A world of peaks
Not everything goes up for ever. Most investors in share markets are all too aware of that!
We have been hearing about peak oil since the late 1990’s(www.peakoil.net) and now there is speculation about peak food (www.peakresources.org/peak-resources-blog/peak-oil-peak-food ) and peak water (peakwater.org).
In Australia, what would have once
been unthinkable has happened - peak beer per capita was in 1975-75 and peak
beer demand was in 1981-82.
The Economist reported on December 2014 that growth in global wine and spirits consumption had slowed to 0.5% in 2013, down from annual growth of 4% between 2007 and 2012.
The UK has recently passed the peak of energy used to power lighting, due to new technology ousting incandescent bulbs. No doubt this is happening around the world.
Australia's annual metered electricity demand in the national electricity market has been in decline since 2010.
Peak newspaper sales per capita was in the 1970’s (or maybe even earlier) in Australia and peak printed newspaper has occurred more recently.
We have passed the peak of antibiotic effectiveness, due to bacteria developing resistance and over-prescription. We are beset with super bugs and risk going back 100 years in our ability to fight bacteria unless we develop completely new types of antibiotics.
The fast food industry may now be feeling the effects of peak fat and peak sugar. Consumers seem to be increasingly avoiding high quantities of both.
The incidence of smoking has peaked in Australia and is down from 22.4% of adults in 2001 to 16.1% in 2011-12 (data from the Australian Bureau of Statistics).
The number of people with dementia in some Western European countries could be stabilising, according to an article in The Lancet Neurology (reported in the Australian Financial Review, 26 August 2015). Apparently, improvements in education and living conditions, combined with better prevention and treatment may be pushing the risk down - offsetting the increase in the number of older people. Studies from Sweden, the Netherlands, UK, and Spain indicate the incidence of dementia in specific age groups is falling across time and generations. Perhaps the people who lived through the depression of the 1930's and the second world war somehow contracted the seeds of dementia - possibly through diets affected by rationing. Whatever the reason, this is a hopeful sign of peak dementia meaning that older people can live healthier and more productive lives than previously expected.
The world seems to have arrived at peak child – the population pyramid is becoming a rectangle. It has been predicted that by 2060 children will be no more numerous than any other age group up to age 65 (The world in 2015 by The Economist).
Japan has already reached peak population and it is now in decline. Some other countries may soon follow.
In Australia, the peak fertility rate was in 1961 (3.55 babies per female) but the introduction of the oral contraceptive pill soon put an end to that. Births peaked in 1971 at 276,000 - a figure which was not surpassed until 2007. Another peak, at just over 300,000, seems to have occurred in 2013.
Japan's working age population peaked in 1992 and in China, the official working age population (age 15 to 59) peaked in 2012, according to the Financial Times (reprinted by the Australian Financial Review on 8 December 2014. There are fears that China's property market may be adversely affected by the decline from this peak.
In Australia, the population aged 15 to 64 is likely to continue growing for several years, but is in decline as a proportion of the total population. So the dependency ratio will increase unless people aged over 65 are prepared to continue working and jobs can be found for them.
There have been several articles about peak car over the past two years (The Economist April 20 2013, for example).
China is now facing peak steel, which some analysts had not expected until 2025. Zhang Guangning, new chairman of the China Iron and Steel Association, said "China's steel production has already hit a peak - or, to put it another way, it has hit a turning point". (Australian Financial Review, 19 February 2015).
Peak commodity prices.
BHP Billiton chief executive Andrew Mackenzie has declared that the era of big expansions in iron ore production for the world’s largest miner has ended. The board has not approved any new iron ore projects since 2011. The price of iron ore fell to $US70 per tonne, down by 48% since January 2014. Adding to BHP’s problems, China’s State Council said coal use would be permitted to grow only 5 per cent over the next seven years in an attempt to cut pollution (The Australian Financial Review 21 November 2014).
The price of oil peaked just before the GFC emerged and is now at its lowest since September 2007, apart from a brief period during the GFC.
Commodity prices tend to peak before the peak of production. The price of oil is a case in point, as the shale oil revolution has increased production and the price has fallen substantially. So too with the price of iron ore. Australia and other countries ramped up production to supply huge demand growth from China. Once supply met demand, the price fell.
The global population is expected to grow for decades to come and as incomes grow, in China especially, food consumption will grow and diets in developing countries will change. This should mean long-term growth in beef consumption. Prices too should rise while demand grows faster than supply – and there are grounds for expecting limited growth in supply. Land and water are limited and both are essential for producing beef. Still, food prices, including meat, fell over the period 1990 to 2002 according to FAO. Prices have since doubled. The composite food price index peaked in early 2011 and has since fallen by 20%. Meat prices are close to a record high.
Food prices, along with other commodity prices, fell during the GFC. So there could be periods ahead when price growth slows or even turns negative. This could especially be the case if there was a serious slowdown in consumption growth in China. Perhaps a collapse of house prices in China could cause this.
The size of the hole in the ozone layer, caused by human activity - CFC’s and other chemical pollution, may have peaked or be close to peaking. On the other hand, the concentration of carbon dioxide in the atmosphere continues to increase by 2% per year.
The Economist magazine is reporting peak profits amongst the S&P 500 companies (October 24 2015). Earnings have hit a wall of deflation and stagnation. Rather than blame one-off factors, the article suggests that corporate sloth is a deeper and more widespread problem.
Article and photo by Charlie Nelson
Last update Otober 2015