RIO DE JANEIRO, BRAZIL – The post-pandemic recovery and unprecedented spending in the United States are boosting the prices of the basic trio of commodities: oil, food and minerals.
Is it a mini-boom or a new super-cycle? Economists have not yet reached a consensus, but the soaring prices leave no doubt: everything the world needs to live, generate energy, and produce is going up – and is likely to go up even more.
There is no shortage of money. The United States, and to a lesser extent Great Britain, are pouring investments into infrastructure works – US$2 trillion in the latest big package proposed by President Biden alone.
The American president wants not only to patch up roads, bridges and the like, but to rebuild everything according to stricter environmental standards. And virtually everything emits less pollutants into the atmosphere, from solar panels to electric batteries for the electric cars that will become progressively mandatory, uses copper.
The “red gold” has now exceeded US$10,000 a ton and could reach US$11,000 by next year. That is unless a black swan happens like the election of an ultra-leftist like Pedro Castillo as president of Peru, the country that has become the world’s second largest producer, sharing with neighboring Chile, the market leader, the reserves created by the collision of the tectonic plates along the Pacific coast.
The primary school teacher and union leader, ahead in the polls, has vowed to nationalize everything land yields in Peru and to expel the “exploitative foreigners” within 72 hours of being elected.
Not even Peruvian Nobel-Prize-winning novelist Mario Vargas Llosa could have created a character like Castillo, who campaigns on horseback, wearing a poncho and a peasant hat, pledging a socialist paradise under the slogan “no more poor in such a rich country.”
Pause for recall: Peru once had a statist government in the 1970s, no less than a left-wing military dictator, Juan Velasco Alvarado, one of the many Peruvian characters that even magical realism is unable to portray.
Political catastrophes or sheer and terminal incompetence are the habitual problems in the path of countries like Peru. Or Brazil, a formidable commodity champion that now has a new chance to make a structural leap. Or of falling into the same hole that the last super-cycle propitiated, that of left-wing populism in Bolivarian style.
With or without minimally competent rulers, commodities are rising. Goldman Sachs projected a 14% increase over the next 6 months. Iron ore, palladium that reduces car emissions, and timber have seen record highs.
Oil could reach US$80 a barrel. Who can still remember that when the pandemic started, the price of crude went below production cost, because storage tanks were exhausted?
Clearly, as the world’s engines heat up, from the United States to China, demand puts pressure on prices. Increased costs are passed on, and it all ends up in inflation.
“Costs are going up, up, up. Steel goes up every day,” noted Warren Buffett, the legendary investor, speaking as the owner of America’s largest construction company. “We are seeing substantial inflation.”
Brazil bears both the bonuses and the burdens of this new commodities phase. One of the bonuses: the projection that this year the country will have the first surplus in its foreign trade accounts since 2007.
One can even dream of forging in soy the miracle of bread for every Brazilian – plus steak and yogurt, all provided by the most valuable of commodities: jobs.
With all his crazy antics, Pedro Castillo is right in saying that a rich country can not have that many poor people.
Source: Veja