The Southern Engines of Growth and Hard Commodity Prices:
Does China Lead to Disruptive Development?
3rd China Postgraduate Network Annual Conference
8-9th April 2010: Oxford University
Masuma Farooki ([email protected])
The Main Issues
1. Commodities in Development
2. Commodity Prices
3. China’s Demand for Commodities
4. Optimism for Commodity Exporting Developing Countries?
Commodities In Development
The Resource Curse
– Deteriorating Terms of Trade– Price Volatility– Enclave Economies– Political Instability and Conflict
What’s in a Price Movement?
Commodity Boom:
A peak that is much higher than previous peaks.
The Cycle:
Short Term; a peak/trough to peak/trough measurement.
The Super Cycle:
Medium Term; a prolonged trend rise over a decade.
Commodity Price Movements 1960-2008
0
50
100
150
200
250
300
350
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Source: UNCTAD All Commodity Price Index
Price Cycle
Price Boom
Super Cycle
2003-2010 Commodity Prices
050
100150
200250
300350
400450
500
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
All Commodities Agricultural Raw Materials Minerals and Metals Oil
Source: UNCTAD Monthly Commodity Price Statistics
What does the 2003-08 Price Movement represent?
• Is it just a Price Boom?
• Is it a temporary interruption of a Super Cycle, due to the financial crisis?
To be a Super Cycle you need:
• Price rise over a decade or more
• Be driven by demand in an expanding economy
The 2003-08 Super Cycle
0
50
100
150
200
250
300
350
2002 2003 2004 2005 2006 2007 2008
Source: UNCTAD All Commodity Price Index
A Southern Driver of Growth
• China: The Large Country Impact – Volume of Demand– International Sourcing
• China: The Developing Country Impact– Resource Intensive Growth– Years to maturity
China’s Share of Global Consumption of Base Metals
1990 2000 2007
Base Metals ( % Share of World Demand)1
Aluminium 5 13 33
Lead 7 10 31
Iron Ore 4 16 48
Copper 7 12 26
Source: 1 Macquarie Commodities Research (2008)
Optimism for Commodity Exporting Developing Countries?
Chinese GDP/Capita and Mineral Consumption
China’s Importance for Commodity Exporting Developing Countries (1990-2006)
% Share of Region in Chinese Imports of Base Metals
Region 1990 1995 2000 2006
Low and Middle Income 30% 46% 46% 56%
Latin America 9% 17% 18% 27%
Asia 6% 6% 8% 13%
SSA 6% 9% 6% 5%
% Share of China in Regions Exports of Base Metals
1990 1995 2000 2006
Low and Middle Income 2% 7% 11% 27%
Latin America 1% 5% 9% 24%
Asia 6% 18% 35% 80%
SSA 2% 10% 12% 26%
Source: Author’s calculations from COMTRADE via WITS accessed in July 2009.
Projected Global GrowthGlobal GDP Growth (%)
-10
-5
0
5
10
15
2006 2007 2008 2009 2010 2011
World Advanced Economies Emerging Economies
Source: IMF World Economic Outlook (January 2010)
• China’s demand is expected to remain strong in the medium term.
• China will rely on commodity imports for its consumption.
• Commodity Exporting Developing Countries can benefit from this opportunity.
• Domestic policy will inform how these benefits are translated into development.