Trade Essay: National Resources

Table of Contents

LIST OF FIGURES

LIST OF TABLES

LIST OF ABBREVIATIONS

1. Introduction
1.1 Problem definition
1.2 Structure

2. Zinc world trade
2.1 Introduction to Zinc
2.2 World Zinc Production
2.3 Trade situation
2.3.1 Globally
2.3.2 Zinc trade in China
2.4 Zinc price development

3. Trade barriers for zinc
3.1 Evidence for trade barriers
3.2 Introduced trade barriers
3.3 Effectiveness

4. Conclusion

REFERENCES

APPENDIX
Appendix A: ZINC: WORLD MINE PRODUCTION, BY COUNTRY (Metric 18 tons, zinc content of concentrate and direct shipping, unless otherwise specified).
Appendix B: Merchandise trade matrix in thousands of dollars, annual, 1995-2010 20

LIST OF FIGURES

Figure 1: End Uses of Zinc (in %)

Figure 2: Percent of world Zn resource base

Figure 3: Merchandise trade matrix in thousands of dollars, annual, 1995-2010)

Figure 4: LME zinc stocks and price

Figure 5: Share of zinc world exports 2007, %

Figure 6: Major metallic zinc consuming countries in 2007 in % of total consumption

Figure 7: Free market commodity prices, annual

LIST OF TABLES

Table 1: Chinese Exports of Zinc (not alloyed, unwrought, pure > 99,9%)

Table 2: Chinese Imports of Zinc (not alloyed, unwrought, pure > 99,9%)

Table 3: Chinese Exports of Zinc ores and concentrates

LIST OF ABBREVIATIONS

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1. Introduction

1.1 Problem definition

Since globalization, economies became highly dependent on each other. Trade between countries has become essential. Therefore price developments of merchandise products have high effects on imports and exports. As price develops through demand and supply, applied trade barriers will create artificial prices. Especially within the commodity sector, which is important to many countries industries, barriers to trade and falsified prices create disadvantages. China is the largest exporter and producer of zinc. The chinese government has applied trade barriers for various raw materials; one of which is zinc. This essay identifies the reasons for the application of trade barriers and the effects they have on economies and the commodity zinc.

As there are several sources, that offer data regarding zinc trade as well as zinc price development, data will vary, because not all sources provided all needed data. Also historical data was not always available. Therefore the main focus lies on the price and trade development of the recent years. These are most important for several reasons: China became a WTO (World Trade Organization) member in 2001 and it has just recently applied barriers to trade for zinc.

1.2 Structure

Part 2 explains zinc world trade. Firstly, zinc and its usage needs to be explained. After an analysis of world zinc production, zinc trade, globally and for China, is being described. 2.3 focuses on zinc price developments.

In addition, part three concentrates on trade barriers for zinc: 3.1 finds evidence for ap- plied trade barriers. 3.2 concentrates on the export restrictions China has applied on zinc, whereas 3.3 shows the consequences and effectiveness of the applied trade barri- ers.

Part 4 finishes with the conclusion of this essay and gives an overview of the current situation regarding trade barriers for zinc.

2. Zinc world trade

2.1 Introduction to Zinc

Zinc is considered a raw material and mining product. Although it is globally not traded as much as other commodities, zinc is currently the fourth most widely consumed metal in the world (Krobschot & Doebrich, 2011).

It is a metallic chemical element with the symbol “Zn”. Zinc is a bluish-white, lustrous and diamagnetic metal. The melting point is between 100° and 150° Celsius.

Figure 1. End Uses of Zinc (in %)

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ILZSG (2012).

Figure 1 shows the industrial usage of zinc. As it is commonly used as an anti-corrosion agent, galvanization is applied (Tvalrelidze, 2011, p. 532). The galvanisation gives added protection against corrosion to building structures, vehicles, machinery and household equipment (LME, 2012).

Zinc is the primary metal for the United States one-cent coins. It is also used in medi- cine, as it is believed to possess antioxidant properties. Therefore it is included in vita- min tablets (Tvalrelidze, 2001, p. 533). Zinc is traded on stock exchanges. The London Metal Exchange (LME) is the leader. The fact that zinc is traded on the stock exchange gives its trade transparency that resources not traded on stock exchanges (e.g. rare earths) might not have.

2.2 World Zinc Production

According to UNCDAT total world zinc production or zinc supply in the years 2008 - 2010 amounted up to 11,8 million tons.¹ Appendix A shows, that China was the leading producer in the zinc mine industry with a production of about 3,2 million tons, followed by Peru, Canada, India and Mexico.

Tvalchrelidze (2011, p. 543) discovered, that 72 countries bear 275,8 million t of metallic zinc reserves with the most important fourteen countries bearing 78,27% of world zinc reserves. Due to this uneven distribution the main exporters will benefit from market power over zinc prices. It also gives them a monopolistic status.

Figure 2. Percent of world Zn resource base.

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A. Tvalchrelidze (2011). Economics of Commodities and Commodity Markets (p. 543)

China not only is the biggest producer of zinc, but it has also the highest resource base as can be seen in Figure 2. With a resource base of 16,71 % of the world’s resource base it is followed by Australia, Canada, USA, Kazakhstan, Mexico, Peru and Russia.

2.3 Trade situation

2.3.1 Globally

The worldwide trade of Zinc (in USD) in the years 1995 - 2010 can be seen in Figure 3.

Figure 3. Zinc Merchandise trade matrix in thousands of dollars, annual, 1995- 2010).

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UNCTADStat Database. (2012).

Figure 3 shows that the value of annual world zinc trade between 1995 and 2007 has increased steadily, reaching its high in 2007.²

The reason for increased trade was increased demand, which lead to higher prices and therefore a decrease in stocks, which is best shown in Figure 4.

Figure 4. LME zinc stocks and price

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I. Kaminska (2011)

This is in contrast to the rally in the 1970s, which was driven by supply disruptions and inflation (World Commodity Yearbook 2011, p. 20T).

The main reason for increased zinc demand and therefore higher exports and imports of zinc, that lead to higher zinc prices, was a decrease in general interest rates. A strong economic environment in 2007 led to stronger worldwide investors confidence. The economic situation in these days was reciprocal: There was high liquidity in the mone- tary market, but also a low level of real interest rates. These two factors contributed to a higher demand of commodities and therefore a fundamental increase in trade of com- modities, such as zinc.

As analysed by Tvalchrelidze (2011), in the year 2007 the main exporters of zinc in 2007 can be seen in Figure 5. Figure 5 shows, that Canada, even though in resource base and production not the first, was the leader in zinc exports whereas China, having the highest resource base, is only ranked third.

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¹ See Appendix A

² See Appendix B