Navigating the Commodity Super-Cycle Shift from China to India

CEE Staff
May 18
24 min read

For two decades, China's investment-led growth model was the primary driver of a global commodity super-cycle. Its ongoing structural slowdown, precipitated by a deep crisis in its property sector, marks a definitive end to this era. This analysis examines the extent to which India's rising demand for industrial and energy commodities can offset the deceleration in Chinese consumption through 2030. Our findings reveal a significant divergence in demand patterns: while India's growth provides a critical buffer, particularly for energy and manufacturing-related commodities (oil, copper, nickel), it is structurally incapable of absorbing the sharp decline in demand for construction-centric materials, most notably iron ore. This bifurcation will create distinct sets of winners and losers among commodity-exporting emerging markets. We project demand trajectories through 2030 and analyze the resulting fiscal implications for commodity-dependent nations, concluding with a detailed policy framework emphasizing the urgent need for economic diversification, robust counter-cyclical fiscal mechanisms, and strategic trade partnerships.

Introduction

The global economy stands at the precipice of a great rebalancing in commodity markets. The two-decade-long super-cycle, underwritten almost single-handedly by China’s voracious appetite for raw materials, has concluded. The narrative of China as the marginal buyer for nearly every major commodity, from iron ore to copper to crude oil, defined an era of unprecedented growth for many resource-rich emerging market and developing economies (EMDEs). This dynamic, however, is now fundamentally changing. China’s economy is navigating a complex transition away from a model predicated on fixed-asset investment and real estate development towards one centered on advanced manufacturing and, ostensibly, domestic consumption. This transition, exacerbated by a severe and ongoing crisis in its property sector, has led to a structural deceleration in its overall growth and a profound shift in its commodity import profile [1, 2].

As China’s role as the primary engine of demand growth wanes, policymakers and market participants are looking to India as the heir apparent. With a population that has now surpassed China’s, a rapidly expanding manufacturing base, and ambitious infrastructure goals, India is poised to become the new center of gravity for global commodity demand. Yet, the assumption of a seamless handover of the demand baton from one Asian giant to the other is a dangerously simplistic one. The nature of India’s economic development, its institutional framework, and its specific resource intensity differ markedly from the path China pursued.

This note addresses the central question facing commodity exporting countries: To what extent can Indian demand growth compensate for the slowdown in China? We argue that the answer is not a simple yes or no, but rather a complex and divergent one that varies significantly by commodity. This divergence will have profound implications for the economic stability and fiscal health of commodity-dependent EMDEs, creating a bifurcated world of new opportunities for some and severe structural challenges for others.

To analyze these dynamics, we construct a detailed forecast of demand for five key commodities—iron ore, crude oil, natural gas, copper, and nickel—through 2030. We then assess the impact of these demand shifts on a selection of commodity-exporting countries, including Brazil, Chile, Peru, Indonesia, and South Africa. Our findings suggest that while India’s rise will provide a crucial demand floor for the global market, particularly in energy and base metals, it cannot fully absorb the demand shock created by the collapse of China’s construction boom. This will leave the iron ore market, and its key exporters, particularly exposed.

Analytical Approach

This analysis combines consensus forecasts from leading international agencies (IEA, World Bank, IMF) with specialist commodity forecasters (S&P Global, Wood Mackenzie, CRU Group) to create demand projections through 2030 for five key commodities. We establish 2024 baselines and adjust forecasts based on the latest macroeconomic outlooks for GDP growth, industrial production, and fixed-asset investment in both China and India.

We selected a representative sample of commodity-dependent countries for impact analysis: Brazil (iron ore, oil), Chile (copper), Peru (copper), Indonesia (nickel, natural gas), and South Africa (iron ore, nickel). For each, we assess export dependence, simulate revenue impacts, and evaluate institutional capacity and fiscal frameworks to gauge resilience to the forecast commodity shocks.

Understanding China's Structural Transformation

To fully appreciate the magnitude of the shift in commodity demand, it is essential to understand the underlying drivers of China's economic transformation. This is not a cyclical slowdown that will reverse with the next round of stimulus, but a fundamental structural rebalancing that will permanently alter the country's commodity import profile.

The Property Sector Crisis: A Structural Break

China's property sector crisis, which began in earnest in 2020 with the introduction of the "Three Red Lines" policy and accelerated with the collapse of Evergrande in 2021, represents a structural break in the Chinese economy [1, 2]. For nearly two decades, real estate development was the single most important driver of economic growth, accounting for an estimated 25-30% of GDP when including upstream and downstream linkages. The sector consumed vast quantities of steel, cement, copper, and glass, and its financing needs drove a significant portion of credit creation in the economy.

The crisis was not an accident but a deliberate policy choice by the Chinese government to deflate a massive property bubble and reduce systemic financial risks. The "Three Red Lines" imposed strict leverage limits on property developers, cutting off their access to the cheap credit that had fueled the boom. The result was a wave of defaults, with giants like Evergrande, Country Garden, and Sunac all facing bankruptcy or restructuring. By the first half of 2025, new housing construction was down nearly 20% year-over-year, and property sales in major cities had fallen by even larger margins [2].

The implications for commodity demand are profound. Steel consumption in China, which peaked at over 1 billion tonnes per year, is now in structural decline. Iron ore imports, which reached a high of over 1.2 billion tonnes, are projected to fall to around 900 million tonnes by 2030 as the construction sector contracts and the steel industry consolidates around more efficient, less commodity-intensive production methods. This is not a temporary dip but a permanent downshift in the level of demand.

The Shift to Manufacturing and the Limits of Rebalancing

While the construction sector contracts, the Chinese government is attempting to rebalance the economy towards advanced manufacturing and, in theory, domestic consumption. The reality, however, is that the manufacturing push is proceeding far more successfully than the consumption rebalancing. China's new five-year plan, released in 2025, doubles down on the goal of creating a "modernized industrial system" with a focus on high-tech manufacturing, electric vehicles, renewable energy, and semiconductors [3].

This manufacturing-led strategy has important implications for commodity demand. While it reduces the demand for construction materials like iron ore, it sustains and even increases demand for commodities used in manufacturing and the energy transition. Copper, essential for electric motors, charging infrastructure, and power grids, will see sustained demand. Nickel, critical for EV batteries, will see explosive growth. However, the overall commodity intensity of this new growth model is significantly lower than the old investment-led model. A dollar of GDP generated from high-tech manufacturing requires far fewer raw material inputs than a dollar of GDP generated from building apartment towers and highways.

The consumption rebalancing, meanwhile, remains more aspiration than reality. Despite two decades of policy rhetoric about shifting to a consumption-led economy, household consumption as a share of GDP in China remains stubbornly low, around 38-40%, compared to 60-70% in most developed economies. The structural barriers to consumption growth are deep-rooted: a weak social safety net, high savings rates driven by uncertainty about healthcare and retirement, and an income distribution that favors capital over labor. Until these structural issues are addressed, the consumption rebalancing will remain elusive, and the commodity demand profile will continue to be dominated by the manufacturing and infrastructure sectors.

India's Industrialization Trajectory: A Different Path

India's rise as a commodity consumer is following a fundamentally different trajectory than China's. Understanding these differences is critical to forecasting the extent to which Indian demand can offset the Chinese slowdown.

The Manufacturing Push: Make in India and Beyond

India's industrial policy has undergone a significant transformation over the past decade. The "Make in India" initiative, launched in 2014, aimed to increase the share of manufacturing in GDP from around 15% to 25% by 2025. While the program has not fully achieved its ambitious targets, it has succeeded in attracting significant foreign direct investment and boosting manufacturing output in key sectors. The manufacturing sector is now projected to reach US$1 trillion by 2026, up from around US$400 billion in 2020 [5].

The focus of India's manufacturing push is different from China's historical model. While China's boom was driven by heavy industry, infrastructure, and construction, India's growth is more concentrated in electronics, pharmaceuticals, automobiles, and consumer goods. This has important implications for commodity demand. Electronics manufacturing, for example, requires significant quantities of copper for circuit boards and wiring, but relatively little steel or iron ore. Automobile production, particularly the growing EV sector, will drive demand for copper, aluminum, and nickel, but again, the steel intensity is lower than for construction.

India's infrastructure development, while significant, is also proceeding at a different pace and scale than China's. The National Infrastructure Pipeline, announced in 2019, envisions US$1.4 trillion in infrastructure investment over the period 2020-2025. This is a substantial sum, but it pales in comparison to the scale of China's infrastructure boom in the 2000s and 2010s. Moreover, India's infrastructure focus is more on upgrading existing assets (roads, railways, ports) and building out digital infrastructure (fiber optic networks, data centers) rather than on the massive greenfield construction of new cities and industrial zones that characterized China's boom

Demographic Dividend and Energy Demand

India's most significant advantage in the commodity demand story is its demographics. With a population of over 1.4 billion and a median age of just 28, India has a massive and growing consumer class. This demographic dividend will drive sustained demand for energy, particularly oil and natural gas, as incomes rise and mobility increases. India's vehicle fleet is still dominated by two-wheelers and small cars with internal combustion engines, and the transition to electric vehicles, while accelerating, will take decades to complete. This means that oil demand will continue to grow robustly through 2030 and likely beyond.

Natural gas demand is also set to surge as India seeks to reduce its reliance on coal for power generation and address severe air pollution in its major cities. The government has set a target of increasing the share of natural gas in the energy mix from around 6% to 15% by 2030. This will require a massive expansion of LNG import capacity and pipeline infrastructure, creating sustained demand growth for the global gas market.

Constraints on India's Commodity Demand Growth

While the outlook for India's commodity demand is positive, it is important to recognize the constraints that will limit the pace of growth. India's per capita income, at around US$2,500, is still far below the level at which commodity intensity typically peaks. China's commodity demand exploded when its per capita income was in the US$4,000-10,000 range. India is still in the early stages of this trajectory, which means that while the growth rate will be high, the absolute volumes will remain smaller than China's for the foreseeable future.

Infrastructure bottlenecks also constrain India's ability to absorb and process large volumes of imported commodities. Port capacity, while expanding, is still limited, and logistics costs are high. The domestic mining sector, while significant, faces regulatory hurdles and environmental opposition that limit its ability to meet domestic demand, necessitating imports. However, these imports will grow more gradually than they did in China due to these structural constraints.

Finally, India's fiscal and current account constraints mean that the government cannot pursue the same kind of debt-fueled investment boom that China did. India's fiscal deficit and public debt levels are already high, and the current account deficit is sensitive to commodity price shocks. This means that the pace of infrastructure investment and industrial expansion will be more measured and constrained by fiscal realities.

A Divergent Outlook: Commodity-by-Commodity Analysis to 2030

The substitution of Indian for Chinese demand is not a simple one-for-one replacement. The nature of each country’s industrial base, its stage of development, and its policy priorities create a complex and divergent outlook across the commodity spectrum. This section provides a detailed forecast for five key commodities that illustrate the nuances of this transition.

Iron Ore: The Unfilled Gap

The market for iron ore, the primary input for steel, most starkly illustrates the limits of the India-as-replacement narrative. China’s property-driven steel consumption was the cornerstone of global iron ore demand for a generation. The scale of its construction boom was unprecedented, consuming more cement and steel in a single decade than many developed nations used in the entire 20th century. With its construction sector now in a multi-year contraction, Chinese iron ore demand is facing a structural decline that Indian growth, despite its rapid pace, cannot offset in the medium term.

Our forecast indicates that even with a nearly 50% surge in Indian demand by 2030—driven by its own steel production target of 300 million tonnes under the National Steel Policy—the absolute decline in Chinese consumption creates a significant net loss for global iron ore demand 6. This is projected to create a persistent market oversupply, exerting substantial downward pressure on prices. Long-term price forecasts from major Australian producers and financial institutions converge around a price of US$68-70 per tonne by the end of the decade, a significant drop from the highs seen during the peak of the super-cycle [7, 18].

Table 1. Iron Ore Demand Forecast (Million Tonnes)	2024 (e)	2030 (f)	Change
China	~1,200	~900	-25%
India	235	350	+49%
Combined	1,435	1,250	-12.9%

Source: Author’s analysis based on IBEF, BigMint, and internal modeling [6, 7].

This structural shift poses a severe challenge to the fiscal stability of exporters heavily dependent on iron ore. For Brazil, where iron ore constitutes a significant portion of its export basket, and for South Africa, where it is even more dominant, the adjustment will be painful. While large, low-cost producers will likely remain profitable, the decline in government revenues from royalties and taxes will strain public finances and necessitate difficult fiscal adjustments.

Crude Oil: India Takes the Baton

In stark contrast to iron ore, the crude oil market is where India’s growth will more than compensate for China’s decelerating demand. China’s oil consumption growth is slowing due to a combination of economic maturation, improving energy efficiency, and the rapid adoption of electric vehicles (EVs) and renewable energy. The International Energy Agency (IEA) projects China’s oil demand growth will fall to just 180,000 barrels per day (bpd) in 2024, a sharp downward revision from previous forecasts and a clear signal of a structural shift [9].

India, meanwhile, is set to become the largest single source of global oil demand growth through 2030, driven by an expanding middle class, increased mobility, a growing vehicle fleet (still dominated by internal combustion engines), and a manufacturing boom that requires significant energy inputs 10. This dynamic shift will effectively pass the demand baton from one Asian giant to the other, ensuring a stable-to-growing overall market for oil and providing a crucial demand floor that will support prices.

Table 2. Crude Oil Demand Forecast (Million bpd)	2024 (e)	2030 (f)	Change
China	~16.4	~17.5	+6.7%
India	~5.6	~6.7	+19.6%
Combined	22.0	24.2	+10.0%

Source: Author’s analysis based on IEA, S&P Global Commodity Insights, and CGEP data [9, 10, 11].

This outlook is a significant boon for oil-exporting nations. The sustained demand growth, led by India, will help absorb non-OPEC+ supply growth from producers like Brazil and Guyana and provide a floor for prices, likely keeping them in a range that is fiscally sustainable for most producers, assuming no major geopolitical disruptions. For a diversified commodity exporter like Brazil, strengthening oil revenues can help cushion the negative fiscal impact from declining iron ore prices, highlighting the critical importance of a broad export base in navigating the current transition.

Natural Gas: A Widening Absolute Gap

The natural gas market presents a more nuanced picture. Both China and India are increasing their consumption of liquefied natural gas (LNG) as they seek to displace coal in their energy mix to address air pollution and meet climate targets. However, China’s established scale, extensive pipeline and regasification infrastructure, and long-term supply contracts mean it will remain the dominant import market. The absolute volume gap between the two countries will continue to widen despite India’s higher percentage growth rate.

Table 3. Natural Gas (LNG) Import Forecast (Bcm)	2024 (e)	2030 (f)	Change
China	~110	~140	+27%
India	~30	~48	+60%
Combined	140	188	+34%

Source: Author’s analysis based on Reuters, internal modeling, and market data [12].

While the combined market shows healthy growth, the supply side is characterized by persistent oversupply, particularly with major non-EM producers like Qatar, Australia, and the United States expanding capacity. This dynamic is likely to keep a lid on spot prices and may create challenges for emerging exporters like Indonesia that are looking to expand their market share. The price-sensitive nature of both Chinese and Indian buyers, who have shown a willingness to curtail spot purchases during price spikes, adds another layer of volatility for producers and underscores the importance of long-term contracts for ensuring revenue stability.

Copper: The Electrification Engine

Copper stands to benefit significantly from global trends in electrification, renewable energy deployment, and the expansion of data infrastructure, with both China and India contributing to robust demand growth. While China’s role as the primary consumer will moderate in percentage terms, its absolute demand will continue to grow as it builds out its EV charging infrastructure and upgrades its power grid. India, from a smaller base, will see its consumption surge as it builds out its own infrastructure and expands its manufacturing capacity, particularly in electronics, consumer durables, and electric vehicles.

Table 4. Refined Copper Demand Forecast (Million Tonnes)	2024 (e)	2030 (f)	Change
China	~16.3	~17.9	+9.8%
India	~1.5	~3.2	+113%
Combined	17.8	21.1	+18.5%

Source: Author’s analysis based on CRU, CSEP, and Wood Mackenzie data [13, 14, 15].

The strong, sustained growth in the combined market provides a bullish outlook for copper prices, which is welcome news for major exporters like Chile and Peru. For these nations, whose economies are heavily reliant on copper revenues, the positive demand outlook provides a crucial tailwind. However, these producers face their own significant challenges, including declining ore grades, rising production costs, water scarcity, and a complex social and political landscape for new mining investments. These supply-side constraints could limit their ability to fully capitalize on the high-demand environment and may lead to periods of significant price volatility.

Nickel: The Battery Boom and Supply-Side Dominance

Nickel’s demand story is overwhelmingly tied to the electric vehicle revolution. While it is also a key input for stainless steel production, the exponential growth in EV battery manufacturing is the primary driver of future consumption. China is currently at the center of this boom, both as a producer and consumer of EVs. India’s own ambitious EV targets, though still in their early stages, will make it a critical source of new demand in the latter half of the decade.

Table 5. Nickel Demand for Batteries (Thousand Tonnes)	2023 (e)	2030 (f)	Change
China	93	273	+194%
India	<10	~50	>400%
Combined	~103	~323	+214%

Source: Author’s analysis based on Wood Mackenzie and Benchmark Minerals Intelligence [16, 17].

Despite this explosive demand growth, the nickel market is plagued by a unique and precarious supply-side dynamic. A massive expansion of production in Indonesia, utilizing a new generation of processing technologies, has created a situation of chronic oversupply. This has allowed a single country to exert enormous influence over global prices, creating significant challenges for other producers like Brazil and South Africa. While the demand from the battery sector is undeniable, the supply-side dominance of a single actor creates significant price volatility and strategic vulnerability for both automakers and other EMDE exporters.

Macroeconomic and Fiscal Implications for EMs

The divergent commodity outlooks will have significant and varied macroeconomic consequences for commodity-dependent EMDEs. The degree of impact will depend on the specific composition of each country’s export basket, its existing fiscal framework, and its level of economic diversification. This section analyzes the potential impacts on our selected group of countries.

The Iron Ore Exporters: Brazil and South Africa

Brazil and South Africa are both highly exposed to the structural decline in iron ore demand. For Brazil, the impact will be partially cushioned by its growing oil exports, which will benefit from the strong demand outlook. However, the decline in iron ore revenues will still create fiscal headwinds and may require a recalibration of public spending and investment plans. For South Africa, the situation is more precarious. With a less diversified export base and significant domestic economic challenges, the decline in iron ore prices will put substantial pressure on its current account, exchange rate, and fiscal position. Both countries face an urgent need to accelerate their economic diversification strategies to mitigate these risks.

The Copper Exporters: Chile and Peru

Chile and Peru are well-positioned to benefit from the strong demand outlook for copper. The sustained high prices will support export revenues, improve terms of trade, and provide a significant boost to government revenues. However, as noted, both countries face significant supply-side challenges. In Chile, declining ore grades and water scarcity are long-term structural issues. In Peru, political instability and community opposition can create significant hurdles for new mining investments. The key policy challenge for both nations will be to manage their resource wealth effectively, investing in productivity-enhancing reforms and long-term development priorities while also building fiscal buffers to manage future price volatility.

The Diversified Exporters: Indonesia

Indonesia presents a unique case. As the world’s dominant nickel producer, it has effectively created its own market dynamic, capturing a significant share of the value chain in EV battery production. However, its reliance on a single, dominant position also creates vulnerabilities, particularly if new processing technologies or alternative battery chemistries emerge. Its natural gas exports face a competitive global market with significant downward price pressure. Indonesia’s strategy of leveraging its resource wealth to drive downstream industrialization is a powerful model, but one that requires careful management to avoid the pitfalls of "Dutch disease" and to ensure that the benefits are broadly shared across the economy.

Detailed Country Case Studies

To illustrate the divergent impacts of the commodity rebalancing, this section provides in-depth case studies of five key commodity-exporting EMDEs, analyzing their exposure, vulnerabilities, and policy responses.

Case Study 1: Brazil - Diversification as a Buffer

Brazil is a commodity superpower with a highly diversified export basket that includes iron ore, crude oil, soybeans, coffee, and beef. This diversification provides a crucial buffer against commodity-specific shocks. Iron ore accounts for approximately 8-10% of Brazil's total exports, while crude oil accounts for around 12-15%. The country is the world's second-largest iron ore exporter (after Australia) and a rapidly growing oil producer, particularly from its pre-salt offshore fields.

The outlook for Brazil is mixed. The structural decline in iron ore demand from China will create headwinds for Vale, the country's dominant iron ore producer, and will reduce government revenues from mining royalties and corporate taxes. However, the strong outlook for crude oil demand, driven by India and other emerging markets, will provide a significant offset. Brazil's oil production is projected to grow from around 3.7 million bpd in 2024 to over 5 million bpd by 2030, making it one of the world's top 10 producers.

Brazil's fiscal framework includes a sovereign wealth fund (the Sovereign Fund of Brazil), but it is relatively small and has not been consistently funded during commodity booms. The country's fiscal rule, which caps government spending growth at the rate of inflation, provides some discipline but does not fully insulate the budget from commodity price volatility. The key policy challenge for Brazil is to use the windfall from rising oil revenues to invest in economic diversification, particularly in value-added manufacturing and services, while also building up fiscal buffers to manage the next downturn.

Case Study 2: Chile - Copper Dependence and Institutional Strength

Chile is the world's largest copper producer, accounting for nearly 30% of global mine production. Copper dominates the country's export basket, representing over 50% of total exports. This makes Chile highly exposed to fluctuations in copper prices, but the strong demand outlook for copper through 2030 provides a favorable tailwind.

Chile has one of the most sophisticated fiscal frameworks among EMDEs. Its structural balance rule, introduced in 2001, has been highly effective in smoothing government spending and building fiscal buffers during commodity booms. The country also has two sovereign wealth funds: the Economic and Social Stabilization Fund (ESSF) and the Pension Reserve Fund (PRF), which together hold assets equivalent to around 10-12% of GDP. These institutions have allowed Chile to weather commodity price downturns far better than most of its peers.

However, Chile faces significant supply-side challenges. Ore grades at its major copper mines have been declining for years, increasing production costs. Water scarcity, particularly in the Atacama Desert where many mines are located, is a growing constraint. Social and political pressures for higher royalties and stricter environmental regulations have also increased, creating uncertainty for new mining investments. The key policy challenge for Chile is to maintain its fiscal discipline while also investing in the infrastructure, technology, and social license necessary to sustain its copper production in the face of these headwinds.

Case Study 3: Peru - Political Instability and Resource Wealth

Peru is the world's second-largest copper producer and also a significant producer of gold, silver, and zinc. Copper accounts for around 30% of Peru's total exports, making the country highly dependent on the metal's price and demand outlook. Like Chile, Peru stands to benefit from the strong demand outlook for copper through 2030.

However, Peru's ability to capitalize on this opportunity is constrained by severe political instability and weak institutions. The country has had six presidents in the past five years, and frequent changes in government have led to policy uncertainty and a lack of long-term planning. Community opposition to mining projects is widespread, driven by concerns about environmental damage and the perception that mining wealth is not being shared equitably. This has led to delays and cancellations of major projects, limiting the country's ability to expand production.

Peru does not have a robust fiscal framework comparable to Chile's. While it has a fiscal stabilization fund, it has not been consistently funded, and government spending tends to be highly pro-cyclical, rising during commodity booms and falling sharply during downturns. The key policy challenge for Peru is to establish political stability, build stronger institutions, and create a more predictable and equitable framework for the mining sector that can attract investment while also addressing legitimate community concerns.

Case Study 4: Indonesia - Strategic Resource Nationalism

Indonesia has pursued a unique and aggressive strategy of resource nationalism, particularly in the nickel sector. The country banned the export of unprocessed nickel ore in 2020, forcing foreign buyers to invest in domestic smelting and refining capacity. This policy has been remarkably successful in transforming Indonesia into a dominant player in the global nickel supply chain, particularly for EV batteries. The country now accounts for over 50% of global nickel production and has attracted billions of dollars in investment from Chinese battery and EV companies.

This strategy has allowed Indonesia to capture far more of the value chain than a typical commodity exporter. Instead of simply selling raw ore, it is now selling processed nickel and, increasingly, battery components. This has created jobs, driven industrialization, and significantly boosted government revenues. However, it has also created vulnerabilities. The rapid expansion of nickel production has led to environmental concerns, and the country's dominance in the market makes it a target for trade disputes and potential sanctions.

Indonesia's fiscal framework is relatively weak, with limited use of stabilization funds and a tendency towards pro-cyclical spending. The key policy challenge is to use the windfall from nickel to invest in broader economic diversification and to build fiscal buffers, while also managing the environmental and social impacts of the rapid expansion of mining and processing capacity.

Case Study 5: South Africa - Structural Challenges and Limited Options

South Africa is a significant exporter of iron ore, platinum, gold, and coal. However, the country faces severe structural economic challenges that limit its ability to benefit from commodity booms. Economic growth has been anemic for over a decade, averaging less than 1% per year. Unemployment is over 30%, and the country faces chronic electricity shortages due to the poor state of its state-owned power utility, Eskom.

The outlook for South Africa's commodity exports is particularly challenging. Iron ore, one of its key exports, faces a structural decline in demand. Platinum demand is also under pressure as the automotive industry shifts away from internal combustion engines (which use platinum in catalytic converters) towards electric vehicles. Coal exports face long-term decline as the world transitions away from fossil fuels.

South Africa does not have a robust fiscal framework or significant sovereign wealth funds. Government finances are strained by high debt levels, large budget deficits, and the need to bail out struggling state-owned enterprises. The key policy challenge for South Africa is to undertake deep structural reforms to improve the business environment, address the electricity crisis, and diversify the economy away from its reliance on declining commodity sectors. Without such reforms, the country faces a prolonged period of economic stagnation.

A Policy Framework for a New Commodity Era

The shifting commodity landscape presents both acute risks and strategic opportunities for emerging market exporters. Navigating this new era requires a decisive move away from passive resource extraction and toward proactive, sophisticated industrial and fiscal policy. The fortunes of nations will depend on their ability to adapt to the divergent trends outlined above. We propose a three-pronged policy framework designed to build resilience, capture value, and foster sustainable growth in a post-China-super-cycle world.

Strengthening Macro-Fiscal Resilience

The foundational challenge for all commodity-dependent nations is managing the inherent volatility of resource revenues. The end of the China-driven super-cycle will likely amplify this volatility, making robust fiscal frameworks not just advisable, but essential for survival.

Adopting Counter-Cyclical Fiscal Rules: The core principle is to decouple public spending from the volatile swings of commodity prices. The most effective mechanism for this is a structural balance rule, famously pioneered by Chile. Such a rule requires the government to set a target for its budget balance over the medium term, adjusted for the effects of the business cycle and commodity price fluctuations. This involves:

Estimating a long-term, structural commodity price: This should be done by an independent expert panel to insulate the process from political pressure.
Calculating structural revenues: Based on the long-term price and potential output, the government calculates the revenue it can expect over the cycle.
Setting a spending path: Government spending is then budgeted based on these structural revenues, not on the actual, volatile revenues of a given year.

During price booms, actual revenues will exceed structural revenues, and the resulting surplus must be saved. During downturns, the government can draw on these savings to maintain spending, thus smoothing the economic cycle. Implementing such a framework requires strong political will and institutional capacity, but it is the most effective tool for preventing the boom-bust cycles that have plagued commodity exporters for centuries.

Enhancing Sovereign Wealth Funds (SWFs): The surpluses generated by a counter-cyclical fiscal rule should be channeled into a professionally managed SWF. These funds serve two primary purposes: stabilization and inter-generational savings. A well-designed SWF should have a clear legal framework, a transparent governance structure with independent oversight, and a professionally defined investment mandate. For many EMDEs, the priority should be on building up the stabilization component of the fund to a level sufficient to cushion the economy from a severe, multi-year commodity price downturn before allocating capital to higher-risk, long-term savings strategies.

Accelerating Structural Transformation and Diversification

While fiscal resilience is necessary, it is not sufficient. The long-term solution to commodity dependence is economic diversification. The case of iron ore serves as a stark warning: countries with heavy exposure to a single commodity whose primary demand driver is in structural decline face a grim fiscal future. A credible diversification strategy must move beyond rhetoric and focus on concrete, targeted actions.

Moving Up the Value Chain: The most direct path to diversification is to move from exporting raw materials to exporting processed, higher-value products. For mineral exporters, this means investing in domestic refining and smelting capacity. For oil exporters, it means developing a domestic petrochemical industry. This strategy, as pursued by Indonesia in the nickel sector, allows a country to capture more of the final value of its resources, create higher-skilled jobs, and develop a more complex industrial ecosystem. However, it requires significant capital investment, access to technology, and a stable policy environment to attract private sector partners.

Targeted Industrial Policy for Non-Commodity Sectors: Governments must actively identify and support non-commodity sectors with genuine comparative advantage and high growth potential. This is not about “picking winners” in a top-down fashion, but rather about creating an enabling environment for promising sectors to thrive. This can include investing in sector-specific infrastructure (e.g., fiber optic cables for a digital services sector), reforming regulations to ease barriers to entry, and using the tax system to incentivize investment and innovation in targeted areas.

Enhancing Strategic Trade and Investment Policy

In a more fragmented global economy, trade and investment policy must become more strategic and proactive. The rise of India as a major demand center, the growing geopolitical competition over critical minerals, and the trend towards regionalization of supply chains all create new opportunities and risks.

Forging New Strategic Partnerships: Commodity exporters should actively pursue long-term supply agreements with new demand centers, particularly India. These government-to-government or state-owned-enterprise-level agreements can lock in demand, provide price stability, and pave the way for deeper investment relationships. This could include joint ventures in extraction and processing, where the consumer country provides capital and technology in exchange for a secure supply of the processed material.

Attracting FDI into Value-Added Sectors: Attracting foreign direct investment is critical for diversification, as it brings not just capital, but also technology, managerial expertise, and access to global markets. To do so, EMDEs must create a stable, predictable, and competitive investment climate. This means ensuring the rule of law, protecting intellectual property, simplifying bureaucracy, and ensuring that the tax and regulatory regime is competitive with other peer economies.

Navigating the Geopolitics of Critical Minerals: For exporters of minerals critical to the green energy and digital transitions (copper, nickel, lithium, etc.), there is an opportunity to leverage their resource wealth to attract investment and build domestic industries. However, this also requires navigating the growing geopolitical competition between the United States, China, and other major powers. A successful strategy will involve maintaining a degree of neutrality, diversifying customer bases, and working with other producers to ensure that the terms of trade remain favorable and that the benefits of the resource boom are not captured entirely by foreign powers further up the supply chain.

Conclusion

The global commodity landscape is in the midst of a profound and irreversible structural transformation. The era of a single, dominant commodity consumer in the form of China is over, giving way to a more multipolar and fragmented demand landscape. Our analysis demonstrates that while India’s rapid industrialization provides a crucial new engine of demand growth, it is not a panacea for the slowdown in China. The substitution is imperfect and highly divergent across commodities.

Our forecasts indicate that the combined demand from China and India will remain robust for commodities central to the energy transition and advanced manufacturing, such as copper and nickel, and that India’s rise will more than compensate for China’s maturing demand for crude oil. However, for construction-centric materials, most notably iron ore, the collapse of China’s property-driven boom leaves a structural demand gap that India’s growth cannot fill in the medium term. This bifurcation will create a world of divergent fortunes for commodity-exporting EMDEs.

For those nations heavily dependent on iron ore, the path forward is fraught with challenges and requires an immediate and forceful pivot towards economic diversification and fiscal consolidation. For exporters of oil, copper, and other commodities linked to the new economy, the outlook is brighter, but not without risks, including price volatility and significant supply-side competition.

The key to navigating this new world order lies not in hoping for a return to the old super-cycle, but in proactive and strategic policymaking. The nations that thrive will be those that build resilient fiscal institutions to manage volatility, invest aggressively in moving up the value chain, and forge new, strategic alliances in a world where commodity demand is no longer a monolithic force. The great rebalancing is here, and it will reward the prepared and punish the complacent.