Sulphur 386 Jan-Feb 2020
31 January 2020
Happy new decade?
“It seems very clear that we are now reaching the end of that supercycle…”
A New Year is typically a time for taking stock, for looking back at the year just gone, and thinking about the year to come. This year of course marks a bigger transition, from the 2010s to the 2020s. The past decade has been a volatile one, existing under the shadow of the global financial crisis of 2008-09, from which the world was still just emerging in 2010. Over the past decade, ‘quantitative easing’ has helped prevent deflation and driven a decade long stock market rally, but also kept both public and private debt levels high, as interest rates stay low. Weaning the global economy off QE has proved to be far more difficult than many anticipated.
In the meantime, the first half of the decade was dominated by the end of the commodity boom, as China’s overheated economy continued to suck in raw materials – including sulphur and sulphuric acid – from all over the world. However, over the long term, demographic factors tend to loom largest, and since 2015 the Chinese economy has slowed as its retirement age population has grown much faster than its working population, a delayed effect of the ‘one child policy’ of the 1990s. With it has slowed the commodity boom. Prior to the financial crisis, GDP growth in emerging markets averaged 7.3% per year. Since then, it has fallen to 4.2%, and much of this has been due to the slowdown in China.
Sulphur and sulphuric acid are commodity chemicals, dependent for supply upon oil, gas and metals markets, and for demand upon metals, agricultural and general chemical markets. As such they move in long cycles of high prices, leading to new investment, then overinvestment, leading to falling prices, which in turn leads to underinvestment, and then rising prices again. While the cycles of any single commodity are not necessarily related, when looked at over very long periods, they often seem to move together in what statisticians describe as ‘supercycles’. Four commodity supercycles have so far been identified – 1899-1932, driven by the rapid industrialisation of the United States, and ending in the Wall Street Crash and Depression; 1933-1961, with global rearmament and the Second World War and its aftermath; 1962-1995, driven by the reindustrialisation of Europe and Japan following the trauma of the war and ending with the collapse of the Soviet Union and reabsorption of eastern Europe into the world trading system; and 1996 to the present, driven by the rapid industrialisation of China. It seems very clear that we are now reaching the end of that supercycle, and perhaps about to move into a new one – driven by Indian urbanisation and/or the transformation of Africa’s agriculture, perhaps?
Other factors have shaped the past decade and will continue to shape the next one – digitalisation continues to reach into more and more areas of our lives, and we seem to be only at the beginning of the possibilities of artificial intelligence and robotics. A warming world – the past decade was the warmest on record – is also leading to investments in renewable energy that have seen its costs fall dramatically to rough parity with fossil fuels. The electrification of road vehicles and move to renewable power generation will, as our article this issue discusses, lead to a peak in oil consumption some time around 2030, and peak demand for natural gas may follow not long after. This will lead to a new environment for the sulphur industry, as it learns to cope with a sustained period of demand outrunning supply.
Because demand does seem set to continue to rise. The previous decade also added 800 million people to planet Earth. While the rate of global population growth has been falling since the 1980s, peak population may still be some decades away. What seems certain is that more fertilizer will be required, meaning more phosphate, and more sulphur.
And yet, in spite of all of this, global economic growth has been remarkably stable for decades, averaging 3.3% per year in the 1990s, 3.7% in the 2000s, and 3.5% in the 2010s. Since the 1950s, it has averaged 3.8% per year. Slowing population growth (and hence the expansion of the labour force) has been balanced by increasing productivity growth. We continue to become richer than at any time in history. Perhaps that is a thought to take some cheer from at the beginning of another uncertain decade.
