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Commodity Supercycle Slows Down in 2012
Global commodity prices dropped by 6 percent in 2012, a marked change from the dizzying growth during the “commodities supercycle” of 2002–12, when prices surged an average of 9.5 percent a year, or 150 percent over the 10-year period.1 This change of pace is largely attributed to China’s shift to less commodity-intensive growth.2 Yet while prices declined overall in 2012, some commodity categories—energy, food, and precious metals—continued their decade-long trend of price increases.3 (See Table 1.)
The commodities market consists of various raw materials and agricultural products with fluctuating value that are bought and sold in global exchanges. This includes agricultural products, such as corn, wheat, soybeans, and cotton; energy sources, such as crude oil and natural gas; metals used in construction, such as copper and aluminum; and precious metals that are often used for financial security, such as gold, silver, and platinum. Commodities categories are not always mutually exclusive: some products (corn, for example) are used as an input for other commodities (such as cattle.)
Commodity prices were generally in decline for decades before 2002. But as the number of rapidly growing emerging economies grew after 2000, urbanization led to a surge in demand. Commodities supplies, however, were weak due to underinvestment in new capital expenditures as well as the difficulty of procuring new supplies because of factors such as stricter environmental regulations and deposits that were more remote.4 This opened the door to a dizzying climb in commodities prices over the next 10 years.
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