. 20 Crude Oil Plunged After 2014 Run-Up

Brent crude oil spot prices, 2008-2017

Source: “Europe Brent Spot Price FOB,” U.S. Energy Information Administration, Jan. 31, 2018, http://tinyurl.com/y95a88ye

The price of Brent crude oil fell 66 percent between mid-2014 and the end of 2015 before beginning to rebound.

Economists agree one of the steps that helped many commodity-exporting countries weather the price crash was their creation of state- owned sovereign wealth funds, which provided a cushion against the loss of revenue to their national treasuries. Norway, with the world’s largest fund of $1 trillion, easily absorbed losses from its oil exports, as did Saudi Arabia, Kuwait, the United Arab Emirates and other oil-producing states, all of whom have well-stocked funds. Economists including Morse and Robe say Australia, Canada, Chile and several African countries, as well as several U.S. oil-producing states, also were able to fall back on their rainy-day reserves. North Dakota, where the boom from shale oil production had created as many as 2,000 millionaires in 2012 alone, sank into recession as a result of the commodities crash. 21 But with a cushion of more than $4 billion in its Legacy Fund in 2016, the state was able to weather the worst. 22 As oil prices have risen more recently, economists say, North Dakota has begun to regain its financial footing. Argentina, one of the world’s largest exporters of soybeans, stands out as a country whose leaders failed to recognize the importance of a rainy-day fund, economists say. The country not only never created one, but when commodity prices crashed, the government compounded the problem with ill-advised protectionist trade policies, oppressive regulations and a spending spree. The result, analysts

Page 5 of 12 Commodities Supercycles SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. say, was a recession that was far more painful than it had to be. In 2015, the country rejected the old ruling party and elected as president Mauricio Macri, who has since instituted more orthodox fiscal and monetary policies aimed at reversing a decade of economic damage. 23 Russia, however, could not rely solely on its $75 billion sovereign wealth fund to cushion the country from the double blow of falling oil prices and Western sanctions imposed over its 2014 annexation of Crimea, economists say. With the economy struggling and the ruble losing a third of its value since the beginning of 2014, Moscow took what some economists regarded as a dangerous step: In November of that year, Russia’s central bank allowed the currency to float freely, resulting in a 40 percent depreciation. At the time, observers spoke of the potential for social unrest as buying power declined and warned that the country’s financial stability was at risk. 24 But Citigroup’s Morse says the 40 percent drop in oil prices by June 2015 and the ruble’s fall by a similar percentage meant that the same amount of oil produced roughly the same amount of rubles that it had a year earlier. He says the move significantly reduced Russia’s production costs. Moreover, Morse adds, in the wake of the oil price collapse in the fall of 2014, many analysts had predicted Russia’s oil production would fall by 1 million barrels a day. But because of the ruble’s depreciation, Morse says, the Russian economy adjusted faster, and production grew. “Russia was by far the most dramatically successful adjustment to the lower-priced world,” says Morse, an energy economist who served in senior positions at the State Department in both the Carter and Reagan administrations. “Yes, they did have a sovereign fund, and yes, they did draw it down, but now they’re building it up again because oil is $60 a barrel and their break-even price is about $40 a barrel. Now they’re now running a current account surplus, and they’re putting cash into their sovereign fund.” The other principal measure that some commodity-exporting countries took to help cushion them from the pain of the price collapse was economic diversification, economists say. Saudi Arabia, totally dependent on its oil and gas exports, has developed a blueprint to diversify its economy by 2030, although many experts question whether the plan’s architect, 32-year-old Crown Prince Mohammed bin Salman, can successfully carry out the required economic and social reforms without destabilizing the kingdom. 25 No other Arab oil state has a similar plan, and all are drawing down their sovereign wealth funds, the University of Illinois’ Robe says. Australia and Canada, both exporters of metals and minerals, were able to fall back on their manufacturing and agricultural sectors to get through the bust more easily than other nations, Robe says. Russia and Brazil have begun to emerge from the recessions they suffered after the collapse in commodities prices. But Brazil’s economy, which the International Monetary Fund (IMF) expects will increase by only 1.5 percent in 2018, is projected to average 2 percent growth over the next five years because it exports iron ore and soybeans in addition to energy, economists say. 26 In addition, Brazil’s Embraer SA, regarded as a crown jewel of Brazilian industry, exports high-quality civilian and military aircraft. The company is in talks with Boeing Co., which wants to buy the aircraft manufacturer in a bid to enter the market for smaller passenger jets. The Brazilian government, which has veto power over the sale, is reluctant to relinquish control over Embraer to a foreign company. 27 By comparison, the IMF forecasts an equally sluggish 1.6 percent growth rate for Russia in 2018 and an average of only 1.5 percent growth through 2022. 28 Economists say that despite the country’s highly educated workforce, Russia has failed to diversify its petroleum-dependent economy by creating a high-tech sector. “To sustain a higher rate of growth, the Russian economy needs a significantly higher level of diversification,” says Morse. “But there is nobody in Russia that has a well-planned approach for diversifying the economy.” While China’s economic slowdown was a major factor in the price crash of commodities other than oil, energy experts say the sharp decline in oil prices was brought on by the immense economic pressure that $100-per-barrel oil placed on developed nations at the height of the commodities boom. That burden, they say, in turn spurred the development of fracking technology. And that breakthrough, together with the Saudi decision to maintain maximum production, flooded the market with oil and lowered its price, while also carrying far-reaching geopolitical ramifications. In a 2017 book, Meghan L. O’Sullivan, a Harvard University international affairs professor and former aide to President George W. Bush, wrote that the shale oil revolution transformed the United States from “the world’s thirstiest consumer of overseas oil to a position of greater self-sufficiency.” 29 Besides helping stabilize Europe, the price drop lowered Japan’s energy costs after the 2011 Fukushima nuclear disaster and helped China build its “Silk Road” trade routes across Eurasia, said Kaplan, the Center for a New American Security fellow. Losers from the energy price crash included undiversified petro-states such as Venezuela and those in the Middle East, as well as oil-rich sub-Saharan African countries such as Nigeria and Angola, who found their prospects suddenly weakened by their reduced oil earnings, Kaplan said. 30

Another China-Driven Boom? Meghan L. O’Sullivan

Even amid the rally in metals prices and investor excitement over electric vehicles, one of the biggest looming questions is what role China will play in the global marketplace over the next five years. During that time, the IMF forecasts, China will continue to grow, but at slower pace of 5.8 percent annually, as opposed to the double-digit rates the country clocked in the 2000s. 31 “In terms of China’s locomotive power, especially for the emerging world, 5 percent is massive,” says IHS Markit’s Behravesh. “So China can still exert massive power on the global economy in terms of growth rates. To the extent that it’s importing commodities from other countries, it can be a major engine of growth.” Investors says China’s plans to manufacture batteries for electric vehicles already have spurred a number of agreements by Chinese companies to secure lithium supplies that are reminiscent of the deals Beijing struck back in the early 2000s, when it needed dependable supplies of iron ore and other raw materials to build up the country’s infrastructure. Recent deals include investments by Chinese carmaker Great Wall Motors and mining company Pengxin International in several Australian lithium mines, as well as agreements to buy the production of others. 32 These investments, along with the boom in metals, are attracting the attention of other mining companies from around the world. The multinational mining giant Rio Tinto was recently rumored to be considering a bid to take over SQM, Chile’s biggest lithium producer. 33 Watch video with political scientist Scott Straus on China’s role in Africa:

Moreover, investment analysts say future demand for batteries will not be restricted to the electric vehicle industry. As the world moves toward renewable energy, Morse says, it is going to need a clean-energy source that cannot be cut off by the weather or darkness. “Hydro energy is interruptible by droughts; solar energy is interruptible by nighttime; and wind energy is interrupted when the wind stops blowing,” he says. “So you need significantly large battery power, both for electric vehicles and for the movement to distribute energy.” But Behravesh and other economists also worry about China’s debt, which exploded from about 120 percent of GDP to 260 percent in the 10-year period ending in 2016. 34 “No country has ever gone through that without something bad happening,” Behravesh says. “The question is, what is that something bad?” Many economists rule out a financial meltdown because of China’s huge sovereign wealth fund, which reached $900 billion last August. 35 They add that most of China’s debt is domestic, and because the government effectively owns the banks, it can pay off the debt on its own schedule. What is likely, they predict, is a repeat of Japan’s “lost decade” in the 1990s – a decade or two of subpar growth as Beijing tries to unload its excess capacity and lower its debt levels. But Robe and other experts say even that scenario leaves room for a targeted drive by China to make the batteries that will meet growing worldwide demand for electric vehicles and a clean, uninterruptible energy source. “I do not necessarily see an inherent contradiction between seeking to foster new technologies and dealing with current economic issues,” Robe says. Ralph Aldis, director of research and a fund manager at U.S. Global Investors, said he has added several lithium producers to the firm’s World’s Precious Minerals Fund, which contains a portfolio of mid-sized mining companies. “I just know that’s the direction that the world seems to be going,” he said, “and I’m not going to fight it.” 36 About the Author

Jonathan Broder is a Washington-based reporter and editor. He was a senior writer for Newsweek, a senior editor at Congressional Quarterly and served as a foreign correspondent in the Middle East, South Asia and the Far East for the Chicago Tribune. Broder’s writing also has appeared in The New York Times Magazine, The Washington Post, Smithsonian and the World Policy Journal, among other publications. He previously reported for Business Researcher on managing corporate crises, workplace safety and corporate social responsibility. Chronology

1870–1907 The Second Industrial Revolution 1870s Demand for iron ore spikes as new technological processes lead to mass production of cheap, durable steel, enabling construction of larger bridges, the first skyscrapers, railroads, ships and more powerful military weapons. 1877 London Metal Exchange is established at a coffee house where metal merchants gather to sell ores and concentrates imported from as far away as Chile and Malaya. 1882 New York’s Butter and Cheese Exchange changes its name to the New York Mercantile Exchange, which is destined to become the world’s largest trading platform for energy and metals. 1907 A failed attempt by Otto Heinze, brother of the owner of the United Copper Company, to corner the market on copper precipitates a financial panic, which leads to collapse of the commodities markets. Financial historians cite this as the end of the first modern commodities supercycle. 1929-1944 Fixing the Price of Gold 1929-1934 Stock market crash leads to widespread gold hoarding by the public, jeopardizing the government’s gold reserves. President Franklin D. Roosevelt in 1933 orders all citizens holding gold to return it to banks or face imprisonment and fines. The Gold Reserve Act authorizes the government to fix gold prices at $35 per ounce. 1944 Bretton Woods System establishes an international monetary regime that ties currency exchange rates to the U.S. dollar, which is indexed to gold. 1946-1974 Post-War Boom and Bust 1946 The post-war period becomes one of the greatest eras of economic expansion in history. Raw materials and other commodities that had been diverted to the war effort now fuel economic development in the United States, Western Europe and Japan. Cheap oil drives rapid growth of the automotive industry, while agricultural commodities exports grow with development of new chemical fertilizers, pesticides and high-yield seeds. 1947 General Agreement on Tariffs and Trade (GATT) aims to reduce commodity tariffs among member countries. 1961 To defend the fixed price of gold and the Bretton Woods System of fixed-rate convertible currencies, the United States and seven European central banks combine their gold reserves to form the London Gold Pool. 1968-1971 After runs on gold, the U.S. dollar and the British pound, France withdraws from the London Gold Pool, precipitating its collapse. 1971 An effort to keep gold prices low with a two-tiered system of official exchange and open-market transactions collapses when President Richard Nixon announces the end of government regulation of gold prices, ushering in the current monetary system of floating exchange rates. 1973-1974 Petroleum-producing Arab states impose oil embargo on the United States and a handful of other western countries, including the Netherlands, Portugal and South Africa, as punishment for their support for Israel during the 1973 Arab- Israeli war. Additional production cuts by the Organization of the Petroleum Exporting Countries (OPEC) quadruple the price of oil to $12 per barrel by 1974, triggering a recession that causes a bust in all commodity prices. 1995-2017 The China-led supercycle and its aftermath. 1995 China launches a massive state-run drive to build factories and housing, sparking a worldwide commodities boom as countries boost production and exports to fuel China’s growth. 2008-2012 Commodity-exporting countries register unprecedented levels of growth as worldwide demand escalates and supplies tighten, triggering high prices. Oil prices hit $100 per barrel for the first time, sending billions of dollars to Russia and the Middle East. 2013-2015 China’s economy cools as the country confronts overcapacity and mounting debt. Exporters suffer as world commodity prices plummet. Oil prices fall further because of the hydraulic fracking revolution and Saudi Arabia’s decision to maximize its oil production. 2017 Commodities prices rebound to 50 percent of boom-time highs.

Books

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.

Articles

“Australia is the new frontier for battery minerals,” The Economist, Nov. 25, 2017, https://tinyurl.com/y85wbvvh. The British newsweekly details the boom in lithium mining in Australia as a result of China’s push to manufacture batteries for electric vehicles. Batovic, Ante, “Five countries most affected by the oil price crash,” Global Risk Insights, Feb. 21, 2015, https://tinyurl.com/ybz5hccc. An analyst with a London-based political risk firm traces the economic and political fallout from the global oil price drop on Venezuela, Nigeria, Iraq, Russia and Iran. George-Cosh, David, “Miners Look to Cash In on Cobalt Demand,” The Wall Street Journal, Jan. 1, 2018, https://tinyurl.com/yaa6ool8. A journalist reports on new cobalt mining ventures in Canada that seek to satisfy global demand for a socially responsible source of the metal, which now comes primarily from mines in the Democratic Republic of the Congo that use child labor. Onishi, Norimitsu, “African Economies, and Hopes for New Era, Are Shaken by China,” The New York Times, Jan. 25, 2016, https://tinyurl.com/ya9b3uss. A Johannesburg-based reporter details how China’s economic slowdown and the subsequent crash in commodities prices caused economic pain in Africa’s commodity-exporting countries. Porter, Eduardo, “Slowdown in China Bruises Economy in Latin America,” The New York Times, Dec. 16, 2014, https://tinyurl.com/ydga2k3n. A journalist examines how China’s economic deceleration has weakened Latin American economies that enjoyed unprecedented growth by exporting soybeans, wheat, copper and other commodities to China. Ramkumar, Amrith, and Ira Iosebashvili, “Electric-Vehicle Bulls Shake Up Metals Markets,” The Wall Street Journal, Dec. 10, 2017, https://tinyurl.com/y9yvpp2q. Two commodities reporters describe how investors are pushing up prices for a wide variety of metals used to manufacture electric vehicles and their batteries amid growing global enthusiasm for cars fueled by clean, renewable energy.

Reports and Studies

“Exposed: Child labour behind smart phone and electric car batteries,” Amnesty International, Jan. 19, 2016, https://tinyurl.com/hs5ztum. The human rights organization describes widespread use of child labor in cobalt mines in the Democratic Republic of Congo, the source of two-thirds of the world’s cobalt. Spatafora, Nikola, and Irina Tytell, “Commodity Terms of Trade: The History of Booms and Busts,” International Monetary Fund, September 2009, https://tinyurl.com/y7abb394. Two IMF economists provide historical data covering nearly 40 years of booms and busts in the commodity markets in more than 150 countries and compare the most recent commodity-price cycle with its historical precedents. The Next Step

China

“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/ycb6q8ae. Chinese economic growth will slow as the government moves to curb factory pollution and reduce debt, according to a poll of economists. Duguay, Andrew, “Why The Death Of Manufacturing In China Means A Positive Economic Outlook In 2018,” Forbes, Jan. 23, 2018, https://tinyurl.com/y9tou4l2. The decline of low-end manufacturing signals the maturing of China’s economy as it transitions to a more consumer-based model and seeks a more diverse and saturated market, says an economist for a research firm. Huang, Cary, “Why A Cooling In China’s Economy Would Be A Good Thing,” South China Morning Post, Jan. 27, 2018,

Page 9 of 12 Commodities Supercycles SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. https://tinyurl.com/ydxkvz7u. China’s economy, previously reliant on capital investment and exports, is shifting to focus on innovation and private consumption.

Electric Vehicles

Frangoul, Anmar, “Electric vehicles: BP invests $5 million in charging business FreeWire,” CNBC, Jan. 31, 2018, https://tinyurl.com/ya3m97jh. BP Ventures, a subsidiary of the oil giant, is investing $5 million in a rapid-charging company and plans to introduce charging stations at BP retail sites in the United Kingdom and elsewhere in Europe in 2018. Nickelsburg, Monica, “Seattle City Light installs first city-owned electric vehicle fast-charging stations,” GeekWire, Jan. 30, 2018, https://tinyurl.com/ybxz9ho8. Seattle is expanding its electric-vehicle infrastructure to curb the number of gasoline-operated cars and reduce the city’s carbon footprint. Patterson, Scott, “Driven by Electric-Vehicle Demand, Firms Focus on Cobalt,” The Wall Street Journal, Jan. 29, 2018, http://tinyurl.com/ydcgsxsm. Demand for cobalt, a mineral essential to electric-vehicle batteries, has increased exponentially as more car companies turn to such vehicles. Organizations

BMO Capital Markets 129 Saint-Jacques St., Montreal, QC H2Y 1L6 Canada 1-514-282-5922 www.bmocm.com 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 1-312-930-1000 www.cmegroup.com 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 1-202-546-4400 www.heritage.org 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 www.lme.com 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 1-202-328-9000 https://piie.com 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 www.shfe.com.cn 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 1-202-418-5000 www.cftc.gov An independent U.S. government agency that regulates commodity futures and options markets.

[1] Amrith Ramkumar and Ira Iosebashvili, “Electric-Vehicle Bulls Shake Up Metals Markets,” The Wall Street Journal, Dec. 10, 2017, https://tinyurl.com/y9yvpp2q. [2] “LME Cobalt, LME Official Prices, US$ per tonne,” London Metal Exchange, Feb. 2, 2018, https://tinyurl.com/y6uepadl; David George-Cosh, “Miners Look to Cash in on Cobalt Demand,” The Wall Street Journal,” Jan. 1, 2018, https://tinyurl.com/yaa6ool8; “Lithium Price,” Metalary, undated, https://tinyurl.com/ycdahfvd. [3] Ramkumar and Iosebashvili, op. cit. [4] “LME Nickel, LME Official Prices, US$ per tonne,” London Metals Exchange, Feb. 2, 2018, https://tinyurl.com/y8wmq4xr; “LME Copper, LME Official Prices, US$ per tonne,” London Metals Exchange, Jan. 9, 2018, https://tinyurl.com/ybal5rhs; Ramkumar and Iosebashvili, op cit. [5] Ramkumar and Iosebashvili, ibid. [6] “Australia is the new frontier for battery minerals,” The Economist,” Nov. 25, 2017, https://tinyurl.com/y85wbvvh. [7] Ramkumar and Iosebashvili, op. cit. [8] Ibid. [9] “2016-2017 Investment Plan Update for the Alternative and Renewable Fuel and Vehicle Technology Program,” report, California Energy Commission, May 2016, https://tinyurl.com/ybnwgzkv. [10] Ramkumar and Iosebashvili, op. cit. [11] Ibid. [12] Ibid. [13] “Australia is the new frontier for battery minerals,” The Economist, op. cit. [14] Ibid. [15] Amrith Ramkumar and Ira Iosebashvili, “Electric-Vehicle Bulls Hoping For Next Commodity Supercycle,” The Wall Street Journal, Dec. 11, 2017, http://tinyurl.com/yab57f25. [16] “Exposed: Child labor behind smart phone and electric car batteries,” Amnesty International, Jan. 19, 2016, https://tinyurl.com/hs5ztum. [17] George-Cosh, op. cit. [18] Ramkumar and Iosebashvili, “Electric-Vehicle Bulls Shake Up Metals Markets,” op. cit. [19] Eduardo Porter, “Slowdown in China Bruises Economy in Latin America,” The New York Times, Dec. 16, 2014, https://tinyurl.com/ydga2k3n; Norimitsu Onishi, “African Economies, and Hopes for New Era, Are Shaken by China,” The New York Times, Jan. 25, 2016, https://tinyurl.com/ya9b3uss. [20] Robert D. Kaplan, “The Oil and Gas Sector Is Changing -- and So Is Geopolitics,” The New York Times, Dec. 28, 2017, https://tinyurl.com/y9qraf3d. [21] David Baily, “In North Dakota, hard to tell an oil millionaire from regular Joe,” Reuters, Oct. 3, 2012, https://tinyurl.com/y88nx286; Nathan Bomey, “Six of the eight top oil-producing states hit recession,” USA Today, Jan. 24, 2017, https://tinyurl.com/y9lpqhba. [22] Mike Nowatzki, “N.D. Legacy Fund tops $4 billion in less than six years,” The Bismarck Tribune, Sept. 30, 2016, https://tinyurl.com/y9f9rdew. [23] Michael Hasenstab, “The Lessons From Argentina,” The New York Times, Dec. 6, 2016, https://tinyurl.com/yb7ue889. [24] Vladimir Isachenkov and Laura Mills, “Amid currency gyrations, Russia floats ruble,” The Associated Press/Savannah Morning News, Nov. 10, 2014, https://tinyurl.com/ydya4xp2. [25] Jane Kinninmont, “Vision 2030 and Saudi Arabia’s Social Contract: Austerity and Transformation,” Chatham House, July 20, 2017, https://tinyurl.com/ya7cp3uw.

[26] “World Economic Outlook | Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges,” International Monetary Fund, October 2017, https://tinyurl.com/yct35aby. [27] Dana Mattioli and Dana Cimilluca, “Boeing Tries to Overcome Brazil’s Resistance to Embraer Takeover,” The Wall Street Journal, Jan. 5, 2018, https://tinyurl.com/y8umc3mm. [28] “World Economic Outlook,” op. cit. [29] Meghan L. O’Sullivan, “Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America’s Power,” Simon & Schuster, 2017. [30] Kaplan, op. cit. [31] “World Economic Outlook,” op. cit. [32] “Australia is the new frontier for battery minerals,” The Economist, op. cit. [33] Ibid. [34] Zheping Huang, “260% of GDP: A quick look at the debt levels that earned China a ratings downgrade, Quartz, May 24, 2017, https://tinyurl.com/y7hgxv2e. [35] “China’s sovereign wealth fund hits 900 bln USD,” Xinhua/China Daily, Oct. 7, 2017, https://tinyurl.com/ycfmk6cx. [36] Ramkumar and Iosebashvili, “Electric-Vehicle Bulls Shake Up Metals Markets,” op. cit.

Page 12 of 12 Commodities Supercycles SAGE Business Researcher