60-second interview: Philippe Chalmin

Face to face | 22 February 2016
Photo.Mr_.Chalmin web.jpg

Philippe Chalmin says we should not blame the Chinese for commodity price falls and producers have produced too much. But we still need to feed ten billion in 2070

You have recently predicted that we could be heading for oil at US$20/bbl and other commodities prices could fall further. Why?

After the great super cycle from 2006 to 2014, we are now entering what might be a long period of declining and depressed world commodity prices. This is because of the arrival of new capacity and new technology funded by investment from the boom years that resulted in a surge in supply and excess production.  The only question is, when will markets find their floor – at US$20/bbl of oil or per ton of iron ore?

Most lay the blame of the last 12 months of free-falling at the door of the Chinese, but that demand was never sustainable, was it?

You must not blame the Chinese for the present situation. In fact, during 2015, Chinese commodities imports have kept growing for products such as crude oil, soybeans, grain, copper and stabilised for iron ore. Furthermore, the only real decline in Chinese imports has been for thermal coal and milk wick powder. 

The main culprits are the producers themselves – Saudi Arabia and shale oil producers in the US for oil, Australian iron ore miners, Chinese aluminium producers and even New Zealand dairy producers. In the law of supply and demand fro commodities, it is usually supply that is determinant.

Which economies are benefiting from low prices and which are the worst hit?

Of course the big losers are the producers themselves and especially those countries that thought they might “buy” their development through high commodity prices. In fact, we return to the old “commodity curse” and especially to the “oil curse” for countries such as Venezuela, Algeria, Nigeria and Angola, but even Saudi Arabia and Russia.


If there are excess supplies of commodities that contribute to food security, how can these be directed to where they are needed? Are we back to aid rather than trade?

The situation for grains and softs is slightly different. We have just had almost perfect climate conditions for the last three seasons and this explains the replenishment of the world’s stocks and falling prices. The situation might be slightly different in 2016 with El Niño, La Niña and a mild winter in the northern hemisphere. However, on a long-term basis, remember that the “food challenge” is probably the most important one facing the world in the 21st century – far more challenging than energy and climate. The main question is how to feed ten billion people in 2070, which means that you will need to double world agriculture production just to satisfy food needs. 

What is your outlook for the next 12 months?

I think the outlook for 2016 is rather bleak as most markets try to find their floor with no real hope of any kind of rebound. The main exception could be agriculture if climatic conditions worsen. Turning to the longer term,, we are entering a period of low prices that could be compared with what happened during the 1980s and 1990s. 

The next boom could come within the next decade – with India replacing China as the main source of demand growth. For the time being, producers will have to adapt and close high-cost capacities. But this will take time. The same goes for the traders whose profitability in a period of low and less volatile prices will decline. The boom days are over for them too and it will be a time of concentration on their core businesses – trading…

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