CHINA

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05 July 2006
Study Examines Effect of China's Growth on Commodity Prices

By Cassie Duong
Washington File Staff Writer

Washington -- The demands of China's "stunning economic growth" in recent years have had a complex and uneven effect on global prices for energy and other commodities, according to a staff study recently released by the Office of Industries at the U.S. International Trade Commission (ITC).

The study focused on the shifts in trade and global prices between 1995 and 2004 on four key commodities:  crude petroleum, aluminum, forest products and ferrous scrap.

The impact of China on these commodities, the study found, "is more nuanced than generally expected."

"Rather than sharp price increases for each commodity, we find different effects for different commodities depending on the circumstances surrounding each product and market," the study's authors reported in the executive summary of their report.

The study, The Effects of Increasing Chinese Demand on Global Commodity Markets, was released in June, and the findings are those of the authors and do not necessarily reflect the views of the U.S. International Trade Commission or any of the commissioners, according to a June 29 ITC press release.  

SPECIFIC COMMODITIES

The study said increasing Chinese demand is one factor contributing to price increases for crude petroleum in recent years, but global production during the 1995-2004 period more than kept pace with China's requirements.

Anecdotal evidence, the study said, suggests that the sharp spikes in crude petroleum prices seen during 2005 and 2006 owe more to one-time, unexpected factors such as the threat of U.N. sanctions on Iran and the disruptions related to the hurricanes of 2005 than to China's fairly steady, predictable increases in demand for petroleum.

China's increased imports of alumina, the primary input to unwrought aluminum (not manufactured aluminum) has contributed to price increases for that commodity, according to the study.

China's expanded production and export of unwrought aluminum also increased global prices for unwrought aluminum and changed the dynamics of the global aluminum market, the study said.

Unlike aluminum or crude petroleum, no central, global market exists for forest products.   Prices for forest products, however, generally have remained stable even as China's demand for both paper and lumber has increased, the study said.

Global market prices for ferrous scrap have increased strongly as a result of increased demand by China as well as by Turkey and other Asian steel-producing countries, the study said.

 For more information on U.S. policies, see U.S.-China Trade and Economic Ties.

The texts of the ITC press release and the study (PDF, 108 pages) are available on the ITC Web site.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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