The Southern Engine of Growth and Hard Commodity Prices : Does China Lead to Disruptive Development

Farooki, Masuma Zareen (2010). The Southern Engine of Growth and Hard Commodity Prices : Does China Lead to Disruptive Development. PhD thesis The Open University.

DOI: https://doi.org/10.21954/ou.ro.0000d577

Abstract

The 2003 to 2008 commodity boom was the longest period of rising commodity prices seen since the Second World War. The main drivers of base metal prices were increasing Demand from China, Inflexible Supply from within the Global Mining Industry and the increased participation of Financial Actors in commodity markets.

This research examines the role of the main drivers in the 2003 to 2008 commodity boom,and their impact on the future behaviour of hard-commodity prices. The persistence of these drivers,despite the interruption due to the financial crisis towards the end of 2008, leads us to conclude that the Boom is the start of an expansionary phase of a commodity Super Cycle.

China's increase in base-metals consumption has directly led to demand disruptions in the global commodity markets. Indirectly, it has affected the global mining sector and influenced a change in perception of financial actors. China's growth has been a disruptive element in traditional commodity price behaviour.

Given the commodity pessimism since the 1950s, the current rise in commodity prices has implications for development policy. The orthodoxy of deteriorating terms of trade of commodities relative to manufactures, price volatility, the low income elasticity of demand and the nature of the global mining industry, are all challenged by the rising trend in commodity prices.

Hard-commodity-exporting countries have an opportunity to benefit from the current and expected growth of commodity prices in the medium term. For base-metal ore abundant countries,commodity optimism may well define the next fifty years of global economic development.