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- 2 - Table of Contents 2. Impact of Financial Crisis on Commodity Market 3. Reasons of Recent Price Hike 1. Review of Raw Materials ’ Supply & Demand.

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Presentation on theme: "- 2 - Table of Contents 2. Impact of Financial Crisis on Commodity Market 3. Reasons of Recent Price Hike 1. Review of Raw Materials ’ Supply & Demand."— Presentation transcript:

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2 - 2 - Table of Contents 2. Impact of Financial Crisis on Commodity Market 3. Reasons of Recent Price Hike 1. Review of Raw Materials ’ Supply & Demand 4. Summary and Conclusions

3 Impact of Financial Crisis on Commodity Market 3. Reasons of Recent Price Hike 1. Review of Raw Materials Supply & Demand 4. Summary and Conclusions

4 - 4 - Sort of Raw Materials Energy Resources : Crude Oil, Natural Gas, Coal Mineral(Metal) Resources  Base Metal: Copper, Nickel, Zinc, Aluminum, etc  Precious Metal : Gold, Silver,  Ferrous or Non-ferrous Metal Agricultural Resources  Grain : Corn, Soybean, Wheat, etc  Other Food : Sugar, Coffee, etc Image brought: Image brought: content/uploads/2009/08/Commodity-trading-FAQs-2-300x300.jpg

5 - 5 - Definition of Reserves Resources: Occurrence of economic minerals, defined with some information  Inferred : geological evidence, limited drilling & sampling, not verified,  Indicated : detailed and reliable data, drill closely spaced, reasonable assumption,  Measured : well established & confidence data, continuity confirmed. Reserves : economically minable & treatable part of measured and indicated resource  - Probable : minable and treatable part of indicated resources  - Proven : minable and treatable part of measured resources

6 - 6 - Oil Reserve and Production Most of the world's oil reserves are in the Middle East (60%) Eurasia (CIS) is also big oil and gas producers At end 1988 At end Share Total North America % Total S. & Cent. America % Total Europe & Eurasia % Total Middle East % Total Africa % Total Asia Pacific % Total World % Share Total North America % Total S. & Cent. America % Total Europe & Eurasia % Total Middle East % Total Africa % Total Asia Pacific % Total World % At end 1988 At end share Total North America % Total S. & Cent. America % Total Europe & Eurasia % Total Middle East % Total Africa % Total Asia Pacific % Total World % share Total North America % Total S. & Cent. America % Total Europe & Eurasia % Total Middle East % Total Africa % Total Asia Pacific % Total World % Oil Reserves Oil Production Gas Reserves Gas Production (Unit: Thousand million barrels) Source: BP, Statistical Review of World Energy June (Unit: Thousand barrels daily) (Unit: Trillion cubic metres) (Unit: Billion cubic metres)

7 - 7 - Oil and Gas Production Saudi Arabia(13.1%) and Russia(12.4%) are top oil producing countries Russia (19.6%) and US(19.3%) are top gas producing countries Top 20 Oil Producing Countries Top 20 Gas Producing Countries Source: BP, Statistical Review of World Energy June (Unit: Thousand barrels daily) CountryYR 2008 Share Saudi Arabia % Russian Federation % US % Iran % China % Canada % Mexico % United Arab Emirates % Kuwait % Venezuela % Norway % Iraq % Nigeria % Algeria % Brazil % Angola % Libya % Kazakhstan % United Kingdom % Qatar % CountriesYR 2008Share Russian Federation % US % Canada % Iran % Norway % Algeria % Saudi Arabia % Qatar % China % Indonesia % United Kingdom % Netherlands % Turkmenistan % Malaysia % Uzbekistan % Egypt % Mexico % United Arab Emirates % Argentina % Trinidad & Tobago % (Unit: Billion cubic metres)

8 - 8 - Oil and Gas Importers and Exporters Saudi Arabia and Russia are dominant oil exporters US is the #1 oil importer and #2 gas importer Source: IEA, Key World Energy Statistics 2009 (Unit: million ton) OilGas (Unit: Billion cubic metres)

9 - 9 - Oil and Gas Demand US accounts for 22.5% of world oil consumption and 22% of gas China is the fastest growing country in oil and gas consumptions India, Taiwan, and Singapore consumed oil at the growth rate of above 3% Top 20 Oil Consuming Countries Top 20 Gas Consuming Countries Source: BP, Statistical Review of World Energy June (Unit: Thousand barrels daily) (Unit: Billion cubic metres) Countries ShareGrowth US %0.4% Russian Federation %1.7% Iran %8.5% Canada %1.8% United Kingdom %0.7% Japan %3.6% Germany %0.3% China %14.8% Saudi Arabia %5.3% Italy %3.1% Mexico %5.5% Ukraine %-1.1% United Arab Emirates %6.7% Uzbekistan %0.7% Argentina %3.8% France %1.8% India %5.4% Egypt %11.6% South Korea %9.9% Spain %11.5% Countries Sharegrowth US %0.3% China %6.6% Japan %-1.3% India %3.9% Russian Federation %0.9% Germany %-1.5% Brazil %1.7% Canada %1.8% South Korea %1.2% Saudi Arabia %5.8% Mexico %1.0% France %-0.4% Iran %3.8% United Kingdom %-0.2% Italy %-1.5% Spain %1.3% Indonesia %2.9% Taiwan %3.2% Netherlands %1.4% Singapore %3.9%

10 Copper production and consumption CountryMine production (1,000 tones) Chile5,361 U.S.1,220 Peru1,049 Australia859 China844 Indonesia816 Russian Federation675 Canada607 Zambia509 Poland497 Kazakhstan434 Mexico338 Iran217 Papua New Guinea194 Argentina180 Brazil143 Congo, Dem Rep134 Mongolia132 Bulgaria99 South Africa90 CountryRefined usage (1,000 tones) China3,674 U.S.2,130 Germany1,398 Japan1,282 Korea, South812 Italy800 Russian Fed.678 Taipei, China639 France540 India440 Brazil339 Turkey320 Spain319 Mexico302 Belgium301 Canada301 Poland267 Thailand261 Indonesia220 Malaysia189 Source: International Copper Study Group 2007; Pipal Research analysis Top 20 copper producing countries, 2006Top 20 refined copper consuming countries, 2006 Chile, the U.S., and Peru combined accounted for about half of the world’s copper production

11 Copper mine locations and owners Source: International Copper Study Group 2007; Pipal Research analysis Top 20 copper mines by capacity, 2006 Escondida and Codelco, both located in Chile, are the largest copper mines by capacity Mine nameCapacity (1,000 tones)CountryOwner(s) Escondida 1,311ChileBHP Billiton, Rio Tinto, Japan Escondida Codelco Norte 957ChileCodelco Grasberg 750IndonesiaP.T. Freeport Indonesia, Rio Tinto Collahuasi 450ChileAnglo American, Xstrata plc, Mitsui, Nippon Morenci 430United StatesFreeport McMoran Copper & Gold, Sumitomo Taimyr Peninsula 430Russian FederationNorilsk Nickel El Teniente 418ChileCodelco Antamina 400PeruBHP Billiton, Teck, Xstrata plc, Mitsubishi Los Pelambres 335ChileAntofagasta Holdings, Nippon Mining, Batu Hijau 300IndonesiaMitsubishi Materials Bingham Canyon 280United StatesP.T. Pukuafu Indah, Newmont, Sumitomo Olympic Dam 255AustraliaCorp., Sumitomo Metall Mining Andina 236ChileKennecott Zhezkazgan Complex 230KazakhstanBHP Billiton Los Bronces 226ChileCodelco Rudna 220PolandKazakhmys El Abra 219ChileAnglo American Mount Isa 212AustraliaKGHM Polska Miedz S.A. Toquepala 210PeruCodelco, Freeport McMoran Copper & Gold Cananea 210MexicoXstrata plc

12 Nickel production and consumption Source: INSG World Nickel Statistics, 2009; World Bureau of Metal Statistics; Triland Metals May 2008 report; Pipal Research analysis Russia was the largest miner of nickel in 2008 while China is the largest consumer According to Triland Metals, the global nickel consumption is expected to grow due to the emerging economies, mainly the BRICs Global nickel consumption, by major economies Percent Top 10 nickel mining regions, 2008 '000 tonnes China Europe Japan U.S. Others BRIC 100%= '000 tonnes 1,4271,8252,400 Russia Brazil India

13 Impact of Financial Crisis on Commodity Market 3. Reasons of Recent Price Hike 1. Review of Raw Materials Supply & Demand 4. Summary and Conclusions

14 Commodity Price: from 2008 to 2010 Sharp decline of 55.9%: Highest level (July 2008) → Lowest level (Feb. 2009) Rebound of 51.2%: Lowest level (Feb. 2009) → April 2010 level IMF Commodity Index (Fuel and Non-Fuel composite) Source: IMF, IMF Primary Commodity Prices

15 Crude Oil Price There was a collapse of oil price due to the global financial crisis However, oil prices bottomed out in February 2009 and staged a sharp rebound thereafter WTI: decline of 76.7% from high to low, then rebound of 156.4% Dubai: decline of 74.1% from high to low, then rebound of 135.3% WTI Price (Daily, )Dubai Oil Price (Daily, ) Source: Datastream

16 Metals: From 2008 to 2010 The patterns of metal prices are quite similar to those of other commodities Source: Macquarie, Commodity Research, Nov Recent movements in spot commodity prices Copper Price (Daily, )Nickel Price (Daily, ) Source: Datastream

17 Grains The patterns of grain prices are somewhat different from those of other commodities because there was no big rebound pattern They just rose moderately Soybean Price (Daily, )Wheat Price (Daily, ) Source: Datastream

18 Price fluctuation is getting bigger We experienced high commodity price volatility during the global financial crisis The standard deviation of commodity price index is two times bigger than that of the average of Commodity Real Price Developments (Unit: Monthly, average =100) Source: IMF, World Economic Outlook, April 2010.

19 Impact of Financial Crisis on Commodity Market 3. Reasons of Recent Price Hike 1. Review of Raw Materials Supply & Demand 4. Summary and Conclusions

20 Global Economy ’ s Bottoming out Global Economy has shown a clear sign of bottoming out from the economic downturn caused by the global financial crisis Global Outlook (Real GDP) Source: IMF World Economic Outlook, April (Unit: Quarterly percent change from one year earlier) Note: 1. Comprises China, India, Russia, South Africa, Turkey, and economies listed in footnotes 4, 6, and Includes only economies that report quarterly data. 3. Australia, Canada, Czech Republic, Denmark, euro area, Hong Kong SAR, Israel, Japan, Korea, New Zealand, Norway, Singapore, Sweden, Switzerland, Taiwan Province of China, United Kingdom, and United States. 4. Indonesia, Malaysia, Philippines, and Thailand. 5. Newly industrialized Asian economies (NIEs) comprise Hong Kong SAR, Korea, Singapore, and Taiwan Province of China. 6. Bulgaria, Estonia, Hungary, Latvia, Lithuania, and Poland. 7. Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. 8. Annual percent change from one year earlier.

21 Global economy ’ s bottoming out (cont ’ d) The 1 st half of 2009 was the bottom in economic growth IMF WEO projections (2010): World 4.2%, US 3.1%, China 10.0%  2009: World -0.6%, US -2.4%, China 8.7% Global Outlook (Real GDP) Source: IMF World Economic Outlook, April (Unit: Quarterly percent change from one year earlier) WorldAdvancedEmergingUSEuro areaJapanChinaIndiaBrazilRussia 2008Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

22 Manufacturing Sector is showing a faster Recovery Early 2009 was the bottom of industrial production and retail sales The US manufacturing sector grew at the fastest pace in six years, expanding in April for the ninth consecutive month  The ISM manufacturing index rose to 60.4 percent, the highest figure since June 2004 The Purchasing Managers' Index (PMI) of China's manufacturing sector rose to over 55 percent in March (above 50 for 13 consecutive months) Source: IMF, World Economic Outlook, April (Unit: %, Monthly Year on Year) Economic Indicators ( )

23 Global oil demand is also rebounding Global oil demand showed negative growth, -0.3% in 2008, -1.5% in 2009 With oil demand estimated at 84.9 mb/d in 2009 and 86.6 mb/d in 2010, year ‐ on ‐ year growth averages ‐ 1.3 mb/d and +1.7 mb/d, respectively. Year on year growth rate of global oil demand in 2010 will be 2.0% Source: IEA, Oil Market Report, April Global Oil Demand ( ) (Unit: million barrels per day)

24 Developing countries lead the recovery of oil demand Oil demand in Asia will increase by 804 thousand barrels a day BRICs will account for 57.6% of global oil demand growth in 2010 (Unit: thousand barrels per day) Global Oil Demand Growth, 2010 Source: IEA, Oil Market Report, April 2010.

25 China ’ s growth and import affect commodity market China’s copper imports were 337,125 tons in March 2010, and that's 53% more than February and 14% more than in the same period of 2009 Copper consumption in China may gain 14% this year (CRU International) China's oil demand in March climbed 12.8% from a year ago China’s import growth rate shows a positive relationship to commodity price change. Relationship b/w Chinese import and Commodity Price World Copper and Aluminum Consumption Growth by Regions (Unit: millions of tons) Source: IMF World Economic Outlook, April 2010.

26 Money inflows going to commodity market IMF reported in April 2010: “On the financial front, investment inflows into commodity-related assets rose sharply during 2009, reflecting the continued relative attractiveness of investment in commodities” “Commodity-related assets under management reached $257 billion at the end of 2009, that is only slightly below their all-time peak in 2008” Source: IMF, World Economic Outlook, April 2010.

27 Speculative money going to commodity market Noncommercial net long positions are regarded as speculative money They rose sharply from second half of 2009 to April 2010 (Unit: Contract) WTI Noncommercial Positions Net Long Position( Right) Long Position (Left) Short Position (Left) Net Long Position(Right) Long Position (Left) Short Position (Left) (Unit: Contract) Gasoline Noncommercial Positions Net Long Position(Right) Long Position (Left) Short Position (Left) Net Long Position(Right) Long Position (Left) Short Position (Left) (Unit: Contract) Platinum Noncommercial Positions (Unit: Contract) Gold Noncommercial Positions Source: US Commodity Futures Trading Commission(CFTC)

28 Weak relationship b/w dollar and commodity prices When the value of dollar goes down (depreciation), there is a tendency that commodity prices go up because raw material producers may want to keep their purchasing power However, recent strong dollar (appreciation) didn’t much affect commodity prices (commodity price keep going up) This would be temporary and reverse relationship b/w dollar value and commodity prices will remain strong Source: Datastream WTI Price and Dollar Index ( )

29 Environmental Valuation 2. Environment and Socio-economic variables 3. Environmental Kuznets Curve 4. Summary and Conclusions

30 Impact of Financial crisis Reasons of recent rebound - There are many countries which don’t produce raw materials - High country / company concentration of raw material production matters - There are many countries which don’t produce raw materials - High country / company concentration of raw material production matters What we looked atSummaries Summary and Conclusions Demand & supply - There was a collapse of commodity price - Commodity prices bottomed out in early There was high commodity price volatility - There was a collapse of commodity price - Commodity prices bottomed out in early There was high commodity price volatility - Global economy bottomed out - Manufacturing sector showed a faster recovery - Developing countries including China lead the recovery - Massive money inflows moved to commodity market - Global economy bottomed out - Manufacturing sector showed a faster recovery - Developing countries including China lead the recovery - Massive money inflows moved to commodity market

31 Conclusions The global financial crisis has heavily affected commodity markets in terms of price change Price fluctuation itself is a risk factor in business decision(even when it goes down) Commodity price is a barometer of the global economic cycle Commodity price moves faster than other economic indicators in the period of economic downturn or recovery Commodity prices in the rest of 2010 depend on the timing and strength of the global recovery Upward price pressures due to an increasing demand will continue as global growth accelerates Inflows into commodities are likely follow changes in fundamentals and prices, rather than the other way around

32 Thank You Questions? For Further Questions Kim, Hwa Nyeon


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