China and India Are Global Markets

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					                      DRAFT




Impact of China and India on Global Commodity Markets
      Focus on Metals & Minerals and Petroleum




                   Shane Streifel*
            Development Prospects Group
                    World Bank




  *Research Assistance from Amelia Moy, World Bank
                                      Index



1. Summary

2. China and India Share of Global Commodity Markets

3. Trends in Global Commodity Markets and Prices – Importance of China and India

4. Outlook for Commodity Prices

Annex




                                         2
        Impact of China and India on Global Commodity Markets
              Focus on Metals & Minerals and Petroleum


1. Summary

Commodity prices are in the midst of a multi-year upward trend, particularly for oil and
metals. Agriculture prices have risen as well, but have lagged the other groups, as these
markets have been generally well supplied. Oil and metals prices have risen to record
nominal highs but in real terms most remain below peaks in the 1980s. Oil and metals
markets have had similar experiences in recent years. In the late 1990s, low prices
resulted in relatively low levels of investment and the shut-in of high cost capacity (in the
case of oil, OPEC shut-in part of its low-cost capacity). Strong global demand, including
exceptionally strong increases in China, forced inventories to low levels. Production was
pushed up against capacity constraints in 2004 and prices surged upward. Continued
strong growth in demand and shortfalls in production and capacity expansions in 2005-06
have kept markets exceptionally tight and prices have surged higher in 2006. In the case
of oil, fears of supply disruption have also helped underpin prices.

China has emerged as one of the largest—often the largest—consumers of most primary
commodities. For the main metals, China ranks first and consumes 24 percent of total
world production. It also produces 31 percent of the world’s steel output. In energy,
China consumes 13 percent of the world’s energy, including nearly one-third of the
world’s coal output. In agriculture, it is the largest consumer of wheat, rice, palm oil,
cotton and rubber, and second largest consumer of soybeans, soy oil, and tea. China is
also undergoing a significant change in its eating habits, reducing dependence on the
traditional staples of cereals and rice, and increasing consumption of other products, such
as meats and processed foods.

India is also an important consumer of commodities, ranking fifth in overall energy use
and third largest consumer of coal. It ranks 7th or 8th for aluminum, tin and zinc
consumption, as well as global steel production, and 11th for copper. In agriculture it has
a much greater presence, being the largest consumer of sugar and tea, and the second
largest consumer of wheat, rice, palm oil and cotton. India has also sharply increased its
‘fats and oils’ consumption, indicating some shift in food preference. India’s economy is
one-third the size of China’s, and its GDP and commodity consumption has grown at
slower rates than in China.

China’s demand growth for metals has accelerated since 1999, consuming two-thirds of
the growth in world metals output between 1999 and 2005. It has been a major driver in
the recent surge of metals prices, although the failure of supplies to keep pace, low stocks
and dollar depreciation have also contributed to the price gains. In petroleum, China has
accounted for less than one-quarter of the growth in oil demand, and has not been the
major driving force leading to high oil prices, like it has for metals. Oil prices have been
mainly driven by disappointing non-OPEC supply growth, disruptions to supply,
geopolitical concerns, and expectations of supply constraints going forward, including


                                             3
OPEC production restraint. India has accounted for much less of the growth in metals and
oil consumption, and has not been a major driver of higher prices.

China is a large net importer of oil, copper, iron ore, lead, nickel, and zinc, the prices of
which have increased most. By contrast, China is a net exporter of aluminum, and this
has been the main determinant of why aluminum prices have increased only a fraction of
copper prices. China is also a large net importer of fats and oils (and cotton), and
consumption is growing at double digit rates due to its shift in food preference and rising
incomes. Should this trend continue it could have a large impact on these commodity
prices. India is a net importer of oil and a number of metals, though not iron ore and zinc,
and demand growth has been moderately strong. However, demand growth has not
accelerated since 1999 as in China, and has not been a main driving force to higher
prices. It is less import-dependent on agriculture commodities, but is a net importer of
fats and oils, and could add to any pressures of these prices because of a shift in food
presence along with China.

China and India are expected to account for more than half of the growth in global copper
and aluminum consumption over the next two decades, with China accounting for about
half of the growth. By extension, the two countries might account for half of the growth
in total metal consumption over the period, with China representing the bulk of the
increase. This presents a large challenge to the metals industry to almost double output
over the next two decades. In petroleum, China and India are projected to account for less
than 30 percent of the growth in world oil demand, with China representing just over 20
percent. While projected growth is much lower than for metals, the petroleum industry is
also challenged to raise capacity by about a third over the next two decades.

The World Bank expects non-oil commodity prices to decline after prices peak in the
current cycle. However the path will not be smooth, and prices are expected to remain
volatile. Prices are not expected to return to levels of the 1990s due to rising costs and the
difficulty developing new supplies from difficult areas. China, India and other developing
countries have the potential to consume higher levels of metals and petroleum than
typically forecast, and this would increase the strain on the respective industries to
develop new supplies. However, prices are expected to be cyclical, and not become
permanently higher at anywhere near recent price levels. In the case of oil, OPEC
production restraint may also keep prices well above the costs of production. However,
too high prices could again impact demand and supply as in the 1980s and ultimately
result in lower prices.




                                              4
2. China and India Share of Global Commodity Markets.

China has emerged one of the largest—often the largest—consumers of major
commodities (Table 1). It leads or rivals the U.S. in most commodities, although it
significantly lags in energy despite ranking number two. China is the largest consumer of
major metals1, the second largest user of energy, and the first or second largest consumer
of many agriculture commodities. Between 1999 and 2005, China’s metals consumption
grew at a relatively high rate of 17 percent, while energy demand rose at a rate of 7
percent—less than the pace of economic growth of over 9 percent. Growth rates for a
number of agriculture commodities were moderate—as is typical largely reflecting
changes in population. However, for a few commodities, e.g., soybeans, soy oil and palm
oil, there has been large double digit growth in China’s consumption, reflecting a major
change in food preference away from traditional cereals which are in decline. In addition,
cotton and rubber consumption have had relatively large gains, tied to economic activity.

India ranks several places lower for metals and energy consumption, and recent growth
rates have been lower than for China. For metals, consumption grew at an average rate of
7 percent between 1999 and 2005, compared with economic growth of about 6 percent,
while the growth in energy was relatively moderate overall. For agriculture, India ranks
high as major consumer because of its large population. It is the largest consumer of tea
and sugar, and is the second largest consumer of a number of other commodities.
However recent growth rates generally have been relatively modest.

Metals and Minerals

China. China consumes nearly ¼ of the world’s major metals production and became the
largest consumer of total main metals in 2003 (see graphs). Between 1990 and 2005
China’s demand for major metals grew an average rate of 14.7 percent per year, and since
1999 growth surged at an average rate of 17 percent. China has been the largest steel
producer for nearly a decade, producing nearly one-third of the world’s steel, and more
than 3 times that of Japan and the US.—the 2nd and 3rd largest producers. Between 1990
and 2000 China’s steel production nearly doubled, growing at a rate of 6.5 percent. But
between 2000 and 2005, steel production nearly tripled, rising at an average rate of more
than 22 percent. As such, China is the largest consumer of iron ore. Between 2000 and
2004, China imported two-thirds of the world’s traded iron ore, with imports growing at a
rate of more than 30 percent.

India. India consumes less than 3 percent of the world’s metals, and consumes little
more than 10 percent that of China—despite its GDP being 1/3 the size of China’s.
However, its growth of metal consumption has been relatively high, increasing at an
average rate of 7 percent since 1992. It ranks within the top 10 consuming countries for
tin (7th) and aluminum and zinc (8th), and is the 7th largest steel producer—but produces
less than 4 percent of the world’s steel and little more than 10 percent that of China.
Unlike China, India produces essentially all of its iron ore needs, and exports about half
of its iron ore output.
1
    Aluminum, Copper, Lead, Nickel, Tin and Zinc.


                                                    5
        Table 1. Consumption and World Ranking of Primary Commodities for China, India, and the U.S.

                                       China            India            US China     India      US          World
                                                                           Share of  Share of  Share of
                          Units        Volume Rank Volume Rank Volume Rank World (%) World (%) World (%)     Volume
METALS 2005
Aluminum                  000 tons        7,119    1        941    8      6,114    2    22.5   3.0    19.4       31,581
Copper                    000 tons        3,665    1        398   11      2,336    2    21.6   2.3    13.8       16,964
Lead                      000 tons        1,940    1         96   15      1,469    2    25.7   1.3    19.4        7,554
Nickel                    000 tons          201    1         12   17        126    3    15.2   0.9    9.5         1,317
Tin                       000 tons          116    1          8    7         42    2    33.3   2.2    12.1          347
Zinc                      000 tons        2,926    1        315    8        924    2    28.6   3.1    9.0        10,246
Iron Ore*                 000 tons      353,838    1     58,969    5     57,976    6    29.0   4.8    4.7     1,221,624
Steel Production          000tons       348,409    1     39,098    7     93,610    3    31.5   3.5    8.5     1,106,082
ENERGY 2003
Coal                      Mtoe               850   1        184   3          531   2    32.9   7.1    20.6        2,584
Oil                       Mtoe               270   2        124   7          921   1     7.4   3.4    25.3        1,798
Total Primary Energy      Mtoe             1,190   2        342   5        2,213   1    12.6   3.6    23.4        9,436
Electricity Generation    GWh          1,907,384   2    633,275   5    4,054,353   1    11.4   3.8    24.3   16,661,367
AGRICULTURE 2003
Wheat                     000 tons       86,222     1    76,482    2     30,851     4   15.2   13.5   5.4      567,269
Rice                      000 tons      113,142     1    81,551    2      3,976    12   29.7   21.4   1.0      380,952
Maize                     000 tons      110,531     2    14,136    6    211,222     1   17.0    2.2   32.5     650,627
Soybeans                  000 tons       36,841     2     7,050    5     46,151     1   19.2    3.7   24.0     192,309
Soy Oil                   000 tons        6,856     2     1,798    4      7,199     1   24.4    6.4   25.7      28,048
Palm Oil                  000 tons        4,092     1     3,962    2        154    37   15.8   15.3    0.6      25,889
Sugar                     000 tons       11,317     3    26,066    1     21,388     2    6.6   15.2   12.5     171,219
Tea                       000 tons          552     2       671    1        145     7   14.4   17.5    3.8       3,822
Coffee                    000 tons           31    45        57   27      1,222     1    0.4    0.8   16.8       7,292
Cotton                    000 tons        5,927     1     2,426    2      1,301     5   31.2   12.8    6.9      18,974
Rubber                    000 tons        1,917     1       686    4      1,056     2   23.5    8.4   12.9       8,171
* Iron Ore Apparent Consumption 2004
Source: WBMS, IEA, FAO, IISI.
                  Refined Metals Consumption                                   World Steel Production - Select Countries
                                                   China
                  Select Countries ('000 tonnes)                                                (million tons)                  China
16000                                              US                350
                                                                                                                                Japan
14000                                              Japan
                                                                     300                                                        USA
                                                   Germany
12000                                                                                                                           Russia
                                                   Korea             250
10000                                                                                                                           Germany
                                                   Russia
                                                                     200                                                        Mexico
8000                                               India
                                                                                                                                Korea
                                                   Turkey            150
6000                                                                                                                            Brazil
                                                   Brazil
                                                                     100                                                        S Africa
4000                                               S Africa
                                                                                                                                Turkey
2000                                               Mexico             50
                                                                                                                                Ukraine
                                                   Indon
   0                                                                  0                                                         India
        1990 1992 1994 1996 1998 2000 2002 2004                            1990 1992 1994 1996 1998 2000 2002 2004



 Energy

 China. China is the world’s second largest energy consumer, but well behind the leader,
 the U.S., which consumes nearly one-quarter of the world’s primary energy production.
 China consumes less than 13 percent of global primary energy, and over the 1990-2003
 period its energy demand rose at an average rate of 4.4 percent (Table 2)—about half the
 pace of economic growth. China uses coal to fuel more than two-thirds of its energy
 needs, and consumes one-third of the world’s coal—most of which is produced
 domestically. In the late 1990s China chose to reduce inefficient coal consumption and
 closed a number mines for various economic, environmental and safety reasons—
 however some attribute this more to quirks in the data than changing patterns of
 production and consumption of coal. With surging economic activity in recent years,
 China’s coal consumption has increased sharply, mainly for power generation. Electricity
 demand has accelerated along with burgeoning economic growth, but power supply has
 failed to keep pace, resulting in power shortages and blackouts. Electricity generation has
 risen on average at around 9 percent per year since 1990, but much large investments in
 new capacity in recent years are expected to bring the power market back into balance in
 2006-07.
                   Primary Energy Demand (mtoe)                                                 Coal Demand (mtoe)
  2500                                                                 900
                                                        USA                                                                         China
                                                                       800
                                                        China                                                                       USA
  2000                                                                 700
                                                        Japan                                                                       India
                                                        Russia         600                                                          Russia
  1500
                                                        India          500                                                          Japan
                                                        Germany        400                                                          S Africa
  1000                                                  Korea                                                                       Germany
                                                                       300
                                                        Mexico                                                                      Korea
   500                                                                 200
                                                        Brazil                                                                      Turkey
                                                        Indon          100                                                          Indon
        0                                               S Africa           0                                                        Brazil
            1990 1992 1994 1996 1998 2000 2002          Turkey                 1990   1992   1994   1996   1998   2000   2002       Mexico




                                                                 7
                                     Table 2. Commodity Consumption Growth Since 1990
                                           China                India                 USA                World
                                     Volume      % pa     Volume      % pa   Volume         % pa   Volume        % pa
METALS                              1990-2005 1990-2005 1990-2005 1990-2005 1990-2005 1990-2005 1990-2005 1990-2005
Aluminum                 000 tons         6,258    15.1         508   5.3         1,784      2.3      12,415      3.4
Copper                   000 tons         3,153    14.0         266   7.6           186      0.6       6,184      3.1
Lead                     000 tons         1,696    14.8          16   1.2           194      0.9       2,206      2.3
Nickel                   000 tons           173    14.2          -3   -1.4           -1     -0.1         475      3.0
Tin                      000 tons            90    10.6           5   8.4             5      0.9         111      2.6
Zinc                     000 tons         2,557    14.8         180   5.8           -68     -0.5       3,678      3.0
Iron Ore*                000 tons       258,657     9.8      36,872   7.3       -12,128     -1.3     334,822      2.3
Steel Production         000tons        281,168    11.6      24,232   6.7         4,948      0.4     372,739      2.8

ENERGY                              1990-2003 1990-2003 1990-2003 1990-2003 1990-2003 1990-2003 1990-2003 1990-2003
Coal                     Mtoe                308   3.5           75   4.1            73      1.1          385     1.2
Oil                      Mtoe                160   7.1           61   5.4           151      1.4          570     1.3
Total Primary Energy     Mtoe                511   4.4          153   4.6           347      1.3        1,745     1.6
Electricity Generation   GWh           1,286,184   9.0      343,916   6.2       851,540      1.8    4,858,357     2.7
AGRICULTURE                         1990-2003 1990-2003 1990-2003 1990-2003 1990-2003 1990-2003 1990-2003 1990-2003
Wheat                 000 tons          -23,238    -1.8      27,844    3.5       -5,418     -1.2      11,580      0.2
Rice                  000 tons            -9,733   -0.6       9,807    1.0        1,001      2.3      40,053      0.9
Maize                 000 tons            18,451    1.4       5,162    3.6       56,689      2.4     162,453      2.2
Soybeans              000 tons            25,159    9.2       4,404    7.8       10,680      2.0      85,305      4.6
Soy Oil               000 tons             5,594   13.9       1,373   11.7        1,673      2.1      12,189      4.5
Palm Oil              000 tons             2,740    8.9       3,664   22.0          -31     -1.4      15,262      7.1
Sugar                 000 tons                16    5.9          34    7.2           42      0.3       1,316      1.5
Tea                   000 tons               169    2.9         182    2.5           61      4.3       1,003      2.4
Coffee                000 tons             2,036    1.5       6,814    2.4        4,838      2.0      35,164      1.8
Cotton                000 tons               734    1.0       1,092    4.7         -378     -1.9         498      0.2
Rubber                000 tons             1,205    7.9         337    5.3          249      2.1       2,858      3.4
* Iron Ore 1990-2004.
Source: WBMS, IEA, FAO, IISI, World Bank.




                                                               8
China became the second largest consumer of oil in 2003, overtaking Japan, but remains
well behind the U.S. which consumes nearly one-quarter of the world’s oil output. China
consumes more than 7 percent of the world’s oil, up from less than 3 percent in 1990, as
oil consumption grew at an average rate of 7.4 percent over the 1990-2005 period—
although the pattern of growth of apparent demand has not been smooth, as annual
changes fluctuate significantly due to stocking patterns and other factors.

India. India is the world’s fifth largest energy consumer, but uses less than 4 percent of
the world’s primary energy, and less than one-third that of China. Energy demand has
grown at a similar rate as China’s since 1990, at 4.6 percent, but has remained moderate
in recent years while in China energy demand has accelerated. India uses coal for more
than half of its energy needs, and is the world’s third largest coal consuming country.
However it uses only 7 percent of global output. Coal demand grew an average 4.1
percent between 1990 and 2003, while electricity generation grew at a rate of 6.2 percent.
                  Electricity Generation (GWh)                                               Oil Demand (mtoe)
                                                                      350                                        1000   China
4000                                                                               US [Right Scale]
                                                       USA                                                       900    Japan
                                                                      300
                                                       China                                                     800    Russia

3000                                                   Japan          250                                        700    Germany
                                                       Russia                                                           India
                                                                                                                 600
                                                       India          200                                               Korea
                                                                                                                 500
2000                                                   Germany 150                                                      Mexico
                                                                                                                 400
                                                       Brazil                                                           Brazil
                                                       Korea          100                                        300    Indon
1000
                                                       S Africa                                                  200    S Africa
                                                                      50
                                                       Mexico                                                    100    Turkey
    0                                                  Turkey          0                                         0      USA
        1990   1992 1994   1996   1998   2000   2002   Indon                1990 1992 1994 1996 1998 2000 2002



India is the sixth largest oil consuming country, but consumes less than 4 percent of the
world’s oil. It consumes less than half the volume of China, but as a share of total energy
demand, oil is much larger than in China, at 36 percent versus 23 percent, respectively.
India’s oil demand grew at an average rate of just over 5 percent over the 1990-2005
period, also below the pace of economic growth.

Agriculture

China. China is the first or second largest consumer of a number of agricultural
commodities, mainly reflecting its large population. China is also in the midst of a
significant shift in its eating patterns, reducing dependence on the traditional staples of
rice and wheat to other products such as meats, fruits and processed food. The changes
are driven by rising incomes, more open markets to sources of raw and processed food,
and changing eating habits, e.g., meals away from home2. Since the mid-1990s, cereals
consumption has fallen, and declines have occurred in wheat, maize and rice. At the same
time, consumption of soybeans, soy oil and palm oil has risen sharply, reflecting this
change in preference. Soybeans consumption has been growing at about 15 percent in
2
    Gould and Villarreal.


                                                                  9
recent years, while soy oil and palm oil have been surging at more than 20 and 25
percent, respectively.

           Soybean Oil Consumption (million tons)                                Palm Oil Consumption (million tons)
8                                                                    4.5                                                China
                                                    USA
7                                                   China            4.0                                                India
                                                    Brazil           3.5                                                Indon
6
                                                    India                                                               Pakistan
                                                                     3.0
5                                                   Japan                                                               Germany
                                                    Mexico
                                                                     2.5                                                Japan
4
                                                    Germany          2.0                                                Russia
3                                                   Korea                                                               Turkey
                                                                     1.5
2                                                   Russia                                                              Mexico
                                                                     1.0
                                                    Turkey                                                              Korea
1                                                                    0.5
                                                    Pakistan                                                            Brazil
0                                                   Indon            0.0                                                USA
    1990 1992    1994   1996   1998 2000   2002                            1990 1992 1994 1996 1998 2000 2002


             Cereals Consumption (million tons)                                 Soybeans Consumption (million tons)
400                                                                  50
                                                    China                                                               China
                                                    India                                                               India
                                                    Russia           40                                                 Russia
300
                                                    USA                                                                 USA
                                                    Turkey           30                                                 Turkey
                                                    Pakistan                                                            Pakistan
200
                                                    Germany                                                             Germany
                                                                     20
                                                    Brazil                                                              Brazil
100                                                 Japan                                                               Japan
                                                    Mexico           10                                                 Mexico
                                                    Indon                                                               Indon
    0                                               Korea             0                                                 Korea
        1990 1992 1994 1996 1998 2000 2002                                 1990 1992 1994 1996 1998 2000 2002



China’s rubber consumption has also accelerated, rising at a rate of 16 percent, owing to
strong economic growth, rapid industrial development, and the surge of new vehicles.
Cotton consumption has fluctuated and has been rebounding in recent years, although not
to previous peaks.

                Rubber Consumption (million tons)                                Cotton Consumption (million tons)
    2.0                                                              7
                                                       China                                                            China
                                                       USA           6                                                  India
                                                       Japan                                                            Pakistan
    1.5
                                                       India         5                                                  Turkey
                                                       Korea                                                            USA
                                                                     4
                                                       Brazil                                                           Brazil
    1.0
                                                       Germany 3                                                        Indon
                                                       Indon                                                            Mexico
                                                       Mexico        2                                                  Korea
    0.5
                                                       Turkey                                                           Japan
                                                                     1
                                                       Pakistan                                                         Russia
    0.0                                                Russia        0                                                  Germany
          1990 1992 1994 1996 1998 2000 2002                             1990   1992 1994   1996   1998   2000   2002




                                                                10
India. Like China, India consumes a sizeable share of many agriculture commodities
because of its large population. It is the largest consumer of tea and sugar, and the second
largest consumer of wheat, rice, cotton and palm oil—the latter recently overtaken by
China. Unlike China, growth rates in most of the agriculture commodities have been
fairly moderate. Only palm oil and to a lesser degree, soybean oil, have experienced more
rapid growth, and are also likely due to changing eating patterns and rising incomes.

Net Exports

The main importance of China and India to global commodity markets is whether they
are net importers or exporters. In metals, for example, China is a large importer of
copper, and this has contributed to the sharp rise in prices the last couple of years. In
aluminum, however, China is a net exporter, and this has contributed to much weaker
prices for aluminum relative to copper in the current cycle.

China. China is a major importer of copper, lead, nickel, zinc and iron ore (Table 3). As
the largest consumer and importer, China has contributed significantly to the surge in
prices in recent years for all of these commodities. China is also a net importer of
petroleum, but its share of oil consumption and imports is much smaller than for metals.
Its growth in consumption has also been more moderate (with the exception of 2004) than
for metals, and it has had far less impact on oil prices than for other commodities. China
is a net exporter of coal, but its exports are decreasing, and thus it plays an important role
in the global trade balance and international prices for coal. In agriculture, China is a
large importer of soybeans, soy oil and palm oil, and has contributed to spikes in these
prices in recent years. It is also a large importer of rubber, and has contributed to record
high rubber prices—although high oil prices have been a main determinant in the rise of
rubber prices. China is also a net importer of cotton.

India. India is a large net importer of copper, lead, nickel and tin. However, its share of
consumption is small compared with China, as is its volume growth. Thus India has been
much less of an influence than China on the rise in metals prices. India is a net exporter
of zinc and iron ore, and therefore benefits from the higher prices of these commodities.
In energy, India imports a larger share of its oil to satisfy its energy needs than China, but
its volume is considerably smaller. It is also a modest net importer of coal. That said,
India is important as an incremental importer of both fuels, but was not a major factor in
the recent rise in these prices. In agriculture, India is a large importer of soy oil and palm
oil, and a moderate importer of wheat. For fats and oils, India could have a major impact
on prices, along with China, because of the change in food preferences and rapid rise of
imports. For a number of other commodities, India is a net exporter, e.g., sugar, rice,
maize, tea and coffee.




                                             11
Table 3. Production/Consumption Ratios and Consumption Growth Since 1999
                    China        India         US          China          India        US

                   Prod/Cons Prod/Cons Prod/Cons Cons Growth Cons Growth Cons Growth
                     ratio     ratio      ratio     (% pa)     (% pa)      (% pa)

METALS               2005        2005        2005        1999-2005      1999-2005   1999-2005
Aluminum             1.097       1.002       0.406          16.0           8.1         2.6
Copper               0.178       0.066       0.491          16.3           5.3         -1.9
Lead                 0.651       0.559       0.306          24.3           -4.3        -2.3
Nickel               0.298       0.000       0.000          31.7           -8.0        -1.8
Tin                  1.034       0.000       0.000          19.6           1.0         -2.7
Zinc                 0.623       1.366       0.800          16.1           2.1         -3.0
Iron Ore*            0.412       2.045       0.943          16.2           8.1         -2.5
Steel Production                                            18.8           8.3         -0.4

ENERGY               2003        2003        2003        1999-2003      1999-2003   1999-2003
Coal                 1.082       0.931       0.990          6.8            3.3         0.5
Oil                  0.629       0.312       0.381          7.2            2.4         1.2
Total Primary
Energy               0.976       0.713       0.707           7.1           2.9         0.5
Electricity
Generation                                                  11.4           4.3         1.1

AGRICULTURE          2003        2003        2003        1999-2003      1999-2003   1999-2003
Wheat                1.003       0.852       2.068          -6.0           3.3         -2.9
Rice                 0.957       1.067       1.515          -3.0           0.3         -0.9
Maize                1.049       1.041       1.216          -2.2           4.7         2.4
Soybeans             0.418       0.965       1.447          15.5           2.2         -1.7
Soy Oil              0.710       0.605       1.077          20.9           8.7         0.4
Palm Oil             0.054        NA         1.385          26.5            4.5        24.9
Sugar                1.038       1.115       0.954          11.3           13.4         0.2
Tea                  1.429       1.249       0.000           1.7           -0.4        1.7
Coffee               0.685       4.820       0.003           6.1           0.4         0.2
Cotton               0.820       0.966       3.055          10.3           2.7        -19.4
Rubber               0.295       1.012       1.060          15.9            2.5        -1.2
* Iron Ore Production/Consumption 2004; Consumption growth 1999-2004.
Source: WBMS, IEA, FAO, IISI, World Bank.




                                               12
3. Trends in Global Commodity Markets and Prices –
      Importance of China and India

Commodity prices are in the midst of a multi-year upward trend, particularly for oil and
metals. Agriculture prices have risen as well, but have lagged the other groups, as these
markets have been generally well supplied. In real terms, agriculture prices are
substantially below former peaks. Oil and metals prices have risen to record nominal
highs but in real terms most remain below peaks in the 1980s. Oil and metals markets
have had similar experiences the past decade. In the late 1990s, low prices resulted in
relatively low levels of investment and the shut-in of high cost capacity (in the case of
oil, OPEC’s large surplus capacity of low-cost oil was kept of the market since the early
1980s). Strong global demand, including exceptionally strong increases in China,
outstripped supply and forced inventories to low levels. Production was pushed up
against capacity constraints in 2004 and prices surged upward. Continued strong growth
in demand and shortfalls in production and capacity expansions in 2005-06 kept markets
exceptionally tight and prices soared higher in 2006. In addition, the sharp rise in oil and
metals prices has been supported by substantial financial sums invested in these groups as
an asset-class. Because of expected strong demand in China and continuing capacity
constraints, the current cycle of oil and metals prices are likely to be longer and higher
than previous cycles.
          Commodity Price Indices (1990=100)                          Real Commodity Price Indices
350                                                                    (constant 2005$ - US GDP Deflator)
                                                    350
300
                             Oil                    300                                              Oil
250                          Metals
                                                    250                                              Metals
                             Agriculture                                                             Agriculture
200                                                 200

150                                                 150

100                                                 100

 50                                                  50

                                                         0
 0
                                                             1970    1975     1980      1985     1990         1995   2000     2005
 Jan-70         Jan-80    Jan-90           Jan-00            * 2006=avg first rour months



Metals
                                                                              Nickel and Zinc Prices ($/mt)
Metals prices generally began increasing                     27000                                                             4000
sharply in late 2003 due to strong demand                    24000                                                             3500
                                                                                               Nickel Left Scale
(particularly in China), earlier closures of                 21000                             Zinc Right Scale
                                                                                                                               3000
production capacity, declining stocks, and                   18000
depreciation of the U.S. dollar. Nickel prices                                                                                 2500
                                                             15000
actually began increasing in 2002 due to                                                                                       2000
                                                             12000
strong demand for stainless steel and                                                                                          1500
                                                              9000
increasing supply constraints. Prices reached
                                                                                                                               1000
a relatively high plateau in 2004, and                        6000

Chinese stainless steel producers began                       3000                                                             500
                                                                 Jan-85       Jan-90        Jan-95         Jan-00    Jan-05
using low-grade nickel or substituting to


                                                    13
other materials because of high nickel prices. However, the quality of stainless steel
suffered, and some Chinese producers reverted to greater nickel use. Nickel prices
declined in 2005 due to rising stocks and a slump in stainless steel production. However,
nickel prices rebounded sharply in 2006 along with resurgent stainless steel production—
led by China. With limited nickel supply prospects the next couple of years, prices have
surged to record levels.

Zinc prices have typically lagged other metals during price rallies. Zinc prices moved
moderately higher in 2004 but did not start to climb in earnest until 2005. In 2006 zinc
has outperformed the other metals year-to-date in August, with the exception of nickel.
Prices have soared because of sharply declining inventories, strong demand to galvanize
steel—again led by China—and limited prospects for mine supply growth this year and
possibly in 2007.

Copper prices began rising in late-2003 due to strong demand, falling stocks and the
impact of earlier capacity closures when prices were low. Strong Chinese demand growth
has been a main contributor to higher prices. However, numerous supply shortfalls—due
to strikes, technical problems, lower ore grades, and delays bringing on new capacity—
have been the main factor that have kept stocks chronically low and propelled prices to
record nominal highs in 2006.

Aluminum prices have risen much less               Copper and Aluminum Prices ($/mt)
than copper, largely because China is a 9000                                            9000
                                         8000                                           8000
net exporter of aluminum, as opposed                                 Aluminum
to being a large net importer of copper 7000                         Copper
                                                                                        7000

and other mineral resources. China 6000                                                 6000

accounted for nearly two-thirds of the   5000                                           5000

global growth in refined aluminum 4000                                                  4000
production between 2000 and 2005, 3000                                                  3000
and its share of world refined 2000                                                     2000
aluminum output jumped from 11 1000                                                     1000
percent to nearly 25 percent during the     0                                           0
five-year period. The government of         Jan-85   Jan-90   Jan-95      Jan-00 Jan-05
China has taken steps to limit credit
and investment in new aluminum capacity, and the anticipated effect of these measures
on the global aluminum balance has partly contributed to the rise in prices in 2006. As
the manufacture of aluminum requires vast amounts of electricity, the government also
wants to curb the export of scarce, embedded power.

Tin and lead prices have also risen due to strong growth in demand in China. Following
the collapse of the international tin agreement in 1985, tin prices plunged and significant
production capacity was closed. Prices have risen during the current cycle due to strong
demand in China, but prices have not returned to former highs. Prices fell in 2005 due to
rising supplies, as tin is the one metal in which production can respond relatively quickly
to higher prices because of the large number of small producers in the main producing
countries, notably Indonesia. Tin is benefiting from the elimination of lead in solder in



                                            14
Europe and elsewhere, and tin prices
                                                              Lead and Tin Prices ($/mt)
have recently rebounded with the rally in       1300
other metals prices. Lead prices,                                                Lead
meanwhile, have risen due to strong             1100
                                                                                 Tin
battery demand (its main end-use) in
                                                 900
China and elsewhere, but prices remain
below the nominal highs of the early             700
1980s. Lead supplies are ample—both
from production and recycled scrap—              500
and prospects for new supply to
accommodate rising demand are                    300
                                                   Jan-85    Jan-90     Jan-95          Jan-00    Jan-05
favorable.

Iron ore prices have more than doubled                  Iron Ore and Steel Prices ($/ton)
due to strong demand from steel 700                                                              90
producers, mainly in China. Steel                               Steel Products Wt Avg            80
production in China grew by 22 percent 600
                                                                               Iron Ore          70
p.a. between 2000 and 2005, and
                                              500                                                60
China’s iron ore imports grew at a rate
of 32 percent. Global steel production 400                                                       50

continues to shift to low-cost regions,                                                          40
such as China, and away from higher- 300                                                         30
cost mature areas. Significant production
cuts in these mature areas along with 200       Jan-85   Jan-90     Jan-95       Jan-00   Jan-05
                                                                                                 20

strong demand have helped stabilize
steel prices at historically high levels. China’s production, which had been running ahead
of demand, has also slowed recently. This, along with strong domestic demand, has
helped rebalance the Chinese market in 2006. China, which had been a net importer of all
steel products, became a net exporter in 2005.

Energy

Crude Oil. Crude oil prices have risen to
                                                            Oil Price & OPEC Production
record nominal highs of near $75/bbl3. In       $/bbl                                                 mb/d
                                                80                                                         31
real terms, prices are below the monthly                     WB Price     OPEC
                                                                                                           30
peak in 1980 of $82.2/bbl. In 1998 oil          70
                                                                                                           29
prices dropped to $10/bbl brought on by         60                                                         28
OPEC over-production and the slump in                                                                      27
                                                50                                                         26
demand following the Asian financial
                                                40                                                         25
crisis. In response OPEC reduced                                                                           24
production to raise prices to between $20       30                                                         23
and $30/bbl, which were maintained              20
                                                                                                           22
through 2003. However, oil demand                                                                          21
                                                10                                                      20
soared in 2004 due to strong global
                                                 Jan-95      Jan-98     Jan-01           Jan-04    Jan-07
economic growth of more than 4 percent
3
    Average of WTI, Brent and Dubai.


                                                15
and large growth in oil consumption in China and elsewhere. However, China accounted
for little more than one-quarter of the growth and was not the single main determinant of
higher prices. On the supply side, non-OPEC production growth outside of Russia had
been sluggish since the slump in oil prices, and output in Russia—which had provided
much of the growth in non-OPEC supply in recent years—began to slow in the wake of
the Yukos affair. OPEC began raising production in an attempt to keep the market well
supplied and prevent a spike in prices, but by the second half of 2004 OPEC and the
entire oil industry was pushed up against capacity constraints—particularly for light
crude production—and oil prices soared.

In 2005 and 2006, demand growth slowed and inventories rose, yet prices surged to much
higher record nominal levels. Much of the increase was due to actual disruption to oil
supplies and fears of further disruption because of limited spare capacity. Hurricanes in
the Gulf of Mexico caused oil and gas production to be shut in, and also curtailed refinery
operations in the U.S. In addition, production in a number of OPEC countries had slipped
from earlier highs, e.g., Iraq, Nigeria, and Venezuela. There continued to be concerns that
production could be reduced further in these and other countries, notably Iran, over
various geopolitical difficulties. Non-OPEC supply growth continued to struggle to add
capacity hindered by technical delays and equipment and labor shortages. Investor
expectations—as reflected in futures prices—suggest that the market will remain tight for
an extended period because of continued strong growth in demand—led by China, India
and the U.S.—coupled with the belief that supply will have difficulty keeping pace.

           Growth in World Oil Demand 1985-2005                            China Oil Consumption 3mo mav (mb/d)
                                                                 2.5
                          (mb/d)
 3.5

 3.0                OECD   FSU   Other   China                   2.0                                                    Dsl
 2.5                                                                                                                    Gsl
                                                                                                                        HFO
                                                                 1.5
 2.0
                                                                                                                        Naph
 1.5                                                                                                                    LPG
                                                                 1.0                                                    Oth
 1.0                                                                                                                    Kero

 0.5                                                             0.5
 0.0

 -0.5                                                            0.0
        1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005    Jan-95   Jan-97   Jan-99   Jan-01   Jan-03   Jan-05



Much of the growth in China’s oil demand in 2003 and 2004 was for diesel used in back-
up power generators because of chronic power shortages and blackouts. Significant new
power capacity is coming on stream, and diesel use in generators is being backed out. For
other petroleum products, growth has been more moderate, and was not a significant
component of the “explosion” in growth in 2004—although there was a step-up in heavy
fuel oil use in power generation, as well as in gasoline consumption.

High prices have already had an impact on demand globally, notably in the reduction of
subsidies in a number of oil importing developing countries because of the large financial
burden imposed by trying to sustain sharply expanding subsidies. In developed countries,


                                                           16
sales of large, less fuel-efficient vehicles have slumped, and there is greater consumer
interest in more fuel-efficient and alternative, hybrid vehicles. Governments are also
studying measures to constrain energy consumption, not only because of high prices but
also for environmental reasons, including the reduction of green house gases. However,
long lead-times are necessary to structurally change the pattern of oil and energy demand.
In addition, an increasing share of oil demand growth is occurring in developing
countries which are growing rapidly and where incomes are rising. It appears that much
higher real prices are needed, relative to the past, to significantly curb global oil demand.

Coal. Coal prices have more than                       Thermal Coal and Oil Prices
doubled since 2003 because of strong 80
glob al demand and supply constraints in 70           Australia $/ton
a number of producing countries. Strong 60
                                                      Crude Oil $/bbl
global economic growth has increased
                                            50
the demand for power, and the high
prices for oil and natural gas have 40
increased the competitiveness of coal. 30
Low and declining prices in the 1990s 20
reduced investment in coal production 10
and export infrastructure. As a result,
                                             0
strong demand in recent years pushed Jan-95             Jan-98        Jan-01 Jan-04 Jan-07
the industry up against capacity
constraints. Supply was quicker to respond than other natural resource commodities,
because of the abundance of known, low-cost reserves in a number of export-producing
countries. Prices fell in 2005 but have risen again in 2006 due to strong global demand,
various supply problems and reduced exports from China.

Other energy. High oil prices have also                 Energy Prices ($/mmbtu)
contributed to the rise in other energy 14
                                                      US Gas
prices, notably natural gas, because of 12            Europe Gas
competition in under-boiler markets. In               Crude Oil
addition, contracts for most liquefied 10             Coal Australia

natural gas (LNG) shipments and natural 8
gas imported into Europe are linked to
                                             6
oil prices. Rising prices for hydrocarbon
fuels have pushed up electricity costs. 4
The appeal of natural gas, which had 2
been the fuel of choice on environmental
                                             0
and economic reasons, has diminished Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07
because of its sharply higher prices.
China and India have a relatively small share of their primary energy mix supplied by
natural gas, at 3 per cent and 7 percent, respectively, much of it domestically produced.
However, China and India both have intentions of importing large volumes of natural gas
by pipeline and LNG to reduce the share of coal in power and industry. Over time they
are likely to become significant importers of natural gas. However, given the abundance
of gas resources in the eastern hemisphere and the fact that the gas price will be tied to oil



                                             17
in the foreseeable future, China and India are unlikely to have a large impact on gas
markets or gas prices over the next decade.

Agriculture

Agriculture prices have not increased in
                                                   Agriculture Price Indices (1990=100)
tandem with oil and metals prices, as 250
                                                                                Beverages
markets have been generally well                                                Food
supplied. Most agriculture prices are 200                                       Raw Materials
mainly affected by weather conditions,
but other factors can also affect demand
and supply patterns. Some individual 150
agriculture prices have increased
recently, but nearly all remain well 100
below previous peaks. Beverage prices
have been the most volatile in the past,
                                           50
but supplies are adequate at present,       Jan-85     Jan-90    Jan-95    Jan-00     Jan-05
partly due to emergence of relatively
new producers, e.g., coffee in Vietnam. Cocoa, coffee and tea prices are all up from their
recent lows on various supply problems, e.g., drought in Kenya that has contributed to
higher Mombasa tea auction prices.

Raw materials prices have also risen, but this has mainly the result of a sharp rise in
rubber prices because of high oil prices which have raised the costs of synthetic rubber,
its main competitor. The price of the other main raw-material commodity, cotton, is
relatively subdued due to well-supplied markets. China is a major consumer of both
commodities, and India is as well but to a smaller degree.

Food prices have risen the past couple of
                                                     Food Price Indices (1990=100)
years, mainly for grains and “other” 175                    Fats & Oils
food—notably sugar. ‘Fats and oils’                         Grains
                                                            Other
prices spiked in 2004, mainly due to        150

drought in Europe and North America,
as well as strong demand in China. 125
However prices have since receded with
favorable harvests, but remain somewhat 100
elevated along with grains and other
                                             75
food prices. Grains prices have risen in
part due to higher prices for fertilizers 50
and other inputs. Sugar prices have           Jan-85  Jan-90      Jan-95  Jan-00   Jan-05
surged due to strong demand for ethanol
in Brazil and the U.S., which is reducing supplies of cane sugar in Brazil. As agriculture
prices move higher, investment funds are reportedly eyeing agriculture commodities as
the next sector for commodity-asset investments.




                                             18
Importance of China and India

Metals
The acceleration of growth of China’s
                                                                               Growth of Refined Metals Consumption
metal consumption since 1999 has been                              '000 tons                      1990-2005
a major contributor to the surge in                                15000

metals prices the last few years.
                                                                   12000
Between 1990 and 1999, China
accounted for 41 percent of the growth                              9000
in main metals consumption, increasing                                                                  Other
4.2 mt or 13.2 percent p.a. However,                                6000                                India
                                                                                                        China
between 1999 and 2005, China
                                                                    3000
accounted for nearly two-thirds of the
growth in global demand, as its volume                                  0
growth more than doubled, increasing                                                  1990-1999                     1999-2005
by 9.8 mt or 17.0 percent p.a.—in just
2/3 the time of the earlier period.

China’s rapid growth in metals demand had a significant impact on the recent rise in
metals prices, particularly where China is a large net importer—copper, iron ore, lead,
nickel and zinc. It is these metals where prices have increased most. Conversely, even
though the largest growth in China’s metal demand was for aluminum between 1999 and
2005, China’s production of aluminum grew even larger. Its role as a small exporter of
aluminum contributed to the relatively weak global price of aluminum.

             Growth of Refined Metals Consumption                                   Growth of Refined Metals Consumption
 '000 tons                   1990-1999                                  '000 tons                    1999-2005
  9000                                                                   9000
 8000                                                                   8000
 7000                                                                   7000
 6000                                                                   6000
                                              Other                                                                   Other
 5000                                                                   5000
                                              India                                                                   India
 4000                                                                   4000
                                              China                                                                   China
 3000                                                                   3000
 2000                                                                   2000
 1000                                                                   1000
     0                                                                      0
 -1000                                                                  -1000
             Alum   Copper   Lead        Nickel       Tin   Zinc                    Alum   Copper     Lead       Nickel       Tin   Zinc



India has been a much smaller consumer of main metals and did not figure significantly
in the recent rapid rise of metals prices. India’s growth of total main metals increased
from 4.5 percent to 7.0 percent over the two periods noted above, but this was mainly due
to the increase in aluminum consumption which rose by 8.0 percent p.a. between 1999
and 2005. The growth of most other metals was lower over this period.

On the supply side, the acceleration of demand growth in China since 1999—and the
shear volume of the increase—caught the industry somewhat by surprise, and supplies



                                                                   19
have had difficulty keeping pace owing to numerous technical, labor and materials-
supply problems. Consequently, future metals prices will not only depend on the pace of
demand in China, India, and elsewhere, but also on the development of sufficient new
capacity. Importantly, metals prices will also depend on the status of China’s position of
net importer or exporter.

China also accounted for two-thirds of the growth in global steel production between
1999 and 2005, and its production grew at an average rate of nearly 19 percent. By
comparison India accounted for little more than 4 percent of the global growth in steel
production, and production growth only rose moderately, at around 8 percent. In the U.S.,
steel production has declined from its peak output in 2000. The large growth in steel
production in China required large volumes of raw material inputs, i.e., iron and coking
coal, and its imports have increased sharply.

Energy
China accounted for nearly 30 percent of the net growth in world energy consumption
between 1990 and 2003. Much was coal, as China consumed 80 percent of the net global
growth in coal consumption over the period—but this includes large declines in Europe,
the FSU, and Eastern Europe. Excluding coal, China accounted for 15 percent of the
growth in the world’s non-coal energy demand, including 28 percent of incremental
global oil use. China also accounted for more than one-quarter of the global increase in
electricity generation.

       China Primary Energy Demand 1971-2003 (mtoe)                    India Primary Energy Demand 1971-2003 (mtoe)
1200                                                             350


1000                                                             300

                                                                 250
 800
                                                                 200
 600                                                  Coal                                                            Coal
                                                      Oil        150                                                  Oil
 400                                                  Gas                                                             Gas
                                                                 100
                                                      Nuclear                                                         Nuclear
 200                                                  Hydro      50                                                   Hydro
                                                      Other                                                           Other
  0                                                               0
  1971 1975 1979 1983 1987 1991 1995 1999 2003                    1971 1975 1979 1983 1987 1991 1995 1999 2003



India accounted for less than 9 percent of the growth in world energy consumption
during 1990-2003. Much of its increase was also for coal, representing 19 percent of the
growth in global consumption, about the same volume growth as the U.S. (although India
consumes only 7 percent of the world’s coal production compared with 21 percent for the
U.S. and 33 percent for China). India is becoming a larger net importer of coal, partly
because its reserves are of poorer quality coals that generate excessive amounts of ash
and other particulate matter. Excluding coal, India accounted for 8 percent of the growth
in the world’s non-coal energy demand, including 11 percent of incremental global oil
use. Although India consumes a much smaller volume of oil than China (2.6 mb/d in
2005 compared with 6.6 mb/d in China, India relies on oil for a greater share of its energy


                                                            20
use. However its average growth of 5 percent is less than China’s 7 percent. India also
accounted for 7 percent of the global increase in electricity generation.

Oil. China has been a net importer of oil since 1995, and is an important element in the
growth of global oil demand. India is also an important and growing oil importing
country, but to a lesser degree than China. Global oil demand grew only moderately
between 1985 and 2005—1.7 percent p.a.—in part due to improvements in efficiency and
substitution to other fuels. Only in 2004 did global oil demand surge by 4 percent or 3.2
mb/d due to exceptionally strong economic growth worldwide. China represented just
over one-quarter of the increase (about its typical share) and India just 3 percent (below
its normal share). Although rising oil demand pushed the industry up near capacity
constraints in 2004, the increase in oil prices—particularly in 2005 and 2006—has been
more to do with supply-side issues. These include OPEC production restraint (through
2004), and more recently to disappointing non-OPEC supply growth, disruptions to
supply (e.g., Iraq, Nigeria, and the U.S. from hurricanes), and expectations of future
supply shortfalls and disruptions, because of various technical and geopolitical factors.

Coal. International coal prices will depend very much on the pace of demand in China
and its status as net importer or exporter. India will also play an important role depending
on the pace of imports. Ultimately prices will largely depend on how non-Chinese and
non-India coal producers either meet rapid import demand growth from these countries,
or how they accommodate a possible increase of Chinese exports and stagnant imports
into India (a low probability scenario). Both countries are developing other energy
sources, e.g., natural gas, hydro, nuclear, and renewables, both to support economic
growth and to substitute away from coal and oil where possible.

Agriculture
China and India can have a large impact on prices of agriculture commodities, depending
on whether they are a significant net importer or exporter. China is quite self sufficient in
grains, and consumption is falling as food preferences change with rising incomes. India
is also fairly self-sufficient in most grains, but is a net importer of wheat. China is rapidly
increasing consumption of vegetable oils—as is India—and both are large importers of
these commodities, especially China. Their growing demand contributed to the drought-
led spike in soybean prices in 2004. China is also an importer of cotton, and a large
importer of rubber, while India is largely self-sufficient in both. China is a significant
exporter only of tea among agricultural commodities, while India is a large exporter of
tea, coffee and sugar.




                                              21
4. Outlook for Commodity Prices

The outlook for commodity prices in the near term is uncertain, partly because of the
inherently large volatility of many prices. In the longer term there are questions about the
pace of demand in developing countries (particularly China and India), availability and
access to supplies, technology developments, production costs, government policies and
environmental considerations, including global warming. Real non-oil commodity prices
have declined for more than a century (see Figure: represents the trade weighted indices
of commodity prices in constant U.S. dollars relative to the manufactures unit value index
(MUV4). The decline in real non-oil commodity prices from 1900 to 2005 was about 60
percent and the rate of decline was about 1.0 percent per year. Real oil prices have
increased relative to 1900, but have been below their 1980 highs through 2005.
Following the oil price shocks of the 1970s and 1980s, real oil prices trended downward
through 1999, but OPEC production restraint, strong demand, and supply constraints
have lifted prices once again.

                                               Real Oil and Non-Oil Commodity Prices
                                     350

                                     300
             Constant 1990 Dollars




                                     250

                                     200

                                     150

                                     100

                                     50

                                       0
                                        1900     1915   1930   1945        1960        1975   1990   2005

                                                               Crude Oil     Non-Oil




The World Bank expects non-oil commodity prices to decline after prices peak in the
current cycle5. However the path will not be smooth, and prices are expected to remain
volatile. Supplies are expected to comfortably satisfy demand going forward, assisted by
new technologies to help reduce costs. For agriculture prices, medium term risks include
higher energy and fertilizer prices, strong demand from rapidly growing developing
countries increases, drought in a major producing country, or sharply higher biofuels
production. A longer-term concern is the competition between food and fuel as the share
of agricultural commodities used for biofuels increases. Prices for metals and oil are
expected to decline, but remain somewhat above average prices of the 1990s, due to

4
  Manufactures unit value index (MUV) in U.S. dollar terms of manufactures exported from the G-5
countries weighted by exports to developing countries.
5
  Forecasts published in the World Bank’s Global Development Prospects and Global Development
Finance each year.


                                                               22
rising costs. In the case of oil, OPEC production restraint could keep prices well above
the costs of production. Resource constraints are not expected over next two decades or
into the distant future. Environmental pressures are expected to increasingly restrain
demand for energy over the longer term.

With the sharp run-up in oil and metals prices, questions are being raised as to whether
this cycle is different, and if prices might remain elevated for an extended period. Strong
demand in China and India, supply shortfalls, and rising costs are cited as the main
reasons why prices might remain high for these commodities. Rising long-term
investment in commodities as an asset class, e.g., from pension funds, are also cited as
propping up prices for a lengthy period. However, commodity prices are most likely to
remain cyclical and volatile, and not permanently higher.

Metals
Metals prices will ultimately depend on the ability of producers to expand (or reduce)
capacity to meet demand. Rapid growth in demand that stretches capacity development
will require sufficiently high prices to bring on adequate marginal capacity. Should
demand be relatively weak, e.g., from economic recession, prices may have to
temporarily fall to levels to shut-in capacity, e.g., operating costs of highest-cost
producers. In the long term, prices are assumed to equate to long-run marginal costs
(LRMC). There is expected to be a modest increase in the cost curve for most metals in
real terms due to rising costs for energy, labor and materials which will remain partially
in place when price cycles turn downward. Nickel and iron ore might have the greatest
increase in cost curves because of expensive new technology in the case of nickel, and
large infrastructure costs in the case of iron ore.

Demand for aluminum is expected to double over the next two decades, and the demand
for copper to nearly double over the period. More than half of the growth will be in China
and India, with China accounting for half of the growth. Construction is the largest
consuming sector for copper (followed by transport and electronics), while the transport
sector is the largest consuming sector for aluminum (followed by construction and
packaging)6. Copper demand is expected to rise for manufacture electronic goods, and for
transport, as more electronic features are added to vehicles. Hybrid, electric and fuel cell
vehicles could have a significant impact on copper demand as well. Transport is expected
to offer the largest growth for aluminum demand that will help reduce weight and
improve vehicle efficiency. There are also a number of risks to metals demand, e.g., fibre
optics and wireless technologies in telecommunications, plastic tube plumbing in
construction, composite materials for jet aircraft, and plastic and glass bottles in
packaging.

China, and to a lesser degree India will bring a significant portion of the world’s
population into the per-capita income range where metals demand accelerates. Much of
China’s metals demand has been fueled by investment in public infrastructure,
manufacturing facilities for domestic and export consumption, and construction. The

6
 Roughly three-quarters of total metal output is consumed in the auto, housing and consumer goods
sectors.


                                                  23
Beijing Olympics in 2008 and World Expo in Shanghai in 2010 are expected to sustain
metals demand in these two cities until the end of the decade. Beyond the 2010-2015
period, public investment is expected to slow, as is investment in manufacturing
facilities, in part due to a stronger banking sector and appreciating currency. Nevertheless
domestic demand and exports will remain strong.

China will have a much larger impact than India on metals markets for some time, in part
because of India’s less rapid development in telecommunications, power and
infrastructure. However, the government is taking steps to improve infrastructure and
attract foreign investment. Over time, India’s demand is expected to accelerate while that
of China slows—in part because India’s population is expected to grow more quickly
than in China. India’s economic growth has accelerated recently, and liberalization and
reform could raise investment in metals consuming sectors. Beyond India and China, the
potential growth for metals demand in the rest of the developing world is vast. With a
large population of 3 billion and low per capita consumption, metals demand could grow
strongly.

One needs to also consider the long-run growth potential beyond a 20 year forecast
horizon of this paper. In the next ten years economic growth could accelerate or falter
temporarily, but still be on a long run path of growth. In one long run scenario7, China is
expected to grow rapidly in the near-term, but is overtaken by India next decade, in part
because of expected significant ageing of China’s population. By 2050, China’s economy
is expected to be between 94 percent and 143 percent of the U.S. economy, depending on
whether it is measured at market exchange rates or PPP, respectively. India’s economy is
projected to grow between 58 percent and 100 percent, on the same basis. India would be
the world’s third largest economy at market exchange rates, and tied for second with the
U.S. when measured at PPP. On a per capita basis, incomes in China and India in 2050
are 41 percent and 27 percent, respectively, of the size of U.S. per capita incomes in PPP.
China might be on par with leading G7 countries today, and India with Spain or Korea,
on a PPP basis. The implication is that the potential growth of metals demand in these
two countries is very large if metal intensity approaches that of the industrial world.

On the supply side, demand projections indicate that production will have to roughly
double for aluminum and copper over the next 20 years. There is significant potential for
copper production to expand, led by North and South America. While Canada, Chile and
Peru have the largest potential, other countries also have good prospects, e.g., Brazil and
Mexico. Australia also has large potential, and Mongolia and the African copper belt
(particularly the DR Congo and Zambia) offer the largest potential for new growth.

For aluminum, future additions to capacity additions will be constructed in regions that
have low-cost power potential, e.g., remote hydro sites, excess natural gas, or low grade
coal that cannot easily reach world markets. Roughly one-third of the operating cost to
produce aluminum is power (this varies during the price cycle). The main additions to
capacity in the next decade are expected in China, India, Russia, Iceland and the Middle
East—the latter three because of low power costs. Projects are also expected in other
7
    PricewaterhouseCoopers, John Hawksworth, “The World in 2050”. March 2006.


                                                 24
countries that offer low-cost power from natural gas, e.g., oil producing countries, and
from hydropower, e.g., Brazil, Canada, and Norway. In the second decade to 2025,
capacity will continue to be developed in regions with a low opportunity cost of power,
e.g., a number of oil producing countries. Two regions that will struggle to add capacity
are North America and Europe because of higher power costs, environmental regulations,
and prohibitive labor costs. China is not expected to be a location for export smelters in
the long term because of expected upward pressures on power and labor costs, and
appreciation of its currency. As such, it is unlikely that China will be able to compete
with Middle East countries that have lower-cost power.

In general, there is no shortage of metal resources over the next two decades and beyond.
However, ores are likely to be of lower grade, and new projects will likely be in more
difficult locations thereby raising exploration and development costs. This will reinforce
the upward shift in long-run marginal prices. Also contributing to this long-run shift will
be the need for expensive infrastructure, new processing technology, and the need to
confront political risk. High prices and profits will also entice workers to seek higher
wages and prod host governments and communities to seek more equitable mineral
taxation and benefit sharing arrangements. These can affect development of new projects.

The industry has continued to make strides in reducing costs of mining and smelting
operations through technological developments and better management of projects. There
have been dramatic expansions in mine capacity, notably in iron ore in Western Australia
and Brazil, and copper in Chile. Improved equipment and larger machinery have helped
improve economies of scale at these locations. Occasionally major breakthroughs occur,
e.g., introduction of leaching technology in the production of copper, attempts to develop
inert anode technology in aluminum smelting, and the development of pressure acid leach
for the recovery of nickel from laterite deposits. It is expected that the industry will
continue to strive to development new technologies to reduce costs.

Petroleum

Some analysts expect oil prices to remain high and possibly continue rising indefinitely
due to rising demand in developing countries and the difficulty of oil supplies keeping
pace. Even if supply capacity does increase in tandem with oil demand, OPEC is thought
likely to restrain production to keep prices relatively high. Others—like the World
Bank—expect that high oil prices will impact both demand and supply, and that prices
will be pressured lower over time, though not to levels in the 1990s. There are no
resource constraints into the distant future, and environmental concerns and new
technologies could limit demand growth.

Oil is expected to remain the largest fuel in the energy mix over the next 2 decades and
beyond. Unlike the metals industries, world oil demand is only expected to grow by about
a third over the next 2 decades according to the IEA8 and U.S. Department of Energy
(DOE)9, rising by about 25 mb/d or less than 1.5 percent p.a. Developing countries are

8
    International Energy Agency. World Energy Outlook 2005.
9
    United States Energy Information Agency. International Energy Outlook 2006.


                                                    25
expected to account for the bulk of the increase, with the highest rates of growth in China
and India, at near 3 percent according to the IEA. China and India combined will
represent less one-third of the growth in world oil demand, and consequently will have a
smaller impact on the oil market than in the metals markets. The OECD and Transition
Economies together will increase oil consumption about the same as China and India
combined in volume terms, but at much smaller rates of growth.

Two-thirds of the growth in oil consumption will occur in the transport sector. Oil will be
a marginal fuel in the power sector, with its share falling in every region. Industrial,
commercial and residential demand is expected to increase moderately, and most of the
growth will be in developing countries, including China and India.

China accounts for a much smaller share of world oil consumption (and production) than
for metals and agriculture. This is partly due to the fact that it uses coal to fuel more than
two-thirds of its energy needs. India, on the other hand, has a share of world oil
consumption that is similar to its share in metals, of roughly 3 percent, although it too
uses coal for more than half of its energy needs. China and India’s expected share of the
growth in oil consumption, at under 30 percent, compares with more than half of the
growth in world metals consumption.

World oil supplies are expected to increase commensurably with the increase in oil
demand. In the near-term, OPEC production is expected to grow slowly because of
known developments and expected increases in such areas as Brazil, Canada, West
Africa, Russia and the Caspian. Beyond 2010, there is considerable uncertainty on the
path of OPEC and non-OPEC oil supplies. The IEA (2005) projects non-OPEC supplies
(including non-conventional oil) to increase slightly beyond 2010 (under real oil price
assumptions ranging from $35 to $39/bbl (2004 dollars) over its forecast period to 2030).
The U.S. DOE (2006) projects non-OPEC production capacity to increase more rapidly
beyond 2010 at a rate of 1.5 percent p.a. (its real oil price assumption has prices declining
to $41/bbl in 2014 and rising to $57/bbl (2004 dollars) at the end of its forecast period in
2030). The DOE states that its latest oil price assumption reflects a reassessment of the
willingness of oil-rich countries to expand production capacity as aggressively as
envisioned in previous outlooks. The difference in OPEC supply projections in 2025
between the IEA and DOE is about 7 mb/d (out of a world oil market of about 110 mb/d).

There a number of risks to the forecast. On the demand side, more rapid growth in oil
demand in China, India, and other developing countries—particularly for transport—
could put additional strain on oil producers to supply larger volumes of oil. On the other
hand, a number of government policies and technology breakthroughs could curb the
growth in oil demand. Environmental concerns over pollution, congestion and global
emissions could initiate policies to reduce oil use, e.g., carbon taxes and higher CAFE10
standards. New technologies could reduce oil use in transport, e.g., hybrids, and
eventually zero emissions vehicles. While the latter may be some time in future, such
prospective developments that would threaten the long-term demand for OPEC oil may
persuade oil producers to limit their market power.
10
     Corporate Average Fuel Economy for passenger vehicles and light trucks in the U.S.


                                                     26
On the supply side, there could be much greater production from non-OPEC regions.
Historically, projections of non-OPEC supply have been overly pessimistic, in that non-
OPEC supplies have been projected to peak imminently and then decline relentlessly. To
date that has not occurred, and non-OPEC supplies may again be understated. With the
rise in oil prices, there are again increasing claims that “the world running out oil”,
similar to during the early 1980s when real oil prices were projected to rise “forever”.
There are a growing number of analysts that believe world oil production will peak
during the next decade (2010-2020), and that oil prices must keep rising (see Association
for the Study of Peak Oil and Gas11). While many analysts and companies (including the
World Bank) do not believe that oil supplies will peak during the next decade, should this
indeed happen it would have a large impact on China, India and other developing
countries. In the extreme, a physical shortfall in oil supply likely means that GDP growth
would suffer in the medium term, as there simply would not be sufficient resources to
grow. Higher oil prices would be necessary to clear the market, and this would dampen
growth.

“Energy security” is gaining fashion, in part because the expected growth in oil supplies
will be from more difficult regions. Many countries are off limits to foreign investors, as
petroleum sectors are managed by state companies, either wholly or through limited joint
ventures. With high oil prices, a series of nationalizations have emerged, e.g., Russia,
Venezuela and Bolivia. At the same time, Chinese companies have been scouring the
world buying up oil and other natural resource assets in order to secure supplies.
However, this does not mean that these supplies will be completely secure, and in any
case will not be much cheaper than purchasing on the open market.

Conclusion

Commodity prices are inherently volatile and cyclical. The surge in demand in China,
particularly for metals, caught the industry by surprise, and the current price cycles for
metals and petroleum are expected to be higher and longer than previously envisaged.
There have been temporary factors that have restrained investments in new capacity and
delayed new projects, namely shortage of skilled labor and equipment, higher wage
demand and strikes, and higher prices for energy and materials. Increases in capacity in
both industries are underway which will bring markets back into balance in the next year
or two and lead to declines in prices, though not to levels of the 1990s. Higher prices for
energy, materials and wages are expected to contribute to higher costs in future,
augmented by increasing costs of new developments in more difficult regions. These will
be partly offset by development of new technologies. A shortage of resources over the
coming decades and beyond is not anticipated. China, India and other developing
countries have the potential to absorb higher demand for metals and petroleum than
forecast, and this would increase the strain on the respective industries to develop new
supplies. However, prices are expected to be cyclical, and not become permanently
higher at anywhere near recent price levels. Oil markets have the added element of OPEC
production restraint to lift prices well above the cost of production, as occurred in the
11
     http://www.peakoil.net/


                                            27
early 1980s. However, too high prices could again impact demand and supply and
ultimately result in lower prices.



Bibliography

CRU International Limited. Private Reports. 2005, 2006.
Energy Information Administration, U.S. Department of Energy. International Energy
         Outlook 2006.
Food and Agriculture Organization of the United Nations. FAOSTAT.
        <http://faostat.fao.org/>
Gould, Brian W and Hector J. Villarreal. “An assessment of the current structure of food
        demand in urban China.” Agricultural Economics, Vol. 34, p 1-16, 2006.
International Energy Agency. World Energy Outlook 2005.
International Energy Agency. Energy Balances of OECD Countries. 2005.
International Energy Agency. Energy Balances of Non-OECD Countries. 2005.
International Energy Agency. Oil Market Report. Various Issues.
International Iron and Steel Institute. “World Crude Steel Production.” Various Issues.
Peak Oil. <http://www.peakoil.net/>
PricewaterhouseCoopers, John Hawksworth, “The World in 2050”. March 2006.
World Bank. “Commodity Markets Review.” Various Issues.
World Bank. Global Development Finance 2006.
World Bank. Global Development Prospects 2006.
World Bureau of Metals Statistics. World Metals Statistics. Various Issues.




                                           28
                                    ANNEX

1. Metals Consumption 1992-2005 - Select Countries
2. Metals Consumption, Steel Production, Iron Ore Imports 1992-2005 – Select
       Countries
3. Metals Consumption per GDP (PPP) and Per Capita 1992-2005 – Select Countries
4. Metals Consumption and Steel Production per GDP (PPP) and Per Capita
       1992-2005– Select Countries
5. Energy Consumption and Electricity Generation 1992-2003 – Select Countries
6. Energy Consumption Electricity Generation Per GDP (PPP) and Per Capita
       1992-2003 – Select Countries
7 Agriculture Consumption (1) 1992-2003 – Select Countries
8. Agriculture Consumption (2) 1992-2003 – Select Countries
9. Agriculture Consumption (3) 1992-2003 – Select Countries
10. Agriculture Consumption per GDP (PPP) and Per Capita (1) 1992-2003 –
       Select Countries
11. Agriculture Consumption per GDP (PPP) and Per Capita (2) 1992-2003 –
       Select Countries
12. Agriculture Consumption per GDP (PPP) and Per Capita (3) 1992-2003 –
       Select Countries




                                       29
   1. Metals Consumption 1992-2003 - Select Countries

                          Refined Aluminum Consumption                                        Refined Aluminum Consumption ('000 tons)
                                     ('000 tonnes)                 China
  8000                                                             US         8000

  7000                                                             Japan      7000
                                                                                                                     1992
                                                                   Germany    6000
  6000                                                                                                               2005
                                                                   Korea
                                                                              5000
  5000                                                             Russia
                                                                              4000
  4000                                                             India
                                                                   Turkey     3000
  3000
                                                                   Brazil     2000
  2000                                                             S Africa   1000
  1000                                                             Mexico
                                                                                 0
                                                                   Indon
                                                                                                                                  l
        0                                                                                ina India ndon apan orea frica exico razi ussia rkey any USA
                                                                                    Ch            I    J    K SA M           B R        Tu erm
            1992   1994     1996   1998   2000   2002       2004                                                                          G

                           Refined Copper Consumption                                          Refined Copper Consumption ('000 tons)
                                     ('000 tonnes)                 China
  4000                                                                        4000
                                                                   US
                                                                   Japan
                                                                                                                     1992
  3000                                                             Germany    3000
                                                                                                                     2005
                                                                   Korea
                                                                   Russia
                                                                              2000
  2000                                                             India
                                                                   Turkey
                                                                   Brazil     1000
  1000                                                             S Africa
                                                                   Mexico       0
                                                                   Indon
                                                                                                                             l
     0                                                                              ina India ndon apan orea frica exico razi ussia rkey any USA
            1992    1994    1996   1998   2000       2002   2004                 Ch          I    J    K SA M           B R        Tu erm
                                                                                                                                      G

                            Refined Lead Consumption                                            Refined Lead Consumption ('000 tons)
                                     ('000 tonnes)                 China
  2000                                                                        2000
                                                                   US
                                                                   Japan
                                                                                                                     1992
                                                                   Germany
  1500                                                                                                               2005
                                                                   Korea
                                                                   Russia
                                                                              1000
  1000                                                             India
                                                                   Turkey
                                                                   Brazil
   500                                                             S Africa
                                                                   Mexico
                                                                                 0
                                                                   Indon
                                                                                                                                  l
    0                                                                                    ina India ndon apan orea frica exico razi ussia rkey any USA
            1992   1994     1996   1998   2000       2002   2004                    Ch            I    J    K SA M           B R        Tu erm
                                                                                                                                          G

                           Refined Nickel Consumption                                           Refined Nickel Consumption ('000 tons)
                                     ('000 tonnes)                 China
  200                                                              US         225
                                                                   Japan      200
                                                                                                                     1992
                                                                   Germany    175
  150                                                                                                                2005
                                                                   Korea      150
                                                                   Russia     125
  100                                                              India      100
                                                                   Turkey      75
                                                                   Brazil      50
   50                                                              S Africa    25
                                                                   Mexico
                                                                                0
                                                                   Indon
    0                                                                              in    a      i a on  an ea    ca ico  zil  ia   ey  ny  A
                                                                                Ch           Ind Ind Jap Kor Afri Mex Bra Russ Turk rma US
         1992      1994    1996    1998   2000   2002       2004                                            S                      Ge

Source: World Bureau of Metals Statistics


                                                                        30
2. Metals Consumption, Steel Production, Iron Ore Imports – Select Countries
                           Refined Tin Consumption                                            Refined Tin Consumption ('000 tons)
                                                                China
                                  ('000 tonnes)
125                                                             US            125
                                                                Japan
                                                                Germany       100                                 1992
100
                                                                Korea                                             2005
                                                                Russia         75
 75
                                                                India
                                                                Turkey         50
 50
                                                                Brazil
                                                                S Africa       25
 25                                                             Mexico
                                                                Indon
                                                                                0
                                                                                                                           l
  0                                                                               ina India ndon apan orea frica exico razi ussia rkey any USA
      1992       1994   1996   1998    2000     2002    2004                    Ch         I    J    K SA M           B R        Tu erm
                                                                                                                                    G

                           Refined Zinc Consumption                                          Refined Zinc Consumption ('000 tons)
                                  ('000 tonnes)                 China
3000                                                            US            3000
                                                                Japan
2500                                                                                                               1992
                                                                Germany
                                                                                                                   2005
                                                                Korea         2000
2000
                                                                Russia
1500                                                            India
                                                                Turkey        1000
1000                                                            Brazil
                                                                S Africa
 500                                                            Mexico
                                                                                 0
                                                                Indon
      0                                                                                                                        l
                                                                                      ina India ndon apan orea frica exico razi ussia rkey any USA
          1992   1994   1996    1998   2000     2002     2004                       Ch         I    J    K SA M           B R        Tu erm
                                                                                                                                       G


                               Steel Production                                                    Steel Prdocution ('000 tons)
                                  ('000 tonnes)                 China
350000                                                          Japan         350000

300000                                                          US            300000
                                                                Russia                                           1992
                                                                              250000
250000                                                          Korea                                            2005
                                                                Germany       200000
200000
                                                                Ukraine       150000
150000                                                          India
                                                                              100000
                                                                Brazil
100000
                                                                Turkey        50000
 50000                                                          Mexico               0
                                                                S Africa                                                   l
          0                                                                            ina India apan orea frica exico razi raine ussia rkey any USA
                                                                                     Ch         J    K SA M           B Uk      R     Tu erm
              1992 1994 1996 1998 2000 2002 2004                                                                                         G

                               Iron Ore Imports                                                   Iron Ore Imports (million tons)
                                (million tonnes)                China
210                                                             Japan         225
                                                                Korea         200
180                                                                                                               1995
                                                                Germany       175
                                                                                                                  2004
150                                                             Taiwan        150
                                                                UK            125
120
                                                                US            100
 90                                                             Russia         75
                                                                Turkey         50
 60
                                                                Mexico         25
 30                                                             Ukraine         0
                                                                India
  0                                                                               ina India apan orea iwan exico UK raine ussia rkey any USA
                                                                                Ch         J    K Ta M            Uk    R      Tu erm
          1995      1997       1999      2001          2003                                                                       G

Source: World Bureau of Metals Statistics


                                                                         31
3. Metals Consumption per GDP (PPP) and Per Capita – Select Countries
                   Aluminum Consumption per GDP                                           Aluminum Consumption per Capita
                   ( tons per $million GDP - PPP (2000$) )                                       (tons per 1,000 people)
 1.5                                                                        25
                                                                                                                     1992
                                              1992                          20                                       2005
                                              2005
 1.0
                                                                            15

                                                                            10
 0.5
                                                                             5


 0.0                                                                         0
                                                                                                                         l
                                              l
     ina India ndon apan orea frica exico razi ussia rkey any USA               ina India ndon apan orea frica exico razi ussia rkey any USA
   Ch         I    J    K SA M           B R        Tu erm                   Ch           I   J    K SA M           B R        Tu erm
                                                      G                                                                           G


                    Copper Consumption per GDP                                             Copper Consumption per Capita
                   ( tons per $million GDP - PPP (2000$) )                                        (tons per 1,000 people)
 1.2                                                                        20

 1.0                                          1992
                                                                            15                                      1992
                                              2005                                                                  2005
 0.8

 0.6                                                                        10

 0.4
                                                                             5
 0.2

 0.0                                                                         0
                                               l                                                                        l
      ina India ndon apan orea frica exico razi ussia rkey any USA             ina India ndon apan orea frica exico razi ussia rkey any USA
   Ch           I   J    K SA M           B R        Tu erm                  Ch         I    J    K SA M           B R        Tu erm
                                                        G                                                                        G

                      Lead Consumption per GDP                                               Lead Consumption per Capita
                   ( tons per $million GDP - PPP (2000$) )                                        (tons per 1,000 people)
 0.5                                                                        7.5

                                              1992                                                                          1992
 0.4
                                              2005                                                                          2005
                                                                            5.0
 0.3

 0.2
                                                                            2.5
 0.1

 0.0                                                                        0.0
                                               l                                                                         l
      ina India ndon apan orea frica exico razi ssia rkey any USA               ina India ndon apan orea frica exico razi ussia rkey any USA
   Ch           I   J    K SA M           B Ru Tu erm                         Ch         I    J    K SA M           B R        Tu erm
                                                       G                                                                         G

                     Nickel Consumption per GDP                                             Nickel Consumption per Capita
                   ( tons per $million GDP - PPP (2000$) )                                        (tons per 1,000 people)
 0.15                                                                       2.5

                                               1992                                                               1992
                                                                            2.0
                                               2005                                                               2005
 0.10
                                                                            1.5

                                                                            1.0
 0.05
                                                                            0.5

 0.00                                                                       0.0
                                                  l                                                                      l
         ina India ndon apan orea frica exico razi ssia rkey any USA            ina India ndon apan orea frica exico razi ussia rkey any USA
       Ch          I   J    K SA M           B Ru Tu erm                      Ch         I    J    K SA M           B R        Tu erm
                                                          G                                                                       G

Source: World Bureau of Metals Statistics , World Bank.


                                                                       32
      4. Metals Consumption and Steel Production Per GDP (PPP) and Per Capita


                     Tin Consumption per GDP                                                Tin Consumption per Capita
                  ( tons per $million GDP - PPP (2000$) )                                      (tons per 1,000 people)
0.025                                                                  0.4

                                                                                     1992
0.020                                         1992
                                                                       0.3           2005
                                              2005
0.015
                                                                       0.2
0.010

                                                                       0.1
0.005

0.000                                                                  0.0
                                                  l                                                                  l
         ina India ndon apan orea frica exico razi ssia rkey any USA        ina India ndon apan orea frica exico razi ssia rkey any USA
      Ch           I   J    K SA M           B Ru Tu erm                 Ch          I    J    K SA M           B Ru Tu erm
                                                          G                                                                 G

                     Zinc Consumption per GDP                                           Zinc Consumption per Capita
                ( tons per $million GDP - PPP (2000$) )                                        (tons per 1,000 people)
0.7                                                                    10

0.6                                                                                                             1992
                                             1992                       8
                                                                                                                2005
0.5                                          2005

0.4                                                                     6

0.3                                                                     4
0.2
                                                                        2
0.1

0.0                                                                     0
                                             l                                                                     l
    ina India ndon apan orea frica exico razi ssia rkey any USA           ina India ndon apan orea frica exico razi ssia rkey any USA
  Ch          I   J    K SA M           B Ru Tu erm                     Ch         I    J    K SA M           B Ru Tu erm
                                                     G                                                                    G

                      Steel Production per GDP                                              Steel Production per Capita
                ( tons per $million GDP - PPP (2000$) )                                        (tons per 1,000 people)
150                                                                    1000

                                                                        800                                                  1992
100                                                                                                                          2005
                                                                        600
                                1992
                                2005                                    400
 50
                                                                        200

  0                                                                          0
                                         l                                                                l
     ina India apan orea frica exico razi raine ussia rkey any USA             ina dia an rea rica ico azi ine sia key any USA
  Ch          J    K SA M           B Uk      R      Tu erm                  Ch In Jap Ko S Af Mex Br Ukra Rus Tur erm
                                                        G                                                          G

      Source: World Bureau of Metals Statistics , World Bank.




                                                                  33
      5. Energy Consumption 1992-2003 – Select Countries
                    Primary Energy Demand (mtoe)                                       Primary Energy Demand (mtoe)
 2500                                                               2500
                                                      USA
                                                      China         2000                        1992
 2000
                                                      Japan                                     2003
                                                      Russia        1500
 1500                                                 India
                                                      Germany
                                                                    1000
 1000                                                 Korea
                                                                     500
                                                      Mexico
 500                                                  Brazil          0
                                                      Indon




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          1992   1994   1996   1998   2000    2002

                          Oil Demand (mtoe)                                                  Oil Demand (mtoe)
1000                                                                1000
                                                      USA            900
 900
                                                      China          800
 800                                                                                              1992
                                                      Japan          700
 700                                                                                              2003
                                                      Russia         600
 600                                                                 500
                                                      Germany
 500                                                                 400
                                                      India
 400                                                                 300
                                                      Korea
                                                                     200
 300                                                  Mexico
                                                                     100
 200                                                  Brazil           0
 100                                                  Indon




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          1992   1994   1996   1998    2000    2002   Turkey


                         Coal Demand (mtoe)                                                 Coal Demand (mtoe)
900                                                                 1000
                                                      China
800
                                                      USA           800                           1992
700                                                   India                                       2003
600                                                   Russia        600
500                                                   Japan
                                                                    400
                                                      S Africa
400
                                                      Germany
300                                                                 200
                                                      Korea
200                                                   Turkey          0
100                                                   Indon
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                                                                                         M a
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                                                                                       G key

                                                                                                y
                                                                                               zi

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                                                                                             ric
                                                                           in




                                                                                             pa
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                                                                                             an
                                                                                 d




  0                                                   Brazil
                                                                                            ra




                                                                                            U
                                                                                           ex



                                                                                           us
                                                                      Ch

                                                                              In




                                                                                          Ko




                                                                                            r
                                                                                          Ja



                                                                                          Af




                                                                                          m
                                                                                     In




                                                                                          B
                                                                                         R



                                                                                        er




                                                      Mexico
                                                                                        S




       1992      1994   1996   1998   2000     2002

Source: International Energy Agency.




                                                               34
6. Energy Consumption and Electricity Generation Per GDP (PPP) and Per Capita
                                  Energy per GDP                                   Energy per Capita (toe per person)
                                                                     8
                             (toe per $1000 PPP - (2000$) )
 0.8                                                                 7
                                                                                                    1992
                                   1992                              6
                                                                                                    2003
 0.6                               2003                              5
                                                                     4
 0.4
                                                                     3
                                                                     2
 0.2
                                                                     1

 0.0                                                                 0




                                                                                       SA
                                                                                 R il
                                                                                          n




                                                                                M ca




                                                                                 Tu a
                                                                                          a



                                                                                          n
                                                                         na




                                                                                S ea




                                                                               G key

                                                                                          y
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                                 n

                               ea




                         Tu a

                        er y


                               SA
                                 y
                                 o
        na




                        M a



                                  l
                               on
                 a




                                                                                       si
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                                                                                  A
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                                                                                  K
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                          B
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                          K

                          A




                                                                                er
                         R
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                      G
                                    Oil per GDP                                      Oil per Capita (toe per person)
                             (toe per $1000 PPP - (2000$) )          3.5
 0.25
                                                                     3.0                               1992
                                        1992
 0.20                                                                                                  2003
                                        2003                         2.5

 0.15                                                                2.0
                                                                     1.5
 0.10
                                                                     1.0
 0.05                                                                0.5

 0.00                                                                0.0




                                                                              SA
                                                                      M ca




                                                                       Tu a
                                                                       R il
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                                                                                 n
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                                                                                 a




                                                                               ea




                                                                     G key

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                                                                         ex
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                                                                        Ja




                                                                         m
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                                                                        A
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                                                                        K
                         B
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                         K

                         A




                                                                      er
                        R




                                                                      S
                       S




                      G




                                   Coal per GDP                                     Coal per Capita (toe per person)
                             (toe per $1000 PPP - (2000$) )          2.0
 0.30
                                                                                                                  1992
 0.25                                                                1.5
                                                         1992                                                     2003
 0.20                                                    2003
                                                                     1.0
 0.15

 0.10                                                                0.5
 0.05

 0.00
                                                                     0.0       SA
                                                                        Tu a
                                                                        R il
                                                                                  n




                                                                       M ca
                                                                                  n
                                                                                na

                                                                                  a




                                                                                ea




                                                                      G key

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                                                                                  o
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    er y
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            ea




           SA
     M a




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             o
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             a




                                                                                 z

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                                                                       S
    S




   G




                           Electricity Generation per GDP                           Electrcity Generation per Capita
                            (GWh per $1000 PPP - (2000$) )                                  (GWh per person)
 1.00                                                                14
                                                                     12                                    1992
 0.80
                                 1992                                10                                    2003
 0.60
                                 2003
                                                                      8
                                                                      6
 0.40
                                                                      4
 0.20
                                                                      2
 0.00                                                                 0
                                                                                         o




                                                                                      SA
                                                                                Tu a
                             a

                   er y




                                                                                        n

                                                                                        n
                                                                        na




                                                                                       ea


                                                                                M a



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                          SA
                    M a




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                                                                      hi
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                                                                                   U
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                                                                                  ex



                                                                                  us
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                                                                                   fr
                       fr
                      ex




                                                                                  In
             In




                      m
                     Ja




                                                                                 Ja




                                                                                 m
                     In




                                                                                 In
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                     B




                                                                                 B
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                     K

                     A




                                                                     C




                                                                                 K

                                                                                 A
                    R
                   S




                                                                               S
                  G




                                                                              G




Source: International Energy Agency and World Bank.



                                                                35
7. Agriculture Consumption (1) 1992-2003 - Select Countries
                Wheat Consumption (million tons)                        Wheat Consumption (million tons)
                                                                  120
  125                                               China
                                                    India         100
  100                                               Russia
                                                    USA            80
                                                    Turkey                               1992
  75                                                               60
                                                    Pakistan                             2003
                                                    Germany        40
  50
                                                    Brazil
                                                    Japan          20
  25                                                Mexico
                                                                    0
                                                    Indon




                                                                              ey
                                                                   Pa a



                                                                            i co




                                                                               y
                                                                               n




                                                                     M n
                                                                               a




                                                                               a
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                                                                               a




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                                                                               n




                                                                           an
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                                                                           re
                                                                          pa




                                                                             a
                                                                           in




                                                                            si
                                                    Korea




                                                                           di
   0




                                                                          do




                                                                          rk
                                                                          st

                                                                        ex



                                                                        us
                                                                       Ch

                                                                        In




                                                                        U
                                                                       Ko




                                                                       Br




                                                                        m
                                                                      Ja
                                                                       In




                                                                      Tu
                                                                       ki




                                                                     R



                                                                     er
        1992   1994   1996   1998   2000   2002




                                                                   G
                Maize Consumption (million tons)                        Maize Consumption (million tons)
                                                                  250
 250                                                USA
                                                    China
                                                                  200
 200                                                Brazil
                                                    Mexico
                                                                  150
                                                    Japan                                1992
 150
                                                    India                                2003
                                                                  100
                                                    Indon
 100
                                                    Korea
                                                                   50
                                                    Turkey
  50                                                Germany
                                                                    0
                                                    Russia




                                                                              ey
                                                                    Pa a



                                                                                o




                                                                                y
                                                                               n



                                                                              an
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                                                                               a
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   0                                                Pakistan




                                                                           rk
                                                                           st
                                                                          hi




                                                                         ex



                                                                         us
                                                                         In




                                                                        Ko




                                                                         U
                                                                        Br




                                                                         m
                                                                       Ja
                                                                        In




                                                                       Tu
                                                                        ki
                                                                   C




                                                                      M



                                                                      R



                                                                      er
        1992   1994   1996   1998   2000   2002




                                                                    G
                 Rice Consumption (million tons)                         Rice Consumption (million tons)
                                                                  140
  150                                               China
                                                    India         120
  125                                               Indon         100
                                                    Japan
  100                                                             80                     1992
                                                    Brazil
                                                                                         2003
                                                    Korea         60
  75
                                                    USA
                                                                  40
  50                                                Pakistan
                                                    Russia        20
  25                                                Mexico         0
                                                    Turkey
                                                                              ey
                                                                    Pa a



                                                                                o




                                                                                y
                                                                                n



                                                                                n
                                                                              na




                                                                               ia
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                                                                           do




                                                    Germany
                                                                           ss




   0
                                                                           rk
                                                                          hi




                                                                         ex
                                                                         In




                                                                        ki s
                                                                        Ko




                                                                         U
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                                                                         m
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                                                                      M




                                                                      er




        1992   1994   1996   1998   2000   2002
                                                                    G




               Cereals Consumption (million tons)                       Cereals Consumption (million tons)
                                                                  400
  400                                               China
                                                                  350
                                                    USA
                                                    India         300
  300
                                                    Brazil        250
                                                                                         1992
                                                    Russia
                                                                  200                    2003
                                                    Indon
  200                                                             150
                                                    Mexico
                                                    Germany       100

  100                                               Japan         50
                                                    Turkey
                                                                   0
                                                    Pakistan
                                                                              ey
                                                                    Pa a



                                                                                o




                                                                                y
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                                                                                n
                                                                              na




                                                                               ia
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                                                                                a




                                                                            SA
                                                                                n




                                                                                i




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                                                                             ic
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                                                                            ta




                                                    Korea
                                                                             di

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    0
                                                                           ss

                                                                           rk
                                                                          hi




                                                                         ex
                                                                         In




                                                                        ki s




                                                                         U
                                                                        Ko




                                                                        Br




                                                                         m
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                                                                      M




                                                                      er




        1992   1994   1996   1998   2000   2002
                                                                    G




Source: Food and Agriculture Organization.


                                                             36
7. Agriculture Consumption (2) 1992-2003 - Select Countries
s
                 Soybean Consumption (million tons)                           Soybean Consumption (million tons)
                                                                       50
    50                                                   China
                                                                       45
                                                         USA
                                                                       40
    40                                                   India
                                                                       35
                                                         Brazil
                                                                       30                       1992
                                                         Russia
    30                                                                 25
                                                         Indon                                  2003
                                                                       20
                                                         Mexico
    20                                                                 15
                                                         Germany
                                                                       10
                                                         Japan
                                                                        5
    10                                                   Turkey
                                                                        0
                                                         Pakistan




                                                                                    ey
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                                                                                      o




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                                                                                      n



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                                                                                   ic
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                                                                                 rk
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                                                                               ex



                                                                               us
                                                                               In




                                                                               U
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                                                                               m
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                                                                             R



                                                                            er
         1992   1994   1996   1998   2000   2002




                                                                           G
                Soybean Oil Consumption (million tons)                       Soybean Oil Consumption (million tons)
                                                                       8
    8                                                    China
                                                                       7
    7                                                    USA
                                                         India         6
    6
                                                         Brazil        5
    5                                                    Russia                                1992
                                                                       4                       2003
                                                         Indon
    4                                                                  3
                                                         Mexico
    3                                                    Germany       2

    2                                                    Japan         1
                                                         Turkey
    1                                                                  0
                                                         Pakistan




                                                                                 ey
                                                                        Pa a



                                                                                   o




                                                                                   y
                                                                                 na




                                                                                   n



                                                                                 an




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                                                                               az




                                                                               an
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                                                                                ic
                                                                              pa




                                                                                si
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                                                                              do

    0                                                    Korea




                                                                              rk
                                                                              st
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                                                                            ex



                                                                            us
                                                                            In




                                                                            U
                                                                           Ko




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                                                                            m
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                                                                           ki

                                                                          M



                                                                          R



                                                                         er
         1992   1994   1996   1998   2000   2002




                                                                        G
                 Palm Oil Consumption (million tons)                          Palm Oil Consumption (million tons)
                                                                       4.5
    5                                                    China
                                                                       4.0
                                                         USA
                                                                       3.5
    4                                                    India
                                                                       3.0
                                                         Brazil
                                                                       2.5                      1992
                                                         Russia
    3                                                                                           2003
                                                         Indon         2.0
                                                         Mexico        1.5
    2
                                                         Germany       1.0
                                                         Japan         0.5
    1                                                    Turkey
                                                                       0.0
                                                         Pakistan
                                                                                       n




                                                                                       il
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                                                                                     ey

                                                                                       y
                                                                                    SA
                                                                                       a




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                                                                                   an
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                                                                                   do




                                                                                   re




                                                                                    si




    0                                                    Korea
                                                                                  rk
                                                                                  st
                                                                                 hi




                                                                                ex
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                                                                                us




                                                                                 U
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                                                                              R



                                                                             er




         1992   1994   1996   1998   2000   2002
                                                                            G




                  Sugar Consumption (million tons)                            Sugar Oil Consumption (million tons)
                                                                       30
    30                                                   China
                                                         USA           25
    25                                                   India
                                                         Brazil        20
    20                                                                                          1992
                                                         Russia
                                                                       15                       2003
                                                         Indon
    15
                                                         Mexico        10
    10                                                   Germany
                                                         Japan          5

     5                                                   Turkey
                                                                        0
                                                         Pakistan
                                                                                      n




                                                                                      il
                                                                                      o




                                                                                      y
                                                                                   SA
                                                                                      a




                                                                           Pa a
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                                                                                    na




                                                                                      n




                                                                                     a
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                                                                                  an
                                                                                  pa
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                                                                                   ic




                                                         Korea
                                                                                  do




                                                                                  re




                                                                                   si




     0
                                                                                 rk
                                                                                 st
                                                                                hi




                                                                               ex
                                                                               In




                                                                               us




                                                                                U
                                                                              Ko




                                                                              Br




                                                                               m
                                                                              Ja
                                                                              In




                                                                              ki




                                                                             Tu
                                                                       C




                                                                             M



                                                                             R



                                                                            er




         1992   1994   1996   1998   2000   2002
                                                                           G




Source: Food and Agriculture Organization.


                                                                  37
8. Agriculture Consumption (3) 1992-2003 - Select Countries
                 Tea Consumption (million tons)                                Tea Oil Consumption (million tons)
                                                                  0.7
 0.7                                                China
                                                    USA           0.6
 0.6
                                                    India         0.5
 0.5                                                Brazil
                                                                  0.4                           1992
                                                    Russia
 0.4                                                                                            2003
                                                    Indon         0.3
 0.3                                                Mexico
                                                                  0.2
                                                    Germany
 0.2                                                Japan         0.1
                                                    Turkey        0.0
 0.1
                                                    Pakistan




                                                                                        n




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                                                                                        y
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                                                                                     si
 0.0                                                Korea




                                                                                   rk
                                                                                  st
                                                                      hi




                                                                                 ex
                                                                                 In




                                                                                 us




                                                                                  U
                                                                                Ko




                                                                                Br




                                                                                 m
                                                                                Ja
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                                                                               Tu
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                                                                   C




                                                                               M




                                                                               R



                                                                              er
       1992    1994   1996   1998   2000   2002




                                                                             G
                Coffee Consumption (million tons)                             Coffee Oil Consumption (million tons)
                                                                  1.4
 1.4                                                China
                                                    USA           1.2
 1.2
                                                    India         1.0
 1.0                                                Brazil
                                                                  0.8                           1992
                                                    Russia
 0.8                                                                                            2003
                                                    Indon         0.6
 0.6                                                Mexico
                                                                  0.4
                                                    Germany
 0.4                                                Japan         0.2
                                                    Turkey
 0.2                                                              0.0
                                                    Pakistan


                                                                                 n




                                                                                 il




                                                                                 y
                                                                              SA
                                                                                 a




                                                                               an

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                                                                               ey
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                                                                             an
                                                    Korea
                                                                             pa
                                                                              di


 0.0




                                                                              ic
                                                                             do




                                                                             re




                                                                              si

                                                                            rk
                                                                            st
                                                                            hi




                                                                           ex
                                                                           In




                                                                           us




                                                                            U
                                                                         Ko




                                                                          Br




                                                                           m
                                                                         Ja
                                                                          In




                                                                         ki




                                                                        Tu
                                                                   C




                                                                        M




                                                                        R



                                                                        er
       1992    1994   1996   1998   2000   2002




                                                                      G
                Cotton Consumption (million tons)                             Cotton Oil Consumption (million tons)
                                                                  6
 7                                                  India
                                                    Turkey        5
 6
                                                    Pakistan
                                                                  4
 5                                                  USA
                                                    China                                       1992
 4                                                                3
                                                    Brazil                                      2003

 3                                                  Indon         2
                                                    Mexico
 2                                                  Korea         1
                                                    Russia
 1                                                                0
                                                    Japan
                                                                             n




                                                                             il




                                                                          SA
                                                                             a




                                                                           an

                                                                             o




                                                                           ey


                                                                             y
                                                                           na




                                                                             n




                                                                  Pa a




                                                                            a
                                                                         az




                                                    Germany
                                                                         an
                                                                         pa
                                                                          di




                                                                          ic
                                                                         do




                                                                         re




 0
                                                                          si

                                                                        rk
                                                                        st
                                                                        hi




                                                                       ex




                                                                        U
                                                                       In




                                                                       us
                                                                     Ko




                                                                      Br




                                                                      m
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                                                                      In




                                                                     ki




                                                                    Tu
                                                                     C




                                                                    M




                                                                    R




                                                                    er




     1992     1994    1996   1998   2000   2002
                                                                  G




                Rubber Consumption (million tons)                             Rubber Oil Consumption (million tons)
                                                                  2.0
 2.0                                                China
                                                                  1.8
                                                    USA
                                                                  1.6
                                                    Japan
 1.5                                                              1.4
                                                    India
                                                                  1.2
                                                    Korea                                       1992
                                                                  1.0
                                                    Brazil                                      2003
 1.0                                                              0.8
                                                    Germany
                                                                  0.6
                                                    Indon
                                                                  0.4
 0.5                                                Mexico
                                                                  0.2
                                                    Turkey
                                                                  0.0
                                                    Pakistan
                                                                                 n




                                                                                 il
                                                                                 a




                                                                                 o




                                                                               ey

                                                                                 y
                                                                              SA
                                                                               na




                                                                                 n




                                                                      Pa a
                                                                               an




                                                                                 a
                                                                             az




                                                    Russia
                                                                             an
                                                                             pa




                                                                              ic
                                                                              di




                                                                             re




 0.0
                                                                             do




                                                                              si

                                                                            rk
                                                                            st
                                                                           hi




                                                                          ex
                                                                          In




                                                                          us




                                                                           U
                                                                         Ko




                                                                         Br




                                                                          m
                                                                         Ja
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                                                                         ki

                                                                        M




                                                                        R



                                                                       er




       1992    1994   1996   1998   2000   2002
                                                                      G




Source: Food and Agriculture Organization.



                                                             38
10. Agriculture Consumption Per GDP (PPP) and Per Capita (1) – Select Countries
               Wheat Consumption per GDP                             Wheat Consumption per Capita
           (tons per $million GDP - PPP (2000$) )                       (tons per '000 people)
100                                                   400
 90                                    1993
 80                                    2003           300
 70
                                                                                  1992
 60
 50                                                   200                         2003
 40
 30
                                                      100
 20
 10
  0                                                       0




           ey
 Pa a



             o




             y
             n




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            ia
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             a




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                                                                              n
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                                                                    G
 G             Maize Consumption per GDP                              Maize Consumption per Capita
            (tons per $million GDP - PPP (2000$) )                        (tons per '000 people)
50                                                    800
                          1992                        700
40
                          2003                        600
30                                                    500                         1992
                                                      400                         2003
20                                                    300
                                                      200
10
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 0                                                        0




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                Rice Consumption per GDP                              Rice Consumption per Capita
           (tons per $million GDP - PPP (2000$) )                        (tons per '000 people)
70                                                   175
60                        1992                       150
50                        2003                       125                                   1992
40                                                   100                                   2003

30                                                    75
20                                                    50
10                                                    25
 0                                                        0
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               Cereals Consumption per GDP                           Cereals Consumption per Capita
           (tons per $million GDP - PPP (2000$) )                         (tons per '000 people)
200                                                  900
                                                     800
                                    1992                                          1992
                                                     700
150                                                                               2003
                                    2003             600
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100
                                                     400
                                                     300
 50                                                  200
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Source: Food and Agriculture Organization and World Bank.


                                                     39
11. Agriculture Consumption Per GDP (PPP) and Per Capita (2) – Select Countries

           Soybean Consumption per GDP                     Soybean Consumption per Capita
        (tons per $million GDP - PPP (2000$) )                  (tons per '000 people)
30                                                175

25                                                150
                      1992
                      2003                        125
20                                                                         1992
                                                  100
15                                                                         2003
                                                  75
10
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5                                                 25
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          Soybean Oil Consumption per GDP                 Soybean Oil Consumption per Capita
        (tons per $million GDP - PPP (2000$) )                  (tons per '000 people)
3                                                 25

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                                                  20
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2                                                                          1992
                                                  15
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                                                  10
1
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            Palm Oil Consumption per GDP                   Palm Oil Consumption per Capita
        (tons per $million GDP - PPP (2000$) )                  (tons per '000 people)
6                                                 14

5                                                 12
                                     1992                                         1992
                                                  10                              2003
4                                    2003
                                                  8
3
                                                  6
2                                                 4
1                                                 2

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            Sugar Consumption per GDP                       Sugar Consumption per Capita
        (tons per $million GDP - PPP (2000$) )                  (tons per '000 people)
20                                                80

                                      1992                          1992
16
                                      2003        60                2003
12
                                                  40
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Source: Food and Agriculture Organization and World Bank.


                                                 40
12. Agriculture Consumption Per GDP (PPP) and Per Capita (3) – Select Countries
                         Tea Consumption per GDP                            Tea Consumption per Capita
                   (tons per $million GDP - PPP (2000$) )                      (tons per '000 people)
0.7                                                          3.0

0.6                           1992                           2.5                   1992
0.5                           2003                                                 2003
                                                             2.0
0.4
                                                             1.5
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0.0                                                          0.0




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                       Coffee Consumption per GDP                          Coffee Consumption per Capita
                   (tons per $million GDP - PPP (2000$) )                       (tons per '000 people)
0.6                                                          8
                                                             7
0.5                                  1992                                         1992
                                                             6                    2003
0.4                                  2003
                                                             5
0.3                                                          4
                                                             3
0.2
                                                             2
0.1                                                          1
0.0                                                          0

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                       Cotton Consumption per GDP                          Cotton Consumption per Capita
                   (tons per $million GDP - PPP (2000$) )                       (tons per '000 people)
8                                                            20
7                                                                                           1992
                                               1992          16                             2003
6
                                               2003
5                                                            12
4
3                                                                8

2
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                       Rubber Consumption per GDP                          Rubber Consumption per Capita
                   (tons per $million GDP - PPP (2000$) )                      (tons per '000 people)
0.7                                                          20

0.6                                         1992                                                   1992
                                                             16
0.5                                         2003                                                   2003

0.4                                                          12

0.3                                                              8
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Source: Food and Agriculture Organization and World Bank.


                                                            41

				
DOCUMENT INFO
Description: China and India Are Global Markets document sample