This morning, the Wall Street Journal described China's explosion in nickel pig iron production, which has sent global prices reeling by introducing a glut of cheap supply. But it's not just nickel, the Journal reports. It's all kinds of commodities that we thought would start to disappear, and have instead started flowing even more freely, as producers found higher-tech ways of extracting them from the ground:
Economists for years warned that rising demand for natural resources by China and other emerging markets would outstrip supply, leaving the world short of everything from nickel to coal, copper and corn.
But a remarkable period of innovation and investment has produced a far different picture. Expanded supply has helped moderate commodity prices over the past year after a decade of demand from China helped push many prices into the stratosphere.
... Of course, price declines are also driven by weaker demand, especially in China, where economic growth has slowed. And prices for many commodities, including oil, remain far above their average from 10 or 15 years ago.
But the global supply picture is the best in years. "It's kind of basic econ 101: Scarcity induces some sort of innovation," said David Jacks, an associate professor at Simon Fraser University in Canada, who has studied commodity cycles over the past century.
Think about the fracking techniques that have turned American prairies into fertile oil fields, improvements in crop breeding that have increased agricultural yields, chemical processes that extract minerals from waste rock, and drill bits that reach ever further into the ground. Every time we stare at a potential shortage, like rubber and latex in World War II, some scientist figures out a new way to make it more cheaply. So should we ever worry about scarcity again?
In case you're not convinced, here's what production is looking like for a few of those commodities.
Silver is steadily ramping up, according to the Silver Institute:
Wheat, coarse grains and rice production are all rising, according to the Food and Agriculture Organization of the United Nations:
It's also clear that China is largely responsible for jumps in aluminum and nickel production, according to data from David Humphreys:
And here's natural gas production, now surpassing its 1970s highs:
We could go on. The point is, even as one method of extracting resources starts to look difficult, humanity seems to be pretty good at inventing others, to get at pockets previously thought inaccessible. The graphs make it appear as if the upward trajectory could just continue indefinitely.
But there are a few big caveats to keep in mind.
The first is the environmental downsides to new methods of extraction. Some new commodity refining techniques are cleaner and less energy-intensive, but not all. In fact, many are more invasive and polluting — the new era of abundance should not be considered free of cost.
Second, extraction does get more difficult and more expensive as you dig deeper to find it — as energy analyst Chris Nelder told my colleague Brad Plumer this year on the subject of oil production, at a certain point the cost of mining the stuff approaches the value it produces.
Third and most importantly, finite resources (i.e., not so much agricultural crops) are still finite: The Earth isn't making coal, gas or metals fast enough to keep up with human demand, and at some point they have to run out. Relying on science to find more of that stuff forever, instead of forcefully transitioning to ways of making things and powering things with renewable materials and fuel, is always going to be a losing long-term bet.