2015 In Review
The Winners and Losers of the Commodities Collapse

The story of 2015 can be told a few ways, but one of the most obvious ones is that this was the year the commodities boom officially came crashing down. Raw materials prices have been falling for a few years now, but in 2015, the bottom completely fell out as demand from manufacturing giants—particularly China—slowed. From South Africa to Brazil, the results haven’t been pretty.

Yet it’s important to remember that commodity prices are cyclical. When prices drop, producers stop investing in new capacity. At some point, demand will catch up to supply once again and commodity prices will lurch back up.

These cycles are as old as the modern capitalist economy (going back to the first Dutch tulip bubble), but they still take people by surprise. They also confuse geopolitical analysts. Practically the whole profession mistook the last “up” cycle as a fundamental transformation of the world order. Commodity exporters like Russia, Brazil, and South Africa were seen as emerging new powerhouses—but now their economies are looking more like roadkill.

The effects of the cycle are very real and they mean trouble for commodity producing countries that are under any kind of stress. That’s a long list, and some of these countries could experience serious instability — especially in places like Venezuela, where some of the world’s dumbest economic policies were causing trouble even when oil prices were high.

On the other hand, the down cycle is good for China, a country that mostly imports commodities and exports manufactured goods. Oil, iron, steel, tin, copper, and just about everything else China’s factories need is on sale right now. That’s very helpful when China’s profit-strapped manufacturing economy needs every dime it can get.

For the United States, it’s a wash. America produces a lot of oil, gas, minerals, and agricultural goods, but we produce plenty of other things. Low oil prices are bad for Texas, but good for Detroit. When gas is cheap, people tend to buy big honking cars that earn more profits for the car makers. Some sectors of the financial markets have been looking shaky; junk bonds issued by companies in the oil and gas business aren’t looking quite as safe as investors once thought they were. But on the whole, the U.S. is hedged better than most developed countries against high commodity prices—and hedged better than developing countries against commodity crashes. That’s one reason that the U.S. consistently remains one of the world’s top economic performers.

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