What is China's Impact on World Commodity Prices?

The Motley Fool's energy bureau chief, Joel South, spoke with Michael Levi about his new book, coauthored with Elizabeth Economy, By All Means Necessary: How China's Resource Quest Is Changing the World. As the David M. Rubenstein Senior Fellow for the energy and environment at the Council on Foreign Relations, Levi is no stranger to the impact that countries and their decisions have on the rest of the world. In fact, Levi also writes a blog for the CFR, Energy, Security, and Climate, where he discusses the relationship between energy, the world, and its inhabitants. In By All Means Necessary, Levi analyzes the impacts and effects China's resource hunt has on the world and international affairs, specifically looking at the synthesis of economics, security, and politics.

In this segment, Joel South questions Michael Levi about how the Chinese energy quest has affected the price of commodities. Levi notes that changes to commodity pricing are relative to specific markets, and he sees an overall pricing trend for the future. 

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Joel South: Next we'll want to go into the price of commodities. The big takeaway from By All Means Necessary was China definitely put pressure on pricing, but that's not it. There's a lot more to the story. There's supply and demand issues, which threatened a little bit of that.

Michael Levi: Look. Each resource is different, and some, like aluminum ore, have better withstood the impact of rising Chinese demand than others, like crude oil or copper. A lot depends on the particular market structures, and we look at those ... it also depends on the nature of the resource, and other factors like that.

The other critical thing is that resource markets tend to be slow, so you can get big responses over a short time, but after several years, you start to see the system adjust. For example, in oil, you've seen curves on consumption, increases in production, improvements in technology around the world -- including in China -- that have started to significantly blunt some of the impacts of this rise in Chinese consumption.

You see this in different ways, for different resources. China has pushed up the price of many resources over the last decade. I don't think we're going to see a reversal, but I also don't think we're going to see a repeat of that rise. I think we're going to see something that looks considerably more stable.

When we look at the prices of resources in 2020 or 2024, I suspect they'll be more similar to today, in contrast with the current situation, where if we look back 10 years, everything's radically different.


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