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The antecedent to the present work is Marian Radetzki’s book A Guide to Primary Commodities in the World Economy, published by Blackwell in 1990, three decades ago. In that book Radetzki presented the gist of what he had learnt over the 30 preceding years of active study and research on international primary commodity markets. The timing of that publication was clearly inopportune. Though the book received positive reviews, it aroused only limited attention. Through the 1980s and 1990s, primary commodity markets were in the doldrums. Supply conditions for most commodities were quite relaxed most of the time, and prices remained suppressed. The advanced economies were in a process of dematerialization, where declining volumes of raw materials were needed per unit of value added. This suppressed demand growth and reduced the significance of commodities in their macroeconomies.
State-owned enterprises account for sizable shares of global supply in many commodities. There is a common belief that these enterprises behave differently from privately owned supply agents. This claim must be investigated, which is the main aim of this chapter. The chapter continues by clarifying a few methodological issues. How precisely is state enterprise defined? We subsequently explore the motivations for establishing public ownership in the mineral and energy sectors, in industrialized as well as developing countries. Then, after pointing to the features that characterize state-owned mineral firms, we analyze the likely impact of state ownership in minerals and energy on the domestic economy, providing in the process the rationales for the wave of privatizations in metals and minerals and the shrinkage of state-owned enterprise in these industries after 1980. The chapter ends by discussing the impact of state ownership on the international markets for minerals and oil.
This chapter is devoted to price formation and price trends in commodities. The chapter first discusses factors determining price levels, both in the short and long run. It thereafter turns to the blurred nature and instability of the short-run supply curve. The third focus is on price fluctuations in commodities, both the short-run instability as well as the long-run price trends. Fourth, alternative trading arrangements and their implications for price formation are explored. The final sections of the chapter discuss actual price quotations and the implications of exchange rates on commodity prices.
This chapter is devoted to the special problems encountered by nations that are heavily dependent on a small group of commodities, or, in the extreme case, reliant on a single commodity (monoeconomies). We begin by discussing the measures of commodity dependence and define monoeconomies in the process. We then turn to exploring the problems of export instability, fiscal extraction and exchange rate policies that often arise in commodity-dependent countries. We finally deal with Dutch disease and the resource curse, two ailments of particular significance to monoeconomies.
This introductory chapter provides a historical framework for world commodity markets. It considers four major themes. The first theme reviews the significance of primary commodities in the overall economy at different stages of economic development. The second tracks the long-run decline in bulk transport costs and explores the implications of this decline for the establishment of markets with a global reach for an expanding group of raw materials. The third theme focuses on the twentieth century. It demonstrates the greatly expanded role of public intervention and control in primary commodity production and trade from the early 1930s until the late 1970s, and the subsequent retreat of government involvement in favor of market forces. The fourth treats the recent strong growth in emerging economies, which has had, and continues to have, a profound impact on the world commodity markets.
The present chapter begins by studying the necessary minimum preconditions, in terms of elasticities and market shares, for successful cartel action. We then identify the markets where these preconditions appear to be fulfilled. There follows an account of the attempts of commodity producers to wield market power for their own benefit, trying to answer questions such as: What were the triggers to the cartel action? How did it go? How did the buyers react? What prompted cartel disintegration? There is a heavy emphasis on oil, given the extraordinary price performance of this commodity.
The phenomenon of commodity booms is the focus of this chapter. Lately commodity booms have attracted a lot of attention from academic researchers, but also from producers, industry investors and other actors with an interest in the production and consumption of primary commodities. The chapter starts with the definition of commodity booms. Three commodity booms in the period since the Second World War are identified and described in the chapter.
This chapter is devoted to protectionism in raw materials and considers first the national policies that affect commodity production and trade, and explores the causes for their establishment. Then a discussion of the increase in trade-restricting measures in recent years is provided, both regarding export restrictions and import tariffs, followed by a quantitative assessment of the extent of trade barriers affecting commodities in general and agricultural goods in particular. A final section looks more closely at commodity processing and explores how the location of this activity has been distorted.
The purpose of this chapter is to explore the ramifications of the issue of imported supply security and to scrutinize the alternative measures that have been used for overcoming the difficulties that an unreliable import supply of raw materials could cause. Domestic supply is conventionally assumed to remain secure and stable. The focus is on supply disruptions that are unanticipated, occur suddenly and prevail only in the short-to-medium term. Monopolistic producer action, embargoes, wars, strike, and natural disasters are cases in point. The disruptions under consideration involve sizable cuts in the quantity supplied, resulting in violently rising prices, or physical shortages if the price is controlled. We consider the circumstances under which supply disruptions become especially serious and the nature of the difficulties likely to emerge. The menu of policies to overcome the problems is discussed in turn, and finally the main findings are summarized.
This chapter is devoted to one of the commodity groups, energy, and there are at least four reasons for affording a special prominence to this commodity group. The first is the heavy dominance of energy raw materials in the commodities universe. This is true both for trade and for the contribution they make to GDP. The second reason is that supply scarcities led to an extraordinary price increase for oil in the past 40 years, and its causes warrant an explanation. The third reason is that fundamental changes are occurring in oil and gas production technologies that promise to replace historical scarcity of supply and high prices with abundance. The fourth reason is the general perception that the energy system is going through a transition toward low carbon sources, due to technical advances in non-fossil energy alternatives as well as policy efforts to hinder climate change. The four reasons that make energy special also provide the structure of the chapter.
Resource depletion and sustainable resource extraction is the main focus of this chapter. Depletion is an accentuated scarcity, which can be measured in different ways, four of which are presented in turn: (a) The trends in the adequacy of reserves from which the resource can be extracted provide an important physical insight into the seriousness of the depletion threat. (b) The progress of real prices is seen by economists to reflect accentuating or subsiding scarcity. (c) The long-run change in the unit price in real terms of identified but unexploited resources still in the ground is an alternative measure of the extent of the depletion threat. (d) Finally, the development of the long-run marginal cost of supply, equivalent to the total average cost in the marginal project, is yet another economic indicator of scarcity. Since depletion is a slow, drawn-out process, long time series are needed to make measurement meaningful. The chapter documents and discusses the available data on each of the measures in turn. The chapter ends with a discussion of sustainability in relation to the acceptance by society of extraction of nonrenewable resources.
Commodity exchanges have proliferated greatly since 2000, both in terms of places where the trade is conducted, and in terms of the products that are subject to trade. The main aim of this chapter is to describe these commodity exchanges, as well as the commodities traded there. The main instruments used, including their functioning, is presented as well as the main actors and their objectives. The chapter ends with discussing commodity exchanges impact on price formation, including the role of speculation.
This chapter comprises four sections. The first section defines primary commodities and classifies them into a variety of distinct groups. The second section attempts to determine the significance of commodities in the international economy, both at the aggregate and individual product level. The third section paints a broad picture of the current geography of traded commodity production and consumption. The import dependence of the major industrial regions on overseas commodity supply is explored and quantified, and the most important commodity-exporting countries are identified in the process. Section four assumes an historical perspective and considers briefly the forces that have led to the increasing dependence of Western Europe, the USA and Japan and, more recently, China and India, on commodity imports over the past 100 years.
The dramatic price falls of 2014–2015 marked the end of the most powerful and enduring commodity boom since the Second World War. Now in its third edition, this book acts as a guide to the ins and outs of the primary commodity universe. Updates to this edition reflect on the consequences of both China's economic slowdown as its industrialization enters a new, less commodity demanding phase, and changes in the USA's trade policy under the Trump administration. Additionally, this edition takes into account recent developments in world oil markets and examines the effects of increased climate concerns. The authors introduce and explain pertinent issues surrounding international commodity markets such as the global geography of raw materials, price formation, price trends, the role of commodity exchanges, the threat of depletion, cartel action, state ownership, emerging commodity nationalism and more.