Monday, 20 June 2005

Booms and gluts

There has been quite a lot of discussion on the global housing boom of late. After the feature by The Economist on 16 June, there were commentaries by Paul Kasriel of The Northern Trust Company and Caroline Baum of Bloomberg, for examples. And just yesterday, Barry Ritholtz and Calculated Risk had new posts on housing on their blogs to add to previous ones.

With so much said already, there is very little for me to add on "The housing boom".

However, with oil above US$59 a barrel, the topical issue may be shifting to oil anyway.

Brad Setser has a post on oil last Friday. Or to be more exact, about the global savings glut.

But this post is really not about rising oil prices -- or even the shifting balance of power between oil producing countries and the world's major oil firms. Rather, it is about the hottest topic in global macroeconomics, Ben Bernanke's global savings glut...

If you look around and ask where savings are rising, the answer is really in two places. China, which obviously does not produce oil. And, the oil exporting countries...

... It is pretty clear that the huge surge in oil prices -- and the absence, i gather, of a comparable surge in either consumption or investment in oil exporting countries -- has a little something to do with the apparent glut of global savings. According to the IMF, savings in fuel exporters averaged 22.9% of GDP from 91-98. In 2004 it was 34.2% of GDP. To state the obvious, that is a big swing.

But China seems to keep popping up whenever we talk about excesses or gluts. Note the following excerpt of the BusinessWeek article, "China: Too Many Factories?".

Six additional ethylene crackers, as they're known in industry jargon, are expected to win government approval and come online by 2010. China's ethylene capacity is expected to grow by 22% annually through 2009, while domestic demand will climb by just under 13%, figures Qu Guangdong, a Beijing analyst with chemical industry researcher SRI Consulting. Already the excess capacity has helped whack global ethylene prices by 50%, to about $600 per ton, since September. Qu thinks that for emerging petromajors such as Sinopec and CNOOC, it's a matter of having too much cash. "They have the money, and they want to spend," he says, "and they don't really care about the international markets." A Sinopec spokesman says the company is not worried about overcapacity in ethylene.

And according to the article, it's a similar story for steel, cement, autos and semiconductors.

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