Has the commodities supercycle run its course?

The reason is that aging populations represent a replacement economy. People in their 50s and older already have most of what they need. Equally, they can postpone purchases if money is tight. And with 10,000 Americans now retiring every day until 2030, many people’s spending power is set to reduce quite sharply as they start to depend on pension income for the basic necessities of life.

Chart 2 highlights the issue for the G-20 group of countries, who account for nearly 80% of global GDP. This shows each country in terms of GDP/capita and median population age, with the economy’s size depicted by the bubble.

Its membership comprises three quite distinct groups:

  • Rich but Old. These are wealthy western countries, whose median ages are already around 40 years
  • Poor but Young. These are poor emerging economies, with median ages of 25-30 years
  • Poor and Ageing. This group contains just China and Russia, whose median ages are also approaching 40 years

The Poor but Young countries are too poor with GDP/capita only around $10k to drive major growth in commodity demand on their own. Equally, China is most unlikely to maintain its historical economic growth because of the impact of its one child policy. This began back in 1978, and is now leading to increased labor shortages. And at the same time, the new leadership is already refocusing the economy away from high-value export demand toward low-cost domestic consumption.

Against this background, savvy investors will be relearning the techniques of supply/demand analysis that guided markets until 2003. Demographics drive demand, and so the aging of the Western and Chinese populations means the chances of a new commodities supercycle are reducing by the day.

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