World commodities prices remain high, even as they recover from a recent sell-off due to interest rate concerns. Despite the volatility that goes hand-in-hand with commodities, prices have benefited from sky-high energy markets this year and growth in China that has resulted in an almost insatiable appetite for industrial raw materials.

The Dow Jones AIG Commodity Index has trended upward since January 2002, more than doubling as of mid-May this year. Continuing instability in the Middle East and the onset of the summer travel season pushed oil over $70 a barrel earlier this year, while copper prices hit historic highs, surpassing $6,000 a ton during the first quarter.

Although high prices in oil and metals have rewarded producers, they also have sparked new inflation worries as growing manufacturing costs threaten to translate into higher prices at the cash register. Generally speaking, high commodities prices likely will continue in the foreseeable future, economists say, unless an unexpected global slowdown were to curtail demand.

China Hungry for More

"Slowdown” is not a word anyone would associate with China at the moment. The Asian powerhouse has posted real gross domestic product (GDP) growth above 9 percent since 2002, according to the U.S.-China Business Council, plus Chinese authorities recently reported higher-than-expected GDP growth of 10.2 percent during the first quarter of 2006.

Much of that growth is attributable to the country’s ongoing modernization, which has included a building boom and vast increases in its telecommunications infrastructure. That, in turn, has boosted Chinese imports—in many cases the world’s largest—of petroleum, copper, iron ore, aluminum, nickel, steel, and cement. World prices for industrial commodities have responded accordingly.

In addition to inflation concerns, market observers worry that China’s influence on commodities markets could precipitate sudden drops in prices following an unexpected swing in the Chinese economy or large increases in domestic production of some commodities such as steel, already one of China’s largest exports. China’s hunger for commodities also has led it to forge new diplomatic and economic ties in several regions outside its traditional Asian realm—often in America’s own backyard.

Focus on Latin America

“In earlier years of its economic expansion, China sought critical raw materials primarily from sources in Asia, but as the economy has continued to expand, China increasingly has looked to Latin America and Africa as sources of key commodities,” said Roger Noriega, Assistant U.S. Secretary of State for Western Hemisphere affairs, in Congressional testimony in April.

China is looking to no fewer than half a dozen countries in the region for petroleum. The country’s consumption of approximately one-fifth of the world’s supply of copper also has led it to Chile, the world’s largest copper producer, which in addition, has become a growing supplier of aluminum, tin, zinc, bauxite, and iron to China.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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