For months now, worries have mounted that the end was approaching for the near-decade of dizzying good times in a commodities boom that saw companies rush to build mines and oil fields to feed surging global demand.
But for some it wasn't until Monday, amid a rout in gold, copper, oil and a host of other commodities, that it became undeniably clear the so-called "supercycle" has expired.
"The alarm bell has been ringing for a while for the supercycle, but today looks to be the day the world woke up to the reality," said Douglas Porter, chief economist at BMO Nesbitt Burns, as a free-fall in gold prices led broad selling fuelled by unease over the prospects for the global economy.
Commodities fell hard on Monday, led by a 9-per-cent drop in gold and a 12-per-cent plunge for silver. Copper and other metals slumped along with wheat, coffee and other crops. Oil prices sank about 3 per cent, continuing last week's retreat. The selloff spread to stocks, as the S&P/TSX composite index dropped more than 332 points or about 2.7 per cent, and the Canadian dollar, often tied to commodities, sank more than a penny against the U.S. dollar.
Falling prices for commodities are a particular risk for Canada, whose resource-heavy industrial landscape has served as a strong buffer against the malaise of developed economies in recent years. Lower prices for metals and energy could accelerate a pullback in spending by several big companies already reining in spending on new projects and expansions.
Citigroup Global Markets Inc. underlined the despair in a bleak report that offered a pessimistic outlook for almost every commodity in 2013. There are exceptions: cotton and orange juice, for example, have been bucking trends. But across the sweep of major resource products, Citi has lost hope.
There will be "many more losers than winners," the bank said in a 145-page note Monday. "Citi sees price declines looming in virtually all base metals, save for nickel," for every precious metal outside of palladium, for coal and iron, for oil and gas in most places, and "for most of the grains complex."
The pessimism is rooted partly in a disappointing U.S. recovery and continued European financial turmoil. But it stems largely from China, amid a faltering in the breakneck growth that in past years swallowed enormous volumes of copper, iron and a long list of other goods.
On Monday, a surprise first-quarter slowdown in China's economic growth reinforced the challenges facing the global economy. China's first-quarter GDP growth rate of 7.7 per cent was as much as 0.3 percentage points lower than economists predicted, suggesting that looser credit policy and stimulus spending has failed to compensate for falling exports.
Though Chinese retail sales caught a slight uplift in March, slowing growth in industrial output and electricity production – which was down to 2.9 per cent in March from 3.4 per cent in January and February – suggested more trouble to come. Dropping exports are also putting the brakes on growth faster than expected.
"[This] really tears away the veil from the idea that China's got a sustainable growth model," said Patrick Chovanec, chief strategist at Silvercrest Asset Management and until recently a China-based economist, who said the data show the weakness of China's investment-driven growth.
The Chinese expansion story was founded on the construction of vast numbers of power plants, airports, roads, factories and residential complexes – a building spree that saw 87,000 kilometres of highways added last year alone, a record. But the giddiness of growth has been undermined amid reports of "ghost cities" and tens of millions of empty housing units that suggest massive overbuilding.
Those concerns are not new, however. Last September, Mr. Porter wrote a report that he intended to title "End of the Commodity Super-Cycle." It was renamed to "QE3… Commodity Glee?" after a new round of multibillion-dollar injections of cash, or quantitative easing, into the U.S. economy. The previous two rounds of quantitative easing had sparked 20-per-cent bounces in commodity prices. But the effects of the third round faded quickly, suggesting the effectiveness of such fiscal policy has grown limited.
"Quantitative easing is likely to be with us for some time yet – the issue is whether it will make any difference for commodity prices," Mr. Porter said. "Doesn't look like it at this point."
Mr. Porter has not lost complete faith in commodities: He expects heavy capital investment will continue in China, where the government recently approved construction of a giant new airport just south of Beijing.
"But it is possible that we're not going to get the kind of growth we've had over the last 10 years – and not only is it possible, I think it's probable," he said.