World commodity agreements
•Download as PPT, PDF•
1 like•239 views
This document discusses world commodity prices and markets. It begins by defining commodities and outlining the main features of commodity markets, including that demand is generally stable but supply can be volatile. This leads to price volatility and a long-term downward trend in prices. The document then examines policies for stabilizing commodity markets, including international commodity agreements and supply controls by producer cartels. However, such interventions face challenges in reconciling the interests of commodity producers and consumers. In conclusion, commodities are important but commodity markets have issues of price volatility and long-term price declines that various policies have aimed to address.
Recommended
Recommended
More Related Content
What's hot
What's hot (14)
Similar to World commodity agreements
Similar to World commodity agreements (20)
More from MD SALMAN ANJUM
More from MD SALMAN ANJUM (20)
Recently uploaded
Recently uploaded (20)
World commodity agreements
- 1. World Commodity Prices and Markets
- 2. Question: what links Chinese economic policy with a crime committed in Sinfin in June? http://news.bbc.co.uk/1/hi/england/derbyshire/5011174.stm Answer: the price of copper. Why? China is growing rapidly and demanding commodities such as copper, thus prices have risen sharply Criminals see prices rising and try to “supply” some from a community centre!
- 3. Figure 1: Copper Prices $/tonne (July ’05-June ’06) Source: BBC
- 4. Source: COMTRADE. Figure 2 China's primary imports from world and from Africa, by major commodity group, average annual rate of growth, 1994–2003 per cent 0 10 20 30 40 50 60 Total primary commodities Food Agricultural raw materials Fuels Ores and Metals World Africa
- 5. Outline 1. Commodities defined 2. The main features of commodity markets 3. Price behaviour 4. Policies for commodity markets 5. Conclusions/questions
- 6. 1. Commodities Defined “A commodity is something that hurts when you drop it on your big toe, or smells bad if you leave it out in the sun too long” (Barron’s 27th June 1983) Primary commodities are “natural” and have not been processed into other products What types of internationally traded primary commodities are there?
- 7. Food/Beverages Coffee, cocoa, sugar, wheat, maize, rice, bananas, beef Minerals and Metals Tin, copper, zinc, nickel, iron ore, aluminium Agricultural Raw Materials Rubber, cotton, tobacco, oilseeds, soybeans, oils (palm, groundnut) Fuels Oil, gas and coal
- 8. 2. What are the Main Features of Commodity Markets? Major share of world trade •23% including fuels •14% excluding fuels •Many countries export & import (see Table 1) •Most DMEs net importers (except Australia and Canada)
- 9. Demand – generally stable •Necessities (e.g. food) Low degree of substitution Low income elasticity for food •Inputs into manufacturing production: Copper in construction or palladium for mobile phones Some substitution (e.g. rubber)
- 10. Supply – can be volatile •Not just developing countries (see Table 2) •Time period for supply means short run is a long time and elasticity low e.g.: Minerals need new mines Coffee bushes need 7 years to mature •Effect of shocks Permanent - new processes Temporary - weather http://business.timesonline.co.uk/article/0,,9065-2236557.html
- 11. Graph 1: Commodity Market with Supply Shock Price Quantity S1 D S2 P2 P1 Q1Q2 S3 P3 Q3
- 12. Graph 2: Commodity Market with a Demand Shift Price Quantity S P1 Q1 D1 D2 P2 Q2
- 13. 3. Price Behaviour Commodity prices exhibit two main features: 1. A high degree of volatility (see Table 3) arising mostly from supply volatility 2. Downward trend relative to manufactured goods
- 14. Figure 3: Nominal Quarterly Commodity Prices (1957Q1 = 100) 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 1957Q1 1958Q3 1960Q1 1961Q3 1963Q1 1964Q3 1966Q1 1967Q3 1969Q1 1970Q3 1972Q1 1973Q3 1975Q1 1976Q3 1978Q1 1979Q3 1981Q1 1982Q3 1984Q1 1985Q3 1987Q1 1988Q3 1990Q1 1991Q3 1993Q1 1994Q3 1996Q1 1997Q3 1999Q1 2000Q3
- 15. Figure 4: Real Commodity Prices (Deflated by US Price Index) 100 150 200 250 300 350 400 450 1957Q1 1958Q2 1959Q3 1960Q4 1962Q1 1963Q2 1964Q3 1965Q4 1967Q1 1968Q2 1969Q3 1970Q4 1972Q1 1973Q2 1974Q3 1975Q4 1977Q1 1978Q2 1979Q3 1980Q4 1982Q1 1983Q2 1984Q3 1985Q4 1987Q1 1988Q2 1989Q3 1990Q4 1992Q1 1993Q2 1994Q3 1995Q4 1997Q1 1998Q2 1999Q3 2000Q4
- 16. Figure 5: Nominal Quarterly Commodity Prices (1957Q1 = 100) 160.0 180.0 200.0 220.0 240.0 260.0 280.0 300.0 1980Q1 1980Q4 1981Q3 1982Q2 1983Q1 1983Q4 1984Q3 1985Q2 1986Q1 1986Q4 1987Q3 1988Q2 1989Q1 1989Q4 1990Q3 1991Q2 1992Q1 1992Q4 1993Q3 1994Q2 1995Q1 1995Q4 1996Q3 1997Q2 1998Q1 1998Q4 1999Q3 2000Q2 2001Q1 2001Q4 Commodity Price Index
- 17. Figure 6: Real Commodity Prices 1980-2000 (Deflated by US Price Index) 140 160 180 200 220 240 260 280 300 1980Q41981Q31982Q21983Q11983Q41984Q31985Q21986Q11986Q41987Q31988Q21989Q11989Q41990Q31991Q21992Q11992Q41993Q31994Q21995Q11995Q41996Q31997Q21998Q11998Q41999Q32000Q22001Q12001Q4
- 18. Do these features represent a problem? Volatility •Input price volatility Labour and capital costs known, other inputs not – what happens? Who pays for this? Inflation effects? •Selling price volatility Producer income unknown Investment difficulties
- 19. Downward Trend •LDC producers rely on export revenues •Need manufactured goods for growth •Try to produce more to increase revenues: Y = PQ Increase Q to offset fall in P but this causes P to fall! •Problem of dependence on a few commodities for export earnings (see Table 4)
- 20. 4. Policies for Commodity Markets What do countries want? •DMEs want good supplies but with stable and “fair” (low??) prices •LDCs want increased export earnings but want them to be stable (high prices??) How can these be reconciled? By “managing” the market
- 21. International Commodity Agreements •Buyers and sellers control supply to keep prices in a stable range •Supply controlled by production limits, export quotas, buffer stocks etc
- 22. Graph 3: Price Bands in a Commodity Market Price Quantity S D Pu Pe Qe PL
- 23. International Commodity Agreements •Buyers and sellers control supply to keep prices in a stable range •Supply controlled by production limits, export quotas, buffer stocks etc •Existed for a number of commodities: sugar, coffee, cocoa, rubber, tin •All collapsed due to disagreements between the two sides
- 24. One-sided interventions •Supply control by producers (cartels) e.g. OPEC Controls supply by quotas and can increase prices (see 1973/4 on Figure 1) •Protection of domestic producers e.g. Common Agricultural Policy Use tariffs and artificial prices to raise incomes for EU farmers Impact on world markets significant
- 25. Other Policy Issues in Commodity Markets •Development and growth concerns •Diversification of production in LDCs •Inflation in DMEs •Environmental concerns •Technological change and its effects •Market power and prices •Risk management
- 26. 5. Conclusions/Questions • Commodities are important for both LDCs and DMEs • Commodity markets have stable demand but potentially volatile supply • Prices can be volatile in short run and downward trending in the long run • Intervention can affect prices but what are the welfare implications of such policies?