As we wrote in Part One, without the steroid fix of massive, centrally induced fixed-asset investment programs, the world’s second largest economy is in for a prolonged period of slower, less commodity-intensive growth – just what Beijing wants.
Beyond China, it is increasingly clear that many emerging economies have not been growing beyond their underlying potential.
Optimists once thought India could sustain Chinese-style growth of over 9 percent a year; but that led to stubbornly high inflation and current-account deficits, suggesting that India’s potential growth may be more like 6-7 percent at best. The complete shutdown of northern India last week by a massive power failure illustrates in graphic detail how very far the country has yet to go before it has the basic infrastructure in place to sustain a growing economy.
With the government wasting money on inefficient subsidies, 0.8 percent of GDP going into fuel subsidies alone, and an eye-watering deficit of 9 percent of GDP against an emerging market norm of about 2 percent, India just doesn’t have the levers to pull to achieve even 6-7 percent growth in the slower-growth global environment we are likely to see for years to come.
All this raises questions for metals consumers, designers and material specifiers.
Copper saw considerable substitution by plastics as prices rose to stratospheric levels; stainless grades were swapped from nickel-bearing austenitic grades to low- or zero-nickel grades as nickel prices went through the roof.
If we are indeed destined for a prolonged period of moderate metals prices, driven by adequate supply and much-lower-than-expected demand growth, engineers may switch back to previously higher-cost (but more reliable) alloys, and buyers may not feel the need to use sophisticated hedging tools if the markets are perceived as less likely to spike to unsustainable levels.
As the Economist concludes, much will depend on growth among the new order of emerging nations, but the omens are not strong for them to ever return to the levels of the last decade.