Pro Perspectives 12/7/20

December 7, 2020

Back in the depths of the Global Financial Crisis, while the world was suffering and asset prices were collapsing, China began stockpiling cheap commodities.  With about $1.7 trillion of U.S. dollar reserves, they went on a commodities buying binge, picking up the world's most valuable natural resources on the cheap. 

That led to charts like these …

Crude oil tripled from the 2009 bottom, in less than a year. 

And copper had a V-shaped recovery in 2009. 

China's inventory of base metals doubled in 2009.  Their copper inventory went up four-fold.  The binge included food (corn, pork, soybeans).  

Was this a power play?  It appeared that way.  China was doing well, while major developed market economies were suffering.  And not only did they stockpile key commodities, but they forced key commodity prices much higher, creating an greater burden for economic recovery for the rest of the world.  

But it didn't last.  Soon, it became clear that the Chinese economy couldn't sustain, without healthy global trading partners.  The Chinese economy ultimately plunged, and commodity prices plunged with it.

This time around, with a new global economic crisis, China appears to be on another commodities binge.  And this time they have a bigger war chest of dollars to work with, and they are leading the world in economic activity coming out of the global recession.  We should expect them to continue stockpiling key commodities, and driving prices much higher.