Metal prices to crater in three years due to Chinese re-balancing

The core reason is that the surge in demand which induced a global resources boom was the direct result of unbalanced growth in China over the past two decades, and that this unbalanced growth is currently headed for a sharp correction.

Over the past twenty years China’s political helmsmen have neglected to build up domestic consumption while ramping up investment spending in order to build the full sweep of infrastructure required by a modernizing economy.

This trend was further exacerbated by the Great Financial Crisis of 2008, when China’s leaders unveiled a huge stimulus package to lend succour to economic growth as stalwart first-world export markets collapsed.

According to Pettis, the rebalancing of Chinese growth will automatically render its economy far less commodity intensive, stymieing demand and leading to a crumbling of prices.

Even in the unlikely event that the Chinese economy maintains the roaring double-digit growth figures which characterized its performance throughout the noughties, its appetite for commodities is still set to diminish.

Other ancillary factors contributing to the collapse of commodities prices as envisaged by Pettis include China’s excessively high inventory levels, and continued near-term growth in supply due to the long lead-time of production increases pursued during the resource boom’s peak.