of 23
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Globalization and the rise of the South Trading minerals and metals
The 2007/8 boom and bust and the 2009
recovery Price risk management
Minerals and the international trading system
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Shares of world GDP at purchasing power parities (per cent)
0
10
20
30
40
50
60
70
Advanced economies
Emerging and
developingeconomies
Source: IMF, World Economic Outlook Database
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Country Kg per capita
China 3.5
India 0.4
Japan 9.8
France 6.9
Republic of Korea 17.0
Russia 4.7
United States 6.9Zimbabwe 0.7
Source: International Copper Study Group, 2007 (copper usage),
UNCTAD Handbook of Statistics 2008, table 8 (population).
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Region 1995 2000 2006Exports:Developed countries 61.6 59.5 52.3
Developing countries 29.1 30.6 39.7
China 1.9 2.3 3.7
Imports: Developed countries 69.8 69.1 62.0Developing countries 26.9 27.2 35.4
China 2.5 4.1 9.9
Source: UNCTAD Handbook of Statistics 2008, table 2.2A
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0
2
4
6
810
12
14
16
18
20
Imports
Exports
Source: UNCTAD Handbook of Statistics 2008, table 3.1
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Mineral products that are standardized andtraded on the basis of reference pricesestablished on commodity exchanges Examples: aluminium, copper, gold, lead, platinum,
silver, tin and zinc
Mineral products that are less standardized andsold directly by producers to consumers, withpricing often based on a benchmark or referenceprice Examples: iron ore, chromium, manganese, phosphates
and potash Less standardized minerals that are commonly
marketed through traders, sometimes priced onthe basis of reference prices Examples: cobalt, tungsten
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0
50
100
150
200
250
300
350
400
450
01/2005
04/2005
07/2005
10/2005
01/2006
04/2006
07/2006
10/2006
01/2007
04/2007
07/2007
10/2007
01/2008
04/2008
07/2008
10/2008
01/2009
04/2009
Aluminium
Copper
Nickel
Lead
Zinc
Tin
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Prices were pushed up by fast growing demand,mainly from China and other Asian countries
Eventually this led to price spikes when stocksreached very low levels
For most commodities, the price boom endedbefore the onset of severe recession, but thefinancial crisis in the autumn of 2008exacerbated the situation in three ways: the fall in economic activity led to lower demand
processors everywhere drew down stocks, and the difficulties in obtaining trade finance led to a freeze
in trade.
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-80 -60 -40 -20 0 20 40 60 80
IMF Commodity Price Index
Fuel
Nonfuel
Crude oil
Base metals
Agricultural raw materials
Food
Current Recession
Average of past five
recessions
Current Recovery
Average of past five
recoveries
Source. IMF, World Economic Outlook, October 2009, figure 1.16
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0
20
40
60
80
100
120
140
World
China
Rest of world
Source: World Steel Association
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Minerals demandis inelastic because this demand is derived from the demand for the final
product and the minerals generally account for only asmall part of the total cost of production
in the short run at least, substitutability between raw
materials and other inputs is relatively restricted Supplyis inelastic because
the availability of good mineral deposits is fixed investment in exploring for and developing mineral
deposits is costly and takes time it takes time to change production rates and once
capacity ceilings are reached, increases in supply requireconsiderable time
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0
50
100
150
200
250
300
350
400
1/31/2002
5/31/2002
9/30/2002
1/31/2003
5/30/2003
9/30/2003
1/30/2004
5/31/2004
9/30/2004
1/31/2005
5/31/2005
9/30/2005
1/31/2006
5/31/2006
9/29/2006
1/31/2007
5/31/2007
9/28/2007
1/31/2008
5/30/2008
LME Inventory
Metal Prices
Source. IMF, World Economic Outlook, October 2008, figure 3.19
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Average applied tariffs for iron and steel (HS72) and articles of iron and steel (HS 73),average of tariff lines, %
Tariffs on mineralcommodities are generallylow, although they tend torise with the degree ofprocessing.
Even a relatively low tariffon processed metalproducts may provideprotection for the domesticindustry, since rawmaterials often account fora major portion of the costof the metal product
(although not of the price ofthe finished good)0
2
4
6
8
10
12
14
16
18
Iron and steel
Articles of iron
and steel
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Restrictions on exports
WTO anti dumping cases concerningiron and steel, 2000-2009
Measures to restrict exports of raw
materials may introduce a wedgebetween domestic andinternational prices and offerunfair advantage to domesticprocessors.
In June 2009, the EU and theUnited States both filed requestsfor consultations with China. InAugust, they were joined byMexico.
According to the requests, Chinaimposes quantitative restrictionson the export of bauxite, coke,
fluorspar, silicon carbide, and zinc,and it also imposes export dutieson bauxite, coke, fluorspar,magnesium, manganese, siliconmetal, yellow phosphorus, andzinc.
0
2
4
6
8
10
12
2000200120022003200420052006200720082009
Source: www.wto.org
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Worldwide mineral export volume grew by 4.1%
annually from 1950 to 2003 (Maxwell 2006).Production grew at only 2.7%, indicating anincreasing degree of specialization acrosscountries during this period; more production
was traded and less was consumeddomestically as an input to the production ofvalue-added goods. In 1965 minerals andmetals (SITC 27+28+67+68) accounted for
12.4% of the value of global exports (Radetzki2008). By 2005 this had shrunk to 6.6%,though the value of annual mineral
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By 2005 this had shrunk to6.6%, though the value of
annual mineral and metalexports rose from $23
billion to $671 billion overthe period, mainly due toincreases in tonnagesshipped.
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The extreme exporters wereIndonesia, Columbia, Ecuador,
Nigeria, Libya (petroleumproducts), and Canada, Chile,Australia, and Netherlands (raw
materials including ores, metalsand natural gas).
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The extreme importers were theUS, UK, France, Italy, Belgium-
Luxembourg, and Japan.Countries abundant in labor andcapital tended to exportmanufactures, and countriesabundant in natural resources
tended to export raw materials.
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As of 2005, Latin America and theFormer Soviet Union were the mainexporters of minerals and metals. TheOECD (Organization for EconomicCooperation and Development)countries, China, and India were themain importers. Chile is the worlds
dominant copper exporter, Australiacoal, Brazil and Australia iron ore, andIndonesia tin
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Referenceshttp://trade.ec.europa.eu/doclib/docs/2008/october/tradoc_140944.pdfAlexeev, Michael, and Robert Conrad (2008), The elusive curse of oil,forthcoming, Review of Economics and Statistics. Available athttp://mypage.iu.edu/~malexeev/alexeev_conrad_restat_feb_08.pdf.
Anderson, James E. (1987), Review of Sources of InternationalComparative Advantage: Theory and Evidence, Cambridge, MA, MIT P.
Journal of Economic Literature 25, 146-47.
Anderson, Kym (2003), Trade liberalization, agriculture, and poverty in
low-income countries, Discussion Paper No. 2003/25, UNU/WIDER.
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BIAC (2006), Freedom for investment, and the challenges for energyand raw materials security, Discussion Paper for the Consultationwith the OECD Liaison Committee, 12 December, 2006, Paris,
France, Available athttp://www.biac.org/statements/high_level/BIAC_Statement_to_LCM_2006.pdf.
Bowen, Harry P., Edward E. Leamer, and Leo Sveikauskas (1987),
Multicountry, multifactor tests of the factor abundance theory,American Economic Review 77 (5), 791-809.
Boyce John R., and J. C. Herbert Emery (2007), What can exhaustibleresource theory can tell us about per capita income growth andlevels in resource abundant countries?, Working Paper, University of
Calgary.