Since 2021, the view that commodities have started a super cycle has attracted widespread market attention. In the past 100 years, several commodity super cycles have been related to the large increase in demand brought about by the rapid development of industrialization and urbanization in major economies. The industrialization and urbanization of the United States in the nineteenth century led to a surge in commodity prices; commodity prices after the First World War increased significantly; the reconstruction and reindustrialization of Europe after the Second World War and The baby boom in the United States has brought about a continuous rise in commodity prices. The most recent commodity super cycle was from 2003 to 2010. The main driving force was the rise of manufacturing after China's accession to the WTO and the demand for infrastructure and real estate investment from urbanization.
It can be seen that the start of a round of the commodity super cycle requires larger economies to release greater investment demand within a period of time. Among developing countries, India seems to have such potential, but its current progress in industrialization and urbanization is still very slow. From 2007 to 2013, India's annual fixed capital formation accounted for more than 30% of GDP. After 2014, the proportion of fixed capital formation has remained below 30%. This shows that the role of fixed asset investment in driving India's economic growth has gradually weakened in the past few years, and there are profound economic, institutional and even humanistic reasons behind it. Under such circumstances, conditions and trends, it is difficult for India to bring greater demand for bulk commodities. Some countries in the Eurozone, such as Greece and Italy, have experienced deleveraging in the past few years, and the slowdown in debt growth will inevitably affect the growth of fixed asset investment. The Eurozone as a whole also saw a negative growth in investment growth between 2008 and 2013. After 2014, the European Central Bank adopted negative interest rates, and the growth rate of credit to residents and companies from Eurozone banks began to pick up. Investment growth in Europe rebounded to a certain extent, but there is still a gap compared with before the financial crisis, and the ratio of investment to GDP is also lower. Before the financial crisis. After the outbreak of the new crown epidemic, Europe’s fiscal stimulus plan is mainly to deal with the negative impact of the epidemic on the real economy, and the funds that can be used for fixed asset investment are relatively limited.
After 2000, the growth momentum of global consumer demand for bulk commodities came mainly from China. China's fixed capital formation accounted for more than 40% of GDP at one time. In recent years, the domestic economy has transformed, and consumption has gradually become the main source of economic growth. The proportion of investment has dropped to a certain extent, but it is still significantly higher than that of other countries. In response to the impact of the new crown epidemic, the growth rate of domestic credit cooperative financing will increase to a certain extent in 2020, and the corresponding growth rate of fixed asset investment will also rebound, which is one of the important driving factors for the current rise in commodity prices. At present, China's manufacturing industry is second to none in the world, and urbanization has entered the stage of structural development of urban agglomerations and metropolitan areas, and China's demand for bulk commodities is unlikely to experience a sustained and sharp rise in the past. In 2021, domestic economic growth will return to near the potential output level, and the corresponding growth rate of credit cooperative financing will return to normal. China's demand is unlikely to be the main reason for the continued rise in commodity prices in the future.
The rapid rise in commodity prices since 2021 is closely related to the US$1.9 trillion fiscal stimulus measures proposed by the Biden administration. The stimulus measures include cash payments to ordinary people and unemployment benefits. Earlier, the US Treasury Secretary Yellen said that more than 30 million people in the United States are experiencing difficulties with food and clothing, and many people cannot pay rent due to unemployment and need government assistance. It can be predicted that after the formal implementation of the US$1.9 trillion stimulus measures, more support will be provided to employment and economic growth in the United States. Many financial institutions in the United States predict that these stimulus measures will cause the actual economic growth of the United States to exceed potential output levels from the second half of 2021 to 2022, that is, the U.S. economy will overheat, which will push up commodity prices. With the rapid advancement of vaccination, the increase in American residents' travel will drive gasoline consumption, which will help to promote energy prices to a certain extent. But experience tells us that the demand recovery brought about by the economic recovery is usually a phased one, and it is difficult to continuously push up the price of bulk commodities.
The Biden administration has made it clear that it will engage in large-scale infrastructure investment. A certain percentage of US infrastructure has been in disrepair for a long time, and there is indeed room for improvement. However, due to the political stalemate between the two parties in the United States, it is difficult for the Democrats and Republicans to reach a consensus on infrastructure, and it is difficult for infrastructure to advance smoothly. After Trump was elected president at the end of 2016, he said that he would vigorously promote infrastructure construction, and he finally lost his shadow at the end of his tenure. The scale of the new infrastructure stimulus package proposed by the Biden administration exceeds US$2 trillion. The fiscal stimulus that has been launched has led the US government’s debt to reach about 110% of its GDP, which is at a historical high; as the pressure on debt service increases, more stimulus measures will be proposed in the future, and the US government’s debt level It will be higher. Judging from the duration of 8-10 years, the annual scale is not very large, but there is great uncertainty about whether it can obtain funds through tax increases. In particular, after at least two government rotation cycles, there is still a great possibility of change in the future. Therefore, no matter from the perspective of scale and cycle, or from the perspective of finance and politics, Biden's infrastructure plans are subject to greater uncertainty. If so, a new round of commodity super cycle may be established on the beach.
In response to climate change, many countries around the world have expressed the need to increase investment in clean energy. In the next few years, the Biden government may also invest heavily in new energy. Superimposing investment in green energy from China and other economies may release a certain scale of investment demand, which in turn will drive commodity prices. China plans to complete its carbon peak by 2030 and achieve carbon neutrality by 2060. It is still a long time, and the demand for bulk commodities may be limited in the short term. In summary, from the perspective of the real economy, the demand basis for bulk commodities to start the super cycle is not mature. It is obviously biased to determine that commodities have started the super cycle only from the short-term and phased demand release and changes in currency factors.
