The global economy is growing but at a slow pace. Much of the weakness is attributable to high rates set by global central banks, but also to the recession in Europe, structural weakness in China, and the US slowing from Q3’s rapid pace. While China might achieve growth this year and next of around 4.5% to 5%, this constitutes a material slowdown from previous years, albeit off a larger base. Does this imply weakness in commodity markets? Not necessarily – it depends on individual commodity markets, and each has its own peculiarities.
The CRB raw industrials spot price index is down 21% from its most recent peak of 689 on 4 April 2022 to 541 on 8 December 2023, near its lowest level since February 2021. The spot price of copper is included in the CRB index, and it is down 10% since January on mounting evidence that China’s property crisis is worsening and weighing on Chinese growth. The price of copper is highly correlated with the China MSCI stock price index, which is down 56% since February 2021.
Source: Yardeni Research
It is particularly interesting to see the huge divergence in the India versus China story, with global investors over the past 2 years choosing to invest in India, with its lower cost base, democratic political system, and younger demographics. India (with estimated 1.43 billion people) earlier this year overtook China (1.42 billion) as the country with the world’s largest population. According to UN data and projections, by 2060 India will attain a population of 1.7 billion. At the end of the century, India is projected to remain the most populous country with 1.53 billion people and China will have reduced to 766 million people.
Source: Yardeni Research
Both China and India have a growing appetite for natural resources such as oil, coal, and iron ore, for which they compete fiercely. They also fight for capital, especially for investments by multi-national companies from North America, Europe, and Japan.
Both nations are vying to be Asia’s undisputed superpower, and they tend to be suspicious about each other’s intentions. China and India have nuclear weapons; they have created the world’s biggest armies; and they are trying to dominate the seas in the region. China continues to support Pakistan, which India isn’t happy about, and India still lets in Tibetan refugees, which China resents. The US, meanwhile, is intent on getting closer to India to thwart China’s geopolitical ambitions.
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