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CNBC spoke to Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management on Wednesday recording one of the most bearish quotes yet on the end of the so-called supercycle.
The commodities boom was driven by China’s rapid infrastructure build-out and centered on iron ore.
In December of 2004 the the big three producers – BHP Billiton, Rio Tinto and Vale – kicked off the supercycle by hiking the price they charged for iron ore by 72% overnight taking it above $20 per tonne (yes, that’s $20.00 per tonne) for the first time in history.
Now says Sharma that supercycle is coming to and end because “the 200-year history of commodity prices shows a repeated trend of two decades of price declines, followed by one decade of price gains”:
“China’s growth is downshifting to a lower plain, its very commodity-intensive phase of growth is coming to an end. This to me marks a big decade of increase in commodity prices coming to an end.”
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“I suspect that we’re headed now for two decades down as far as commodity prices are concerned. This is the sunset of the big commodities super-cycle.”
Sharma is busy promoting his new book Breakout Nations which argues that investors should forget the BRICs because “what these countries forgot is that the big boom over the past decade was very much because of a global tide lifting all boats; it was not about their own economic policies.”
Instead, says Sharma, in the coming decades countries like Turkey, Indonesia, the Philippines and Poland would be leading the charge for global economic growth.
The Chinese import price for iron ore was $134.80 a tonne on Wednesday, a 1.7% gain on the day but down roughly 25% from an all-time high above $180 a tonne set in September 2011.
Coking coal, the other crucial steelmaking ingredient, has managed to stay above $200 a tonne this year from $300 a tonne at the start of last year with Western Canadian premium-grade met coal to Asia pegged at $211 at the Vancouver port in the current quarter
Meanwhile copper – the bellwether for the metals industry – was trading at $3.37 a pound on Wednesday, down from its record high set last year of more than $4.49 a pound.
MINING.com reported over the weekend that as prices slide the big miners are playing game of chicken over delaying new supply to the market.
New research shows marginal producers of iron ore, zinc, thermal coal, ferrochrome, nickel and aluminium can’t turn a profit at today’s prices and a little help from the market leaders to prop up prices would be most welcome.
Read more about the mining industry’s new normal >>
