Confronting a Commodity Supercycle
Illustration by Satoshi Kambayashi. Courtesy of the Economist.
Building industry professionals are aware of the influence that material prices exert on design decisions. Commonly used materials like steel continue to escalate in price due to increased demand, especially given the relentless appetite of China’s continual building boom. I received my first full taste of the relationship between commodity pricing and design while leading my first office building project. Early in the process, the client’s choice between a concrete or steel frame had more to do with the anticipated price of materials than any other factor.
This week’s Economist highlights a notable trend with potentially significant repercussions for the construction industry. The article “Material Concerns” notes that commodity prices are unusually high given the current sluggish state of the economy. This is particularly bad news for developed countries, which are primarily commodity consumers rather than producers, and suggests that prices for important raw materials will remain elevated.
The Economist attributes the phenomenon to one of two conditions: “Either the needs of the developing world are causing demand growth to outstrip supply for an extended period, or new sources of supply can be found only at higher cost. Both explanations add weight to the idea of a ‘commodity supercycle,’ a long-term surge in prices that might last for 15-20 years.”
If this prediction of a commodity supercycle is true, the building industry in the developed world will need to find ways of using materials more effectively as well as seek local alternatives to globally traded commodities.