Australian mineral export forecasts to 2000

Mineral exports are now about 35% of Australia's total export earnings. The authors consider the prospects to 2000 for the main export-earning commodities. Forecasts are arrived at using a variety of approaches, including regression analysis of time-series data, but the final assessment reflects specialists' personal judgments. It is argued that economic resources (reserves) already identified can, for most commodities, sustain forecast exports until the end of the century.     

A mineral commodity life-cycle?: Relationships between production,price and economic resources

The production, price and economic resources profiles of a number of mineral commodities are examined and consideration is given to the theory that such profiles can be related to one another within the framework of a life-cycle model of development. While the behaviour of some of the commodities examined appears to lend support to the theory, that of others reveals fundamental problems with its underlying assumptions. It is concluded that, while the demand for a mineral commodity in specific uses may indeed manifest cyclical tendencies, as a general behavioural theory and as a basis for resource estimation the life-cycle model applied to minerals is of little value.     

The internationalisation of the Australian mineral industry in the 1990s

Overseas mineral exploration and mining investment by Australian companies increased dramatically from the early 1990s until 1997. In the wake of the Asian economic crisis and lower commodity prices it declined somewhat in 1998 and 1999. Reflecting their international competitiveness, Australian resource companies were actively involved in projects in about eighty nations in 1999. This study assesses the extent of growth in exploration and mining operations, the distribution between large and small companies and the changing regional focus which has been occurring. It also reflects on some of the key influences on this development. These include a strong domestic finance sector, supporting mining services provision, technological competitiveness, a growing attractiveness of offshore locations and increasing structural impediments at home.     

The role of the Australian minerals industry in world mineral supplies

Australia is one of the world's main producers and exporters of both fuel and non-fuel minerals. Among the main commodities produced for export are bauxite/alumina, iron ore, and nickel—Australia is also an increasingly important source of supply of black coal, especially for Japan, and is a significant producer and exporter of a number of base metals. Resources are adequate to support a substantial expansion of both non-oil fuels and other minerals. The potential for growth, both in terms of specific commodities and in the overall role of Australia in the world mineral industry, will depend to a very large extent on the cost competitiveness of Australian mining and on continuing inflow of capital.     

International commodity transactions : The role of the commodity futures trading commission

The creation of so-called ‘financial’ futures contracts in the USA has spurred the growth of futures trading by other countries, including the UK. The increased expansion of commodity futures trading has also led to heightened regulatory concerns throughout the world. The USA has been especially aggressive in asserting jurisdiction and establishing regulatory controls over persons dealing in the US markets. The complexity of the regulations adopted is compounded by the fact that they are often directed at specific instruments, while similar instruments are not given comparable regulatory treatment. This article discusses the growth of futures trading worldwide, as well as regulatory concerns and requirements existing in the USA.     

The relentless progress of commodity exchanges in the establishment of primary commodity prices

A continuously expanding group of commodities are being priced on commodity exchanges. This paper explains the causes to the increasing preference of exchanges as pricing instruments. It also provides the detail of the shift in the 1970s and 1980s from producer determined prices to prices set by commodity exchanges for three major commodities—aluminum, nickel and petroleum.     

Instability in primary commodity markets

The two principal objectives of this paper are, first, to consider the behaviour of primary commodity prices on world markets. In particular, the degree of price instability in each of 19 primary commodity markets in the period 1953–1974, and the long-run behaviour of primary commodity prices relative to the price of manufactures (‘the terms of trade’) are analysed. Secondly, measures of export earnings instability are presented which determine its degree and geographical extent. The importance of world primary commodity trade both for the developed countries as major importers and exporters and for the less developed countries as large exporters is also pointed out.     

Agreement about commodity agreements?

In spite of the shifts in global economic power the scope for increased intervention in commodity markets remains restricted. We have witnessed the beginnings of some changes with the increased willingness of the richer countries to discuss the commodity issue. The interest in individual commodity agreements is likely to be extended as consumers place a higher valuation on security of supplies but commodity agreements can only secure moderate and limited objectives. They represent only one of a number of tools which are available in the attempt to secure a new world economic order and they will need to be used in conjunction with increased flows of foreign aid, trade liberalisation, and schemes of compensatory finance. The integrated approach to commodities seems fraught with difficulties as does any realistic scheme for the indexation of commodity prices.     

The anatomy of three commodity booms

Three major commodity booms since the second world war are identified and analyzed. In all three, demand shocks predominated as triggers to the commodity price rises. The first boom, in 1950–51, was caused by the massive inventory buildup in response to the Korean war. The second, in 1973–74, was accentuated by widespread harvest failures and by OPEC's market management, which tripled the price of oil. The third boom started in 2004 and has not yet run its course. This time, the explosive growth of China's and India's raw materials demand has played a key role. The first two booms collapsed as the world economy went into recession and excessive inventories were sold out. The third boom may prove more durable since the world economy continues to expand briskly and commodity inventories have remained small.     

Investor demand and spot commodity prices

The on-going debate over the influence of investor demand on spot commodity prices largely attempts to assess this influence by measuring the growth in investor demand in recent years. Given the serious data problems that plague such analyses, this article pursues another approach in the hope of providing useful insights into the impact of investor demand on spot commodity prices. It focuses on the mechanisms by which investor demand affects spot prices, and in particular on two questions. First, how does an increase in investor demand on the futures markets affect the spot market and spot price? Second, when investor demand is increasing and pushing a commodity's price up, do physical stocks of the commodity also have to be rising, as economists and others widely assume?On the first question, the article concludes that a surge in investor demand raising prices on the futures markets will have a direct and comparable effect on the spot market prices when these markets are in strong contango. However, when markets are in weak contango or backwardation, price movements in the futures markets have a much looser effect on spot prices. As a result, changes in investor demand on the futures markets may have little or no influence on spot prices in the absence of a strong contango. Instead, changes in fundamentals (that is, producer supply and consumer demand) and possibly changes in investor demand taking place directly on the spot market largely determine the spot price at such times.On the second question, the article shows that investor demand can be pushing up a commodity's price even when investor stocks are falling, despite the widespread presumption to the contrary.     

Recent changes in international commodity agreements

The contents of international commodity agreements have changed from those in which open-ended intervention mechanisms regulated the market defending a normative price to those limiting intervention so as not to obscure market forces and consequently the market price. Underlying this change is the principle to which the developed countries accorded the highest priority, namely that the interests of producing and consuming countries must balance to avoid an indiscriminate transfer of resources. On the other hand, the principles which guided agreements that set a normative price were based on the grounds that the market price determined by unequal partners was unfair and that internationally agreed developmental goals implied untied and unconditional resource transfers by means of normative, higher than market, prices. These two sets of principles were incompatible. As a result negotiations were not only difficult but inconclusive. Another reason for this outcome was that the question of the cost effectiveness of market duplicating agreements based on the principle of balanced interests was unresolved. These reasons explain why commodity agreements do not figure currently in substantive discussions on North-South cooperation and why only three commodity agreements have a functional role and even of these three, one is not in force definitively.     

Costs and benefits of commodity control

The author considers the international commodity agreement as an economic instrument, and discusses its benefits and costs with respect to price stabilization and the building-up of buffer stocks. The author asserts that there is a wide range of economic arguments that can be employed to support the case for price stabilization as a form of commodity control. However, he argues that price stabilization is not desirable in all cases, because each commodity market is unique, and there can be certain costs associated with stabilization, in addition to the beneficial aspects. The feasibility of private financing of a part of the costs of buffer stock and export quota operations is also     

Primary commodity prices — a pedagogical note

This note provides a simple statement about the pricing of primary commodities — and in particular oil and non-fuel minerals. It is contended that inventories must enter the analysis in an explicit manner. The place of expectations is also discussed briefly.     

Reply: Investor demand and spot commodity prices

In a recent article (Tilton, Humphreys, and Radetzki, 2011), Tilton et al. argue that even when investor stocks are declining an increase in investor demand can cause a commodity's price to rise. They contend that this conclusion, which is based on two hypothetical examples, is both contrary to conventional wisdom and counter-intuitive. In my comment on the article (Olle Östensson, 2011), I challenged this finding. In a reply to my article, Tilton et al. maintain that their original finding is valid: investor demand can be driving commodity prices higher even when stocks are falling. In my present reply, I contend that their argument with respect to the first example confuses the actions of a minority of investors with those of all investors and is well accommodated within the framework of traditional theory. I further argue that their second example rests on an assumption regarding investor behavior that is unproven and that in any case falls outside the framework of analysis of futures markets.     

Investor demand and spot commodity prices: Reply

In a recent article (Tilton et al., 2011), we argue that even when investor stocks are declining an increase in investor demand can cause a commodity's price to rise, a conclusion that is both contrary to conventional wisdom and counter-intuitive. In his comment on our article, Olle Östensson (2011) challenges this finding. After assessing his concerns in this reply, we maintain that our original finding is valid: investor demand can be driving commodity prices higher even when investor stocks are falling.     

Mineral commodity stabilisation: The producers' view

The author compares the relative merits of production cuts and buffer stocks as measures for market stabilisation in mineral commodity markets. He concludes that, although under certain conditions producers may gain by building up buffer stocks at times of relatively low demand, the low global price elasticities in most minerals markets make it likely that producers' interests would usually be better served by production cuts when demand falls.     

Investor demand and spot commodity prices: Reply 2

This, our second reply to Östensson, supplements our earlier more technical analysis with a simple intuitive explanation of how investor demand can be driving commodity prices higher even when investor stocks are falling.     

International commodity agreements: The role of consuming nations

Consuming nations and industry segments within them play a crucial role in the success of commodity agreements. For individual firms the desirability of the agreements is seen to depend on the form of the agency agreement and the competitive position of the firm in both the domestic and world market. Both the benefits and costs to producing and consuming nations are analysed. The mechanism of the agreements is analysed as well as the problems that lead to their limitation or termination.