Transcript China, commodity prices and the terms of trade

CHINA, INDIA, COMMODITY
PRICES AND THE TERMS
OF TRADE
Raphael Kaplinsky
Development Policy and Practice,
The Open University
Alf Maizels Memorial Workshop, 18-19th Sept
2008
China’s growth is not unique..
GDP (constant prices)
3.5
Log of export growth
Log of GDP growth
Growth of exports
3
2.5
2
1.5
6
5
4
3
2
1
0
1
1
6
11
16
21
26
31
36
6
11
16
21
26
31
36
Years from beginning of growth surge
41
41
Years from beginning of export surge
China (1989-2003)
China (1989-2003)
Japan (1960-2003)Japan (1960-2003)
Korea (1963-2003)
Korea (1963-2003)
Distribution of MVA
Share of
developing
countries
Share of the
World
By Income
1985
1995
2005
1985
1995
2005
4.1
12.9
19.7
29.2
59.5
69.4
1.4
5.1
9.8
10.2
23.6
34.7
Latin America
6.7
6.9
6.4
46.9
31.5
22.6
Sub-Saharan Africa
1.0
0.3
0.3
7.1
1.3
1.0
S. and E. Asia
of which: China
China’s share of growth in
global demand
Source IMF WEO, Sept 06
Kgs/capita
Aluminium Copper
Japan
1955
1975
Korea
1975
1995
China
1990
1999
2002
2003
GDP per capita ($US1995)
Steel
0.6
10.5
1.2
7.4
80
599
5,559
21,869
1.0
15.0
1.3
8.1
84
827
2,891
10,841
0.7
2.3
3.3
4.0
0.6
1.2
2.0
2.4
59
108
160
200
342
756
933
1,103
Source: Macquarie Metals and Mining, personal communication (2004
Copper mine production gains and losses
Copper mine losses versus plan
400
218
196
200
276
253
237
32
0
-36
'000t
-200
-139
-185
-329
-400
-349
-457
-600
Forecast Additional Loss
-662
Actual Loss
-800
-862
-895
-1000
-1079
-1200
1993
1995
1997
1999
2001
2003
2005
2007
• Global mine production has underperformed plans for the past six
years, and has massively below plan over the past three years.
• We have already lost close to 300,000t of planned production so far
this year, and at this rate, total losses this year could be even bigger
than last year.
Source: Brook Hunt, Macquarie Research, September 2008
Source: Jim Lennpn, Macquarrie research, personal communication
Reasons for delays
• Mines are being pushed to their limits … leading to a higher
frequency of equipment failures as well as pit wall stability
issues
• Trend towards larger equipment replacing numerous small
units means equipment downtime affects a higher percentage
of production
• With equipment and consumables demand exceeding supply,
replacement lead times have been greatly extended
• New projects are having to compromise on equipment quality
in order to meet start up deadlines (e.g. use of Russian &
Chinese tyres, etc)
• There is a shortage of skilled and qualified mine workers
• A new breed of very investor (i.e. hedge funds) now demands
high investment returns, leading to overly optimistic company
production forecasts (for both existing operations and
projects) in order to attract these investors
• Substantially higher by-product metals prices have tempted
miners (particularly in the US and Chile) to high-grade specific
areas of their ore bodies, often at the expense of copper
Source: Jim Lennpn, Macquarrie research, personal communication
Summary of reasons for 2007 losses
Pit Problems (Chuqui, Dzhezkazgan)
8%
Grade (Alumbrera, Antamina)
11%
(Cananea, Codelco) Strikes
20%
Weather (KCM, Mopani)
4%
Slow Ramp Up
21%
(Cerro
Verde, Spence,
Morenci, Milpillas,
Frontier, Chapada
Minto, Kamoto)
Technical Problems
20%
(Ok Tedi, Olympic Dam, Kazakhmys)
Other
2% (Bwana, Lonshi)
Optimistic Forecasts
14%
(Kazakhmys, Norilsk, Ray, Rapu Rapu, Robinson)
Source: Brook Hunt, September 2008
Source: Jim Lennpn, Macquarrie research, personal communication
China’s share of growth in
global demand
Source IMF WEO, Sept 06
Monthly average spot price of six key metals at
the LME (1998 – June 2008)
1000
900
800
1998 = 100
700
600
500
400
300
200
100
0
1998
1999
2000
2001
Aluminum
2002
2003
Copper
2004
Lead
2005
2006
2007
Nickel
Source: IMF Commodities Price Bulletin
Tin
2008
China, India share of global
imports
1984
1990
2000
2001
2004
2006
China
0.4
0.3
0.3
0.3
1.6
2.4
Coal
Oil
India US
EU 25 China India US
EU 25
0.2
1.0 45.1
0.0
1.5 19.0 40.9
1.9
1.5 42.5
0.4
2.0 21.5 37.4
4.6
3.8 32.7
3.5
2.9 22.3 30.6
4.1
4.1 36.2
3.3
2.9 21.7 30.8
5.1
4.9 34.4
5.4
3.6 22.5 30.5
6.8
4.4 33.4
6.0
3.8 21.6 30.6
COMTRADE accessed via WITS on 5th Sept 2008
Index of oil and coal prices, 1980-2008
(2000=100)
Source: IMF World Economic Outlook
World Manufacturing Export Price,
1986-2000
Annual price change (%)
25
20
15
10
5
0
-5
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
-10
IMF, World Economic Outlook Database
EU Imports from China
1st Q 2005/1st Q 2004
China Market Share in EU-25
Imports
Volumes %
Price %
1 Q 2004 %
1 Q 2005 %
T-shirts
164
-26
7
17
Pullovers
534
-47
6
38
Men’s trousers
413
-16
6
35
Blouses
186
-24
6
22
Women’s coats
184
-18
6
10
Bras
139
-15
30
49
Socks and
pantyhose
63
-22
30
54
Linen and ramie
yarns
51
1
27
45
Linen fabrics
257
1
10
45
Source: Euratex data as reported by Nathan Associates
% of sectors with negative price
trends, 1988/9-2000/2001
35
% of sectors
30
29.7
25.6
25
18.3
20
17.2
15
8.5
10
5
0
Low income
China
Lower-middle
income
Uppermiddleincome
High income
Countries or sectors?
• Prebisch, Singer, Lewis and labour markets
• Singer revisits Schumpeterian rents (1971,1986,
1991)
• Maizels et al:
–EU (1979-1994)
–US (1981-1997)
–Japan (1981-2000)
A structural shift?
• The Asian Driver effect will be sustained in all
three sets of commodities
• Schumpeterian rents will continue to be eroded in
manufactures
C 1970
Share of gross
global R&D ($US
PPP) (%)
Coverage
1990
2.0
Excluding
centrally planned
economies
2000
10.2
21.0
Including formerly centrally planned
economies
A structural shift?
• The Asian Driver effect will be sustained in all
three sets of commodities
• Schumpeterian rents will continue to be eroded in
manufactures
• Historical divides will remain stronger in services
• Commodity prices may fall in the coming years,
but the terms of trade are about relative prices
Number of countries accounting for 90% of SSA Exports (excl SA)
25
20
15
10
5
0
Agricultural Materials
Ore and Metals
Fuels
SSA EXPORTS
SA, Lesotho,
Swaziland,
Madagascar,
Kenya, Mauritius
Hard
commodities
Clothing
footwear
SSA LOSS
SSA GAIN
Oil exporters, Zambia, SA, DRC,
Botswana, Ghana, Gabon, etc
CHINA
IMPORTS
CHINA
EXPORTS
All SSA
Oil
SSA LOSS
SSA GAIN
Most SSA
SSA IMPORTS
Clothing
footwear