Why is this recession (potentially) different from all other recessions?

A small but significant set of data points in the ongoing discussion of how – potentially – China’s economy has altered the global economy, especially as it impacts the current economic downturn.

I received this first one last week from my pal Bob Garino, Director of Commodities at the Institute of Scrap Recycling Industries [ISRI] in Washington, D.C. It tracks the relationship between (in blue) the US IP Manufacturing Index, a measure of metals intensive US manufacturing; and (in green) the CRB Metal Index, a measure of key scrap metal commodities, including copper, lead, and steel. Note that the two indices were relatively correlative until December 2008 – or right around the time that China began to stockpile key metal commodities (click for enlargement).


The data is interesting in its own right, but even more so when seen in the context of how the two indices behaved during the prior three recessions. Below, that data, as supplied by the ISRI Broadsheet (click for enlargement).


To quote Garino (my favored expert on the relationship between raw materials and the overall global economy):

“There was a close correlation between two but that relationship has sure changed, and we think it’s mostly due to Chinese buying, and not the influence of domestic [US] purchases in the manufacturing sector … [T]he concern (if there is one) is what it will take to see a return to the past relationship? Perhaps due to the nature of commodities within the context of a changing global economy, the current correlation we’re seeing between IP and the CRB has forever changed and has now become meaningless.”

And that’s the question, isn’t it? Has China overturned the realationship between commodities demand in the US, and global commodities prices? My personal opinion is that this kind of question is probably best answered during an economic expansion, and not a recession when – in the case of China – economic stimulus creates non-market demands for commodities. And despite overheated talk (from, among others, me) about the potent power of China’s economic stimulus on the price of global commodities, the actual data is less than encouraging. Below, China’s imports of scrap aluminum and copper (the latter an important component of the CRB index) from January to May 2009, as compared to the same period during 2008:



  1. Adam.

    What I have believed all along is that China is simply looking to take advantage of the fallout to build its reserves. Nothing more.

    These materials are not meant to hit China’s production lines until well after the recession has passed, and most likely will only be used in the case of skyrocketing prices.

    One commodity I where I think this has already played itself ut is oil. Late last year they blew through their reserve purchasing 9 months (I think) in advance and announced the construction of more reserves. Clearly meant to prevent the price shocks/ stock outs of the previous 18 months.

    It is an unproven theory, but one I think will be confirmed once prices shoot through the ceiling again. My guess, is we see China’s purchases falloff as they absorb the excess stock from recent purchases, and a number of parties who were once being crushed by NRDC pricing will see some benefit.


  2. This is backwards:

    ” It tracks the relationship between (in green) the US IP Manufacturing Index, a measure of metals intensive US manufacturing; and, in blue, the CRB Metal Index, ”

    The graph says (and text implies) green is the CRB, blue is the US IP index.

  3. Joe – You are right, and I have corrected the error. Can’t decide what’s more disturbing: the fact that i got it wrong, or that it took several days before anybody noticed. Anyway, thanks much for pointing that out.

  4. This article from Asia Times online (http://www.atimes.com/atimes/China_Business/KF30Cb01.html) discusses more strategic reasons for China’s hording of metals. A similar article appeared in Bloomberg.

    1. Horde metals to create a “basket” metal standard for a global currency.
    2. Horde metals to corner the market in green tech (solar, wind, pollution reduction) and advanced electronics.
    3. Horde metals to choke the economies of developed nations and have greater political leverage in global affairs.

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