Start of the Games, end of the commodities boom?

August 12, 2008

Were the opening ceremonies for the Beijing games the beginning of the end of the commodities rally? This graphic shows that China’s economic growth took off after the International Olympic Committee gave it the nod in 2001. The commodities boom, based on the Reuters/Jefferies CRB Index, can be traced back to around that time as well.

olympics1.png

China went on an unprecedented seven-year construction spree to modernize its cities and infrastructure before throngs of athletes, tourists and media members arrived from around the world, stockpiling raw materials to accomplish its makeover.

Building the Olympic facilities and spiffing up Beijing for the cameras was only a drop in the bucket compared to overall growth in China’s economy, but consider that the spectacular National Stadium, known as the Bird’s Nest, required 45,000 tonnes of steel. Over that time, China became the number one consumer of metals and the number two buyer of oil behind the United States.

No one is expecting China to slam on the brakes when the Olympics end. But even a cooling from 10 percent growth a year to 8 percent should have negative consequences for commodity prices, given that demand from the United States and Europe is withering.

Comments

Each year the commodity bull is over. Unfortunatley all top callers are looking up. Your argument is based on slowing growth. A slowing economy slows down tax revenue. In America where the printing press runs 24/7 deficits do matter and in turn it effects the USD. The USD is the world reserve currency which is loosing its title as the financial system is broke with no practical solution except the use of the printing machine. This destroys the currency. When you have a lower dollar you have increasing prices. Hence higher commodity prices because there priced in USD’s

Posted by Brian | Report as abusive
 

Upgrading China certainly used alot of metals, concrete etc.. I own a small scrap yard and my steel volume is 90,000 tons/yr. The steel used in the birds nest is a small portion of the 1.3 BILLION tons of steel produced worldwide in a year. Consider that China and India have 1.5 billion peoplw who 10 years ago rode a bicycle that weighrd 40 lbs, but now want a car that weighe 2500 lbs. Think abouut this. Also, nothing has been found that can conduct electricity better, and more chaeply than copper. Commodities may declinr in price, but .75 copper and $50/ton scap iron are long gone

Posted by Michael taylor | Report as abusive
 

There are many factors for the cooling of the Chinese economy. As a matter of fact, The Olympia is actually a positive one. A new round of international recession is a main negtive reason.

Posted by Michael | Report as abusive
 

Several weeks ago, investors were talking about insatiable demands for energy and commodity from China, India and Middleast so that oil price will go to 170 or 200. Just opening of a game will change expectations?

Posted by JG | Report as abusive
 

Commodities are in a stall zone and will go even higher.

Posted by Debora Edholm | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/