Tweet
China's market influence
Dennis Morrison
Wednesday, September 26, 2007
The cumulative effect of the explosive growth in China's economy, especially in the past decade, is becoming more pervasive. It is to be seen in the continuing strong demand for oil and various metals, even at a time when the US economy is faltering. In the past such a decline in the pace of growth in the USA would have led to softness in world commodity markets. Today, these markets remain buoyant, as demand from China and other Asian countries continue to expand at double-digit rates.
Over the last two to three months grain prices have gone up substantially driven by lower output, increasing use to produce ethanol and, in part, China's increasing dependence on imports. We in Jamaica who rely on imports of these commodities for baked products and feed for the poultry industry should now understand the direct impact of China's greatly-expanded role in the global economy. That role is also significant in the financial markets where China has become a leading buyer of US government bonds and a player in the trading of equities, though with only indirect effect on us.
In the aluminium industry, which is an area that directly affects Jamaica's economic fortunes, China has emerged as a decisive force. Indeed, it has surpassed the USA as both the largest producer and consumer of primary aluminium. In the three-year period 2003-2006 when world production (including China's) of primary aluminium went up by 21.1 per cent, China had growth of 69 per cent, more than triple the world rate. As a matter of fact, the rest of the world had a growth rate of 9.3 per cent.
In 2006, China's production represented 27.6 per cent of total world production of aluminium, up from 19.8 per cent in 2003. Just two years before that, its share of world production was only 14.4 per cent, which means that it virtually doubled its share in the short span of five years. All the evidence points to further strong growth in production up to 2008, but there are indications that it should taper off in 2009 and beyond.
On the consumption side the picture is as spectacular, as China saw metal demand go up by nearly 150 per cent in the 2001-2006 period. Its share of total world consumption which stood at 14.9 per cent in 2005 climbed to 18.2 per cent in 2003 and further to 25.4 per cent last year. While total world consumption grew by 24.6 per cent in the 2003-2006 period, China had growth of 74.1 per cent. Put another way, the rest of the world had growth of only 13.6 per cent in a three-year per iod when the rate in China was 74.1 per cent.
China's advancing status in the aluminium industry has come while both the USA and Western Europe, the traditional leaders in the industry, are losing ground. In 2003, the USA's share of world primary aluminium consumption was 20.9 per cent and this slipped to 18.4 per cent in 2006.
In the case of Western Europe, their share has gone from 23.4 per cent to 20.2 per cent over the same period. The forecasters are projecting that China's rate of growth of metal consumption will slow from the current rapid pace of over 30 per cent per annum to near 20 per cent next year and hence its share of world consumption will continue to increase sharply.
The fact that China's production of aluminium outstrips its consumption has moderated its demand for imported metal, and hence eased the pressure on prices. At its projected rate of growth in consumption, it is likely to become once again a net importer of metal in the next three years. Depending on the overall world supply and demand balance, this should keep prices near to the historically high levels that now obtain. Not many analysts up to a decade ago had spotted the revolutionising effect that China would have had on the industry and how dramatically prices would have moved.
It would be useful in terms of a fuller understanding of how China's economic miracle will affect developing countries like Jamaica, were we able to analyse its impact on other commodities and industries. Its influence on the prices of manufactured goods is also an important factor that must be understood by economies that are heavily dependent on imports to meet their demand for consumer durables.
Dennis Morrison
Wednesday, September 26, 2007
The cumulative effect of the explosive growth in China's economy, especially in the past decade, is becoming more pervasive. It is to be seen in the continuing strong demand for oil and various metals, even at a time when the US economy is faltering. In the past such a decline in the pace of growth in the USA would have led to softness in world commodity markets. Today, these markets remain buoyant, as demand from China and other Asian countries continue to expand at double-digit rates.
Over the last two to three months grain prices have gone up substantially driven by lower output, increasing use to produce ethanol and, in part, China's increasing dependence on imports. We in Jamaica who rely on imports of these commodities for baked products and feed for the poultry industry should now understand the direct impact of China's greatly-expanded role in the global economy. That role is also significant in the financial markets where China has become a leading buyer of US government bonds and a player in the trading of equities, though with only indirect effect on us.
In the aluminium industry, which is an area that directly affects Jamaica's economic fortunes, China has emerged as a decisive force. Indeed, it has surpassed the USA as both the largest producer and consumer of primary aluminium. In the three-year period 2003-2006 when world production (including China's) of primary aluminium went up by 21.1 per cent, China had growth of 69 per cent, more than triple the world rate. As a matter of fact, the rest of the world had a growth rate of 9.3 per cent.
In 2006, China's production represented 27.6 per cent of total world production of aluminium, up from 19.8 per cent in 2003. Just two years before that, its share of world production was only 14.4 per cent, which means that it virtually doubled its share in the short span of five years. All the evidence points to further strong growth in production up to 2008, but there are indications that it should taper off in 2009 and beyond.
On the consumption side the picture is as spectacular, as China saw metal demand go up by nearly 150 per cent in the 2001-2006 period. Its share of total world consumption which stood at 14.9 per cent in 2005 climbed to 18.2 per cent in 2003 and further to 25.4 per cent last year. While total world consumption grew by 24.6 per cent in the 2003-2006 period, China had growth of 74.1 per cent. Put another way, the rest of the world had growth of only 13.6 per cent in a three-year per iod when the rate in China was 74.1 per cent.
China's advancing status in the aluminium industry has come while both the USA and Western Europe, the traditional leaders in the industry, are losing ground. In 2003, the USA's share of world primary aluminium consumption was 20.9 per cent and this slipped to 18.4 per cent in 2006.
In the case of Western Europe, their share has gone from 23.4 per cent to 20.2 per cent over the same period. The forecasters are projecting that China's rate of growth of metal consumption will slow from the current rapid pace of over 30 per cent per annum to near 20 per cent next year and hence its share of world consumption will continue to increase sharply.
The fact that China's production of aluminium outstrips its consumption has moderated its demand for imported metal, and hence eased the pressure on prices. At its projected rate of growth in consumption, it is likely to become once again a net importer of metal in the next three years. Depending on the overall world supply and demand balance, this should keep prices near to the historically high levels that now obtain. Not many analysts up to a decade ago had spotted the revolutionising effect that China would have had on the industry and how dramatically prices would have moved.
It would be useful in terms of a fuller understanding of how China's economic miracle will affect developing countries like Jamaica, were we able to analyse its impact on other commodities and industries. Its influence on the prices of manufactured goods is also an important factor that must be understood by economies that are heavily dependent on imports to meet their demand for consumer durables.