china, india, commodity prices and the terms of trade raphael kaplinsky development policy and...
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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..
Growth of exports
0123456
1 6 11 16 21 26 31 36 41Years from beginning of export surge
Lo
g o
f e
xp
ort
gro
wth
China (1989-2003) Japan (1960-2003) Korea (1963-2003)
GDP (constant prices)
1.5
2
2.5
3
3.5
1 6 11 16 21 26 31 36 41
Years from beginning of growth surge
Lo
g o
f G
DP
gro
wth
China (1989-2003) Japan (1960-2003)
Korea (1963-2003)
Share of Global Population
0
5
10
15
20
25
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004
China India J apan Korea, Rep.
Distribution of MVA
Share of the World
Share of
developing countries
By Income 1985 1995 2005 1985 1995 2005
S. and E. Asia 4.1 12.9 19.7 29.2 59.5 69.4
of which: China 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
China’s share of growth in global demand
Source IMF WEO, Sept 06
Kgs/capita Aluminium Copper Steel
GDP per capita ($US1995)
Japan 1955 1975
0.6
10.5
1.2 7.4
80
599
5,559
21,869 Korea 1975 1995
1.0
15.0
1.3 8.1
84
827
2,891
10,841 China 1990 1999 2002 2003
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
• 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
Copper mine losses versus plan
-895
-662
-862
-1079
-349-457
-139
-36
-329
-185
237276
32
253196218
-1200
-1000
-800
-600
-400
-200
0
200
400
1993 1995 1997 1999 2001 2003 2005 2007
'000t
Forecast Additional Loss
Actual Loss
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
Optimistic Forecasts14%
Technical Problems20%
Strikes20%
Pit Problems8%
Grade11%
Weather4%
Slow Ramp Up21%
Other2%
(Kazakhmys, Norilsk, Ray, Rapu Rapu, Robinson)
(Ok Tedi, Olympic Dam, Kazakhmys)
(Cananea, Codelco)
(Chuqui, Dzhezkazgan)
(Cerro Verde, Spence,Morenci, Milpillas,Frontier, Chapada
Minto, Kamoto)
(KCM, Mopani)
(Alumbrera, Antamina)
(Bwana, Lonshi)
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)
0
100
200
300
400
500
600
700
800
900
1000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
1998
= 1
00
Aluminum Copper Lead Nickel Tin
Source: IMF Commodities Price Bulletin
China, India share of global imports
Coal Oil China India US EU 25 China India US EU 25
1984 0.4 0.2 1.0 45.1 0.0 1.5 19.0 40.9 1990 0.3 1.9 1.5 42.5 0.4 2.0 21.5 37.4 2000 0.3 4.6 3.8 32.7 3.5 2.9 22.3 30.6 2001 0.3 4.1 4.1 36.2 3.3 2.9 21.7 30.8 2004 1.6 5.1 4.9 34.4 5.4 3.6 22.5 30.5 2006 2.4 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
-10
-5
0
5
10
15
20
25
An
nu
al
pri
ce
ch
an
ge
(%
)
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
25.629.7
18.3 17.2
8.5
0
5
10
15
20
25
30
35
Low income China Lower-middleincome
Upper-middle-income
High income
% o
f se
cto
rs
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 1990 2000 Share of gross global R&D ($US PPP) (%)
2.0 10.2 21.0
Coverage
Excluding centrally planned
economies
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)
0
5
10
15
20
25
Agricultural Materials Ore and Metals Fuels
SSA EXPORTS
SSA IMPORTS
CHINA IMPORTS
CHINAEXPORTS
SSA GAIN
SSA GAINSSA LOSS
SSA LOSS
Clothingfootwear
Hard commodities
Clothingfootwear
Oil All SSA
SA, Lesotho, Swaziland,
Madagascar,Kenya, Mauritius
Most SSA
Oil exporters, Zambia, SA, DRC, Botswana, Ghana, Gabon, etc
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