The commodity supercycle: myth or reality? Part 2

Another bullish view is expressed in a report entitled “Preparing for China’s urban billion” published by McKinsey Global Institute in March and written by a group headed by Jonathan Woetzel. McKinsey Global Institute is the economics research arm of management consultants McKinsey and Company. The McKinsey researchers make bold projections. They say that 350 million people will be added to China’s urban population by 2025. They project that the population of China’s cities will reach one billion by 2030. By 2025 there will be 221 Chinese cities with populations greater than one million. Of these cities, 23 will have populations greater than five million. This scale of urbanization will also require sizeable investments in public transit, and the report estimates that up to 170 mass transit systems could be built, with up to 28,000 km of metro rail, three times the length of the Trans-Siberian railway. Five billion square metres of road will be paved, and 40 billion square metres of floor space will be built in five million buildings. Of these buildings, between 20,000 and 50,000 will be skyscrapers.

The McKinsey report projects that China’s gross domestic product (GDP) will have grown fivefold by 2025. Lots of energy will be required to power this expansion. The report says that between 700 and 900 Gigawatts of new coal-fired generating capacity will have to be installed between 2005 and 2025. Although the report does not drill these projections down to the level of commodity demand, we can assume that if these staggering growth projections do materialize, they will spell sustained high demand over the next 17 years for a broad spectrum of commodities such as base metals, cement, construction materials, asphalt and energy.