On September 20, commodity prices had their largest one-day surge in 46 years. The Reuters/Jefferies crb (Commodity Research Bureau) Index of 19 commodities rose 3.8 percent, bringing the total gain for this past year to 19 percent and setting a new high for the past 24 years.

According to Canada’s international Scotiabank, current commodity prices have been among the most robust since the Second World War era, and second only to the commodity boom of the 1970s.

Crude oil, natural gas, gasoline and heating oil have all surged to record levels. Their combined index is up 49 percent from a year ago.

Gold rose to a 17-year high, breaking $470 per ounce. Copper and iron ore are also fetching record prices. Overall, metals and minerals are up 16.4 percent on the year.

Agricultural products, most recently led by wheat, are up 11.2 percent.

There are three main reasons for the resource boom.

The first, and most prominent, is that China and (to a lesser extent) India are fueling demand. China now directly competes with the United States for resources. Its economy has grown at a rapid pace of 9.5 percent for the last several years, and it has become the world’s largest importer of many commodities.

China now consumes about 40 percent of the world’s cement production, 30 percent of its coal, 27 percent of its iron and steel and 25 percent of its aluminum. Less than a decade ago, China was a net exporter of oil. Now, China has become the world’s second-largest oil importer, behind the United States. China also used to be a major coal exporter, but domestic demand now consumes almost all internal production.

The second reason behind the resource boom is that over the past 20 years, low commodity prices have discouraged exploration investment and new mine development by producers. Consequently, minimal investment has gone toward the supply chain infrastructure needed to bring the resources to market. This underinvestment has led to supply shortages and transportation bottlenecks, which have driven prices up.

The third reason is the weak dollar. Since most commodities are traded in dollars, the dollar’s depreciation over the past few years has caused the dollar value of commodities to creep up.

In July, China partially unpegged its currency from the dollar. If the yuan is allowed to continue to appreciate against the dollar, then imported commodities will become relatively less expensive for the Chinese. This could help swell commodity imports to China.

Rising commodity prices come with several consequences.

One consequence is inflation. The higher costs of materials and energy is bound to pass from producers to retailers and, finally, consumers.

Another consequence of rising demand and commodity prices will be increased investment by China and Chinese companies in resource-rich areas of the world. Watch for further expansion of Chinese investment in resource-loaded Latin America and Africa.

In 2003, China’s investment in Latin America surged 72 percent to $10.8 billion. In 2004, Chinese trade with Latin America jumped to $40 billion. Meanwhile, America’s trade in Latin America has been falling (irc Americas Program, August 24).

In Africa, Chinese trade has also skyrocketed from $10.8 billion in 2000 to $30 billion in 2004, almost equaling American trade, which is valued at $34 billion. “All across the continent, Chinese companies are on an investment spree. Earlier this year, Angola signed a deal worth some $2 billion to sell oil and future exploration rights to Chinese companies” (Xinhua News Service, July 19).

China has also heavily invested in Egypt, Sierra Leone, Zambia, Zimbabwe, Sudan and South Africa. Chinese News Digest reports that the primary Chinese imports from Africa include crude oil, timber, iron ore, diamonds, cotton and copper (September 15).

Increasing commodity prices will also mean more Chinese business takeovers of resource companies.

The media jumped on the story of the China National Offshore Oil Corporation’s failed bid for U.S. rival Unocal. However, not as much was said when the Chinese firm subsequently bought Canadian oil company Petro Kazakhstan. Chinese mining corporation Minmetals also recently attempted (and failed) to purchase Canada’s largest diversified mining company, Noranda. Chinese companies are on the hunt.

As China’s thirst for resources grows, so will its demand for secure sources of supply.

This trend is significant because two previous world wars were fought in no small part over resource control.

During World War ii, one of Japan’s major objectives was to secure the oil fields of Indonesia. It also invaded Manchuria in part to secure mineral resources for its growing industrial economy. When Germany invaded Poland and Czechoslovakia, countries rich in tin and oil, it was under the guise of Lebensraum, or “living space”; in fact, Hitler wanted Germany to be more self-sufficient, less reliant on foreign resources.

To this day, Japan, Germany and China—the second-, third- and seventh-largest world economies, respectively—are all very dependent on foreign oil and other key imported commodities.

Financier James Puplava warns, “At a time of tremendous population growth and escalating demand for commodities of all types, resource scarcity will become a harbinger of war. The wars of the 21st century will arise over the scarcity of resources like water, oil and food as much as they will religion and economics. National security will become aligned and directed towards the securing and protection of global resource flows. … Carrier battle groups now protect the flow of oil, raw materials and trade routes around the globe. … As a major superpower, America has been both an arbiter and maker of peace. It is that position which is now being challenged” (Financial Sense Online, Feb. 22, 2002).

Since World War ii, the United States has gone from being a major resource supplier to the world’s major resource consumer. As the major consumer, the United States has developed its military, in part, to protect its resource interests.

China is on the path to becoming the world’s new foremost consumer of resources. Watch for China to keep building relations with resource-rich countries, and to develop the military, economic and political muscle needed to secure those resources—while shutting out U.S. interests if necessary.