1 / 14

China’s Role in Global Commodity Markets Comments

China’s Role in Global Commodity Markets Comments. Alicia Garcia Herrero Chief Economist for Emerging Markets BBVA HKIMR-INET Conference on China and the World Economy Hong Kong, June 23, 2014. 1. Very relevant policy work for RBA. Australia very dependent from China generally

osman
Download Presentation

China’s Role in Global Commodity Markets Comments

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. China’s Role in Global Commodity MarketsComments Alicia Garcia Herrero Chief Economist for Emerging Markets BBVA HKIMR-INET Conference on China and the World Economy Hong Kong, June 23, 2014

  2. 1. Very relevant policy work for RBA • Australia very dependent from China generally • Even more true for exports of certain commodities • Iron ore (the most) • Non ferrous metals • Coal

  3. Australia’s dependence on Chinese demand very high for certain commodities and much higher than 10 years ago

  4. Same story when using a dependency index by Ferchen, Garcia-Herrero and Nigrinis (2012) Exports dependency to China Index (0 no dependency – 1 absolute dependency) Source: UN Comtrade

  5. 2. Two paper in one • A description of China’s role on major commodity markets highlighting its importance Broader /descriptive/backward-looking • A simulation of how China’s slowing down & rebalancing may affect key commodity prices for Australia: iron or and coal More specific/ analytical/forward-looking More linkages between the two would improve the paper!

  6. 3. Suggestions for linkages 1. The role of other big players in global demand for commodities China is very relevant now but new players may “replace or supercede” its demand (p 11) • Best case is iron ore since it is so related to construction/urbanization • India’s urbanization much lower than China and • Global impact comparable given similar size in population

  7. 3. Suggestions for linkages • Some degree of endogeneity of supply to demand developments • Paper acknowledges it for iron ore on page 11: “the effect of moderating demand may be partly offset but reduced domestic supply”… • But does not really take it into account in the simulation exercise

  8. 4. Comments on simulations (1) • Using marginal costs of specific mines to derive a world supply curve is imaginative but has caveats Marginal costs very different across mines • Paper should give more info on the number and relevance of the mines used to construct the supply curve • How representative they are is key to evaluate the results • Key elements for any energy/metal company excluded Return on capital, debt-servicing costs, etc • Results more credible for temporary shock but not for permanent one Difficult to expect no reaction from the supply side to a permanent shock!

  9. 4. Comments on simulations (2) • Baseline worse that the two simulations? Two shocks analyzed (temporary fall in steel demand from China and permanent tightening of environmental policy) less likely than • China’s lower potential growth in the medium term • Rebalancing towards consumption More focus on baseline would be warranted

  10. The role of rebalancing: China’s commodity consumption Projection of China’s commodity consumption in 2012-2013 Source: BBVA Research Note: 2012/13 data are projections of BBVA Research; *Numbers in the parenthesis are contribution from investment-oriented stimulus. Quantifying the impact of the economic slowdown (compared to 2009-11) and the investment-oriented fiscal stimulus policy on China’s overall consumption of major commodities.

  11. 4. Comments on simulations (3) 5. Commodity demand not only determined by real factors but also financial ones • This is true generally but increasingly so in China specially for copper and iron ore. • Both have been used as collateral for borrowing in the shadow banking, with inventories growing beyond real demand

  12. 5. More thoughts on the simulations • What about new sources of supply (mine discovery, etc)? • What about impact of technological progress? • Again, new sources of demand

  13. All in all a very interesting policy paper Lots of food for policy discussion for Australian authorities • Geographical diversification: Active search for new demand • Product diversification: Reducing the role of commodities in the export basket

  14. Thank you! For further discussion alicia.garcia-herrero@bbva.com.k

More Related