Commodity Price Cycles Research Articles

Reallocation and productivity in resource-rich economies

I study the firm-level dynamic response of a commodity-exporting economy to global cycles in commodity prices. I propose a heterogeneous-firms model endogenizing manufacturing productivity slowdowns through reallocation towards less productive firms. Within a given sector, commodity booms reallocate market share away from exporters because of exchange rate appreciation and away from capital-intensive firms because of the increase in the required rate of return to capital. Using microdata for Chile, the largest copper producer worldwide, I provide empirical evidence for these channels. When fed with the commodity super-cycle of 2004–2012, the calibrated model generates between 13% to 32% of the observed productivity slowdown.

Commodity Prices and the US Business Cycle

This article explores the relationship between commodity price cycles and the US business cycle. Commodity price cycles are known to foster capricious macroeconomic activity, and understanding their behaviour offers valuable economic insight. The US business cycle is a key indicator of the broader economic conditions, reflecting changes in economic activity, consumer spending, and overall market conditions. By examining the dynamics and interplay between these two cycles, this study provides insights into the potential synchronisation, lag, or lead between commodity price cycles and the US business cycle. The study employs a Fourier analysis of commodity price cycles and the US business cycle. In addition, the same empirical method will be used to analyse historical rainfall patterns in the US as a means of furthering the role of historical rainfall patterns in shaping agricultural productivity and subsequent price movements. Results show dominant cycles of 14.2 years throughout the commodity price dataset, 3.8 years within the US business cycle, and 14.2 years in US historical rainfall patterns. The study also identifies several factors that influence the relationship between these two cycles, including global demand, trade policies, and financial market fluctuations.

World Output and Commodity Price Cycles*

This study investigates the cyclical patterns of energy, agriculture, and metals and minerals (MetMin) commodity prices. We identify three super cycles since 1960, and a potential fourth arising from the Ukraine crisis and global COVID-19 pandemic. Employing a Structural Vector Autoregression (SVAR) approach, we establish an empirical relationship between output, CPI, and commodity prices. Our analysis reveals that an output shock leads to a general increase in all commodity prices, where the highest impact is on energy inflation. Moreover, we examine the heterogeneous effects of commodity inflation on overall inflation, uncovering ‘second round' effects across all commodities. Notably, agriculture inflation has the most significant impact on aggregate inflation, potentially explaining the destabilizing nature of food inflation in many countries. Our findings enhance understanding of these dynamics, offering important insights for policymakers and informing the public. Highlights We analyze the cyclical patterns of energy, agriculture and MetMin commodity prices. Real output, CPI and commodities exhibit the same cyclical patterns. A shock to output increases all commodities, where the highest response is energy inflation. We find ‘second-round' effects, where agriculture prices have the highest impact on inflation.

Volatility contagion and connectedness between WTI and commodity markets

This article analyzes the contagion risk between WTI crude oil prices and several major commodities markets. We study the dynamics of commodity connectedness, and we measure volatility contagion under various market conditions and commodity price cycles between 1982 and 2020. Our results show that the intensity, speed, and duration of contagion vary across periods according to macroeconomic factors. Our findings have implications for optimal portfolio strategies and market regulation to insure against potential losses inherent to volatility contagion across international markets. Our findings are relevant for industrial producers, farmers, investors, market regulators, and financial supervisors.

Oil, gas and new energy: how to transform holistically for a more efficient and sustainable future

Oil, gas and new energy companies are facing multiple competing priorities and challenges, from ongoing high-injury rates, a challenging economic climate, reduced capital funding, increasing social pressures and disengaged talent – all leading to pressure to transform at pace. Riding the commodity price cycle and taking a piecemeal approach to transformation is no longer a viable operating strategy. An integrated approach is required, to improve safety, risk, unit cost, growth, culture and decarbonisation performance concurrently, whilst making new energy assets viable. Critical to this integrated approach is an agile, well-designed operating system. Operating systems are not new to the oil, gas and new energy industry; however, dss+ has witnessed the limited effectiveness many of them have in enabling businesses to transform holistically and rapidly. Through this presentation, dss+ will give practical guidance on the elements critical to an effective operating system, using the real-life example of a recent project which saw dss+ partnering with a global oil and gas operator to deliver a reduction in tier 1 and tier 2 safety events, reduce business operating expenditure by US$90 m, reduce capital expenditure by US$20 m and deliver an additional 350 000 boe above budget at a critical asset in the region.

Innovation in the Mining Sector and Cycles in Commodity Prices

Innovation in the Mining Sector and Cycles in Commodity Prices

Performance of different models in iron ore price prediction during the time of commodity price spike

Future prediction of commodity price based on available data is very important for mining investors and operators. Commodity prices cointegrate and show Granger causality to and from one another. This research reviewed five different estimation techniques which are Bivariate Non-Linear Regression (BNLR), Multiple Linear Regression (MLR), Multiple Non-Linear Regression (MNLR) as well as logsig and tansig model of Levenberg-Marquardt Artificial Neural Network modelling to simulate the future iron ore price based on 12 other monthly commodity prices and indices including LNG, aluminium, nickel, silver, Australian coal, zinc, gold, oil, tin, copper, lead, and Commodity Price Index (Metals).Six different models were tested in the paper to forecast the iron ore prices from 1 to 6 months over 10 months period. Linear model (purelin) using Levenberg-Marquardt technique was able to exhibit the best forecast result with average accuracy of 5.92% for 1 month ahead, 9.48% for 2 months, 11.21% for 3 months, etc. It is important to highlight that high accuracy is achieved (accuracy under 5% between forecasts and actuals in 40–50% cases) by purelin model for up to 2 months forecast for the period between July 2020 and April 2021. This indicates that prediction of iron ore price for the coming month is possible for up to 2 months period using the purelin model. It can be noted that the period tested was unstable for iron ore prices where rapid surge in iron ore price was observed. Same principle can be applied in the time of next commodity price cycle.

Revolution in Development: Mexico and the Governance of the Global Economy

Revolution in Development: Mexico and the Governance of the Global Economy

Balance Sheet Effects in a Financialized Environment: A Stock-Flow Consistent Framework for Mexico

ABSTRACT Exchange rate volatility, growing foreign corporate debt, and decreasing private investment ratio are among the consequences of financialization experienced by developing countries such as Mexico. The present work analyses the combined effect of these three factors using a Stock Flow Consistent (SFC) model. It analytically explores the balance sheet effect in the non-financial corporate sector; higher foreign debt would affect private investment after episodes of real currency depreciation. To explore such mechanisms, we simulate the commodity price cycle of the early 2000s alongside the shifts in the stance of the FED in the aftermath of the Global Financial Crisis. The scenario analysis points to a hysteresis of the Real Exchange Rate (RER) and an increase in foreign debt level.

Global factors, uncertainty, weather conditions and energy prices: On the drivers of the duration of commodity price cycle phases

We investigate the role of global factors in explaining the length of commodity price cycle phases, using a continuous-time Weibull duration model and data for a panel of 33 countries over the period 1980Q1–2015Q4. We find evidence of increasing (constant) positive duration dependence for commodity price booms and busts (normal time spells). Global macroeconomic conditions - in particular, inflation, economic policy uncertainty and monetary policy actions - significantly affect the duration of all commodity price cycle phases. Global environmental conditions also impact the duration of commodity price booms, with a rise in average temperature (rainfall) increasing (reducing) their lengths. A larger number of military conflicts around the globe is associated with shorter booms and busts. Finally, we find that higher oil prices are linked with longer booms and shorter busts. • We investigate how global factors affect the length of commodity price cycle phases. • Global macroeconomic conditions significantly affect the duration of all phases. • Higher average temperature (rainfall) also increases (reduces) booms' duration. • A rise in military conflicts around the globe is linked with shorter booms/busts. • Higher oil prices are associated with longer (shorter) booms (busts).

Short-term supply and demand of graduate mining engineers in Australia

This study advances a means for estimating the short-term demand for Australian graduate mining engineers using simple linear correlation with mining “building and structure” capital expenditures. Although only a loose correlation was achieved, the method is comparable with the current methods which either assume employment growth rates or calculate them by applying auto regressive integrated moving averages to time series data. The latter can fail to adequately reflect rapid changes due to commodity price cycles. Using the new model, it is possible to estimate that Australia requires approximately 160 mining engineering graduates per year over the next 3 years. The deficit in mining engineering graduate numbers is likely to be around 60 this year, climbing to 90 in 2021. The Australian mining industry therefor faces a shortfall of graduates. The mining industry will look to attract mining engineers under the Australian government’s skilled immigration program. However, Australian mining companies will essentially be competing with North American mining companies for scarce talent. For large surface mining operations involving bulk earth movement, the industry will look to substitute graduate mining engineers with graduate civil engineers. Because of the shortage of graduate mining engineers in North America, underground metalliferous mines are likely to draw expertise from Latin American and African countries, most notably Peru, South Africa, and Ghana. Underground longwall coal mines are likely to source foreign mining engineering graduates from Turkey, Poland, Germany, Ukraine, and Russia. In bulk mining operations, technology is changing some of the planning and operational roles currently conducted by young graduate mining engineers. Some routine planning tasks (for example, drill and blasting planning for strata deposits) are becoming transactional in nature. Remote operating centers are changing operational roles that were traditionally the domain of young graduate mining engineers.

A study of mining fatalities and coal price variation

It has long been postulated that a relationship exists between commodity price cycles and fatalities in the mining industry. Previous studies have found only weak correlations in this area. This study analyses the fatalities recorded in coal mines over the period 1985–2016 in the State of Queensland as a function of thermal coal price variation. The study finds that the relationship between fatalities and coal prices is not linear. One to two fatalities occur in most years independent of the thermal coal price. When the price of coal falls below AUD 55/tonne (non-inflation adjusted), the likelihood of an incident involving multiple fatalities increases. The probability can be estimated at 2 in 18 events (equivalent to 11%). This paper postulates that in difficult economic times, mining companies react by downsizing direct employees. If not carefully managed, this can result in loss of knowledge around safety systems, and reduced effectiveness of safety supervision. Because of labour cost advantages, some jobs previously undertaken by direct employees will be replaced by contractors. Increased contractor numbers contribute to increased risk of fatalities occurring, as contractors are over-represented in accident categories involving vehicle accidents, tire handling and crushing incidents. Mine inspectorates, mining, and mining contractor companies need to be especially vigilant to enforce health and safety management systems during periods of low coal prices.

The Influence of the Strength of Financial Institutions and the Investment-Production Delay on Commodity Price Cycles: A Framed Field Experiment with Coffee Farmers in Colombia

Commodity price cycles can arise when there is a tendency to invest more (less) when current prices are high (low). Traditionally this behavior is interpreted as based upon naïve expectations. However, weak financial institutions can also cause this behavior. When borrowing is hard and saving is risky farmers cannot invest in periods with low prices because their income is too low, while in periods with high prices they have few alternatives than to invest the surplus in their farm. In this paper, we present a framed field experiment to analyze how Colombian small-scale coffee farmers make investment decisions. We vary the strength of the financial institutions and the lag between investment and production. Overall there is a positive relation between prices and investment, and this relation becomes stronger when the financial institutions become weaker.

Comments on Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies

Comments on Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies

Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies

During Thailand's economic development, the shares of output and employment in agriculture have been consistently higher than in other countries at the same level of income. There are push and pull factors for labor transformation. This paper demonstrates that the slow transformation from rural to urban economy is the result of the agricultural trap, which keeps agrarian labor inside the farm sector. In addition to the lack of public investment in human capital, extremely wasteful farm subsidies have weakened the natural process of structural transformation. Farm subsidies encourage land expansion, which usually lags behind commodity booms, resulting in the excess supply of farm products. In turn, when commodity prices collapse, excess supply perpetuates further subsidies and emboldens the pork barrel activities of incumbent governments.

Comments on Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies

Comments on Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies

Summary of the General Discussion on “Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies”

Summary of the General Discussion on “Commodity Price Cycles, the Agricultural Trap, and Thailand's Incessant Subsidies”

Bhushan Steel: a creditworthy company turned insolvent

Learning outcomes The purpose of this paper is to illustrate how a well-performing company can turn into a loss-making company on account of adverse industry cycle and poor management of risks in the business. The importance of factors like optimal level of leveraging, the ability of the management to deal with external and internal risks, and importance of corporate governance in the process of credit appraisal is understood from this case. Case overview/synopsis The case relates to the credit appraisal by the banks of a prominent steel company in India. The company, Bhushan Steel Limited, was doing very well. The banks lent aggressively to the company, based on their credit appraisal. However, the company soon turned insolvent on account of poor assessment of risks and deteriorating external factors. While this case may be analysed and studied through the eyes of both the Management and the lenders, the focus is currently on the latter. In a real-world scenario, the challenge for the lender is to sieve through the financial as well as non-financial data and make a valid conclusion on the level of credit worthiness of the borrowing company. This includes the topics of operational efficiency and synergies, commodity price cycles, external credit ratings, operating and financial leverage, regulatory risks and corporate governance. Complexity academic level Post graduate business management programmes – Finance specialisation. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes. Subject code CSS 1: Accounting and Finance

Kondratiev long cycles in metal commodity prices

The hypothesis of cycles in metal and mineral commodity prices has been firmly documented. Studies in the last years, in the context of the unfolding of the supercycle, have been fruitful in the identification of long cycles. However, a less addressed aspect is their eventual connection with the long economic cycle theory or Kondratiev waves. This article presents the outcomes of an empirical inspection of Kondratiev waves in the real prices of the base metals, iron ore and gold for the period 1900–2017. The results indicate an important level of synchronization between metals prices and the Kondratiev waves. Thus, metal and mineral prices would be affected by the dynamics of long economic cycles (45–60 years). It is suggested to corroborate the empirical findings using the band-pass filters and a decomposition that takes into account these long cycles.

Borders Near and Far: The Economic, Geographic and Regulatory Contexts for Trade and Border-Related Issues in Landlocked Alberta

ABSTRACTThe landlocked Canadian province of Alberta is an anomaly in the study of Canadian borders and borderlands. Major export sectors are increasingly dependent on negotiated access to US and other foreign markets, and sometimes to conditions imposed by other provinces. Major Alberta-based firms and sectors have extensive international operations dependent on efficient borders and predictable rules-based regulatory systems at and beyond borders. Regulatory regimes governing border and trans-border regions vary widely across sectors. Key factors affecting cross-border trade and travel include dispersed markets and related trade corridors, highly segmented production and distribution processes across and within sectors, highly variable commodity price cycles, risks of significant political shocks and ongoing contestation affecting interprovincial and trans-border trade, investment and travel.