Price prospects for major primary commodities - 1990 (Vol. 1 of 2) : Summary : energy, and metals and minerals

PRI-81490 FfL E r: o- v VOL.1 Price Prospects for Major Primary Commodities (In Two Volumes) Volume 1: Summary, Energy, and Metals and Minerals December 1990 International Trade Division International Economics Department FOR OFFICIAL USE ONLY UU Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY Contributors to this volume were: Mamdou Barry (gold, silver); Boum-Jong Choe (coal, copper, lead and zinc, tin); Louis Hobeika (aluminum and bauxite); Mudassar Imran (energy, petroleum); Ying Qian (iron ore, nickel, steel). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -iii- CONTENTS Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a Notes and Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Commodity Descriptions . . . . . . . . . . . . . . . . . . . . . . . . . vii Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Short-Term Price Forecasts: 1990-92 . . . . . . . . . . . . . . . . . viii Long-Term Price Forecasts: 1993-2005 . . . . . . . . . . . . . . . . . xiv Petroleum Forecasts: 1990-2005 . . . . . . . . . . . . . . . . . . . . xiv Commodity Markets in 1987-90 . . . . . . . . . . . . . . . . . . . . . . . 1 Non-Fuel Primary Commodities . . . . . . . . . . . . . . . . . . . . . . 1 Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Global Assumptions Underlying the Primary Commodity Forecasts . . . . . . . 9 Overview . . . . . . . . . . . . . . 9 Major Trends and Key Factors Shaping theOutlook . . . . . . . . 11 Summary of Global Projections to 2085 . . . . . . . . . . . . . . . . . . 18 Summary and Implications . . . . . . . . . . . . . . . . . . . . . . . . 23 ENERGY Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Price Outlook . . . 54 Price Forecast Se nittiviityy . . . . . . . . . . . 57 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Impact of Higher Oil Prices . . . . . . . . . . . . . . . . . . . . . . . 66 A Review of Demand Forecasts . . . . . . . . . . . . . . . . . . . . . . 66 Global Oil Production Forecast . . . . . . . . . . . . . . . . . . . . . 67 Appendix: Crude Oil Supply Forecasts . . . . . . . . . . . . . . . . . . 71 Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Environmental Implications . . . . . . . . . . . . . . . . . . . . . . . 98 METALS AND MINERALS Copper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Tin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 -iv- Nickel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Summary . . 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Historical Perspective . . . . . . . . . . . . . . . . . . . . . . . . 144 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 Trade Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Price Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Aluminum and Bauxite . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Trade Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 Iron Ore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 Trade Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184 Price Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 Trade Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 Lead and Zinc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 Demand Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 Supply Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 Price Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 -v- PREFACE This report is a compilation of studies which review the market prospects for major primary commodities exported by developing countries. The forecasts are mainly used in forecasting the balance of payments of countries that borrow from the World Bank and in appraising investment projects that include these commodities as inputs or outputs. Because of the multiple purposes they are intended to serve, the price forecasts are presented in current (nominal) as well as 1985 constant dollar (real) terms.' For the period 1990-95, the price forecasts are in terms of prices expected for the individual years. For 2000 and 2005, the price forecasts are forecasts of the average price levels expected during that period. The forecasts are conditional on the various macroeconomic and commodity-specific assumptions used--all of which are subject to uncertainty. The macroeconomic assumptions forming the basis for the price forecasts are provided in the report. Because of the uncertainty which is inherent in commodity price forecasts, the International Trade Division periodically prepares probability distributions of its price forecasts. These are available upon request. The primary commodity forecasts are discussed by commodity. For each commodity or group of commodities, there is a standardized set of tables giving historical and forecast values for production, consumption, exports, and imports; these tables give details in terms of major economic regions as well as for countries which are major participants in these markets. For most of the commodities, the forecasts have been based on simulation runs of global commodity models maintained within the International Trade Division of the World Bank's International Economics Department. Details of these models can be obtained directly from the Division. The assistance given to the Division in preparing this report is gratefully acknowledgee. People in both public and private organizations have been most forthcoming in providing data and in discussing the outlook for the various commodity markets. Their cooperation has added greatly to the usefulness of the report. I Commodity prices have been deflated by the World Bank's Manufacturing Unit Value (MUV) index, and the US GDP deflator. The MUV index is the c.i.f. index of US dollar prices of industrial countries' manufactured exports (SITC 5- 8) to the developing countries and may be regarded as a useful deflator to measure changes in the net barter terms of trade of developing countries highly dependent on exports of primary commodities. The US GDP deflator may be a useful deflator to use in circumstances where the US inflation rate is believed to be an appropriate measure of changes in the overall price or cost level. -vi- NOTES AND DEFINITIONS o Commodity market-price descriptions are shown on the next page. o Dollars are United States dollars unless otherwise specified. o All tons refer to metric tons (1,000 kilograms) unless otherwise noted. Abbreviations and Symbols tons - metric tons lb - pounds cum - cubic meters bbl - barrels kg - kilograms mb/d - million barrels per day ha - hectares NA - not available MTOE - million tons of oil equivalent ../--/ - no data Economic Classifications Industrial Countries* North America... includes Canada, United States. EEC-10. .includes Belgium-Luxembourg, Denmark, France, Federal Republic of Germany, Ireland, Italy, Netherlands, Spain, United Kingdom. Other Western Europe.. includes Austria, Finland, Iceland, Liechtenstein, Norway, Sweden, Switzerland. Asia and Oceania..includes Japan, Australia, New Zealand. Centrally Planned Economies USSR Eastern Europe..includes Albania, Bulgaria, Czechoslovakia, German Democratic Republic, Hungary, Poland, Romania. Developing Countries Southern Europe..includes Cyprus, Greece, Israel, Malta, Portugal, Yugoslavia, Turkey. Africa... includes South Africa. Latin America and the Caribbean..includes Cuba. Oceania..excludes Australia and New Zealand. Asia.. excludes Japan; includes China (which includes Taiwan (China), except where specifically noted), Democratic Kampuchea, People's Democratic Republic of Korea, Lao People's Democratic Republic, Mongolia, Viet Nam. * Also includes American Samoa, Guam, Pacific Islands, Puerto Rico, US Virgin Islands with North America; Bermuda, Channel Islands, Faeroe Islands, Falkland Islands, French Guiana, French Polynesia, Gibraltar, Greenland, Isle of Man, Martinique, New Caledonia, Reunion with EEC-10. -vii- COtMMODITY DESCRIPTION Energy Petroleum, average OPEC price (OPEC government sales weighted by OPEC exports) Thermal Coal, (12,000 BTU/1b, < 1.0% sulfur, 12% ash), f.o.b. Piers, Hampton Roads, Norfolk Food Coffee (ICO), indicator price, other mild Arabicas, average New York and Bremen/Hamburg markets, ex-dock for prompt shipment Cocoa (ICCO), daily average price, New York and London, nearest three future trading months Tea (London Auction), average price received for all teas Sugar (World), ISA daily price, f.o.b. and stowed at greater Caribbean ports Beef (US), imported frozen boneless, 85% visible lean cow meat, f.o.b. port of entry Bananas (Central and South American), first-class quality tropical pack, f.o.b. US ports Oranges (Mediterranean Exporters), EEC indicative import price, c.i.f. Paris Cereals Rice (Thai), white, milled, 5% broken, government standard, export price, f.o.b. Bangkok Wheat (Canadian), No. 1 Western Red Spring (CWRS) 13.5%, basis in store Thunder Bay, domestic; from April 1985, St. Lawrence, export Maize (US), No. 2, yellow, f.o.b. Gulf ports Grain Sorghum (US), No. 2, Milo yellow, f.o.b. Gulf ports Fats and Oils Palm Oil (Malaysian), 5% bulk, c.i.f. N.W. Europe Coconut Oil (Philippines/Indonesian), bulk, c.i.f. Rotterdam Groundnut Oil (Nigerian/West African), bulk c.i.f. UK, through January 1977; subsequently (any origin), c.i.f. Rotterdam Soybean Oil (Dutch), crude, f.o.b. ex-mill Soybeans (US), c.i.f. Rotterdam Copra (Philippines/Indonesian), bulk, c.i.f. N.W. Europe Pal Kernels (Nigerian), c.i.f. UK Groundnut Meal (Indian), 48%, c.i.f. Rotterdam; from 1982, Argentine, 48/50% Soybean Meal (US), 44% extraction, c.i.f. Rotterdam Non-Food Cotton (Outlook "A" Index), Middling (1-3/32"), c.i.f. Europe Jute (Bangladesh), white D, f.o.b. Chittagong/Chalna Rubber (RSS No. 1), in bales, spot New York Tobacco (Indian), flue-cured, average export unit value Timber Logs (Malaysian), Meranti, Sabah SQ Best Quality, sale price charged by importers, Japan Logs (West African), Sapelli, high quality, loyal and marchand, f.o.b. Cameroon Sawnwood (Malaysian), Dark Red Meranti, select and better quality, standard density, c.i.f. French ports Metals and Minerals Copper (LME), cash wirebars through November 1981; from December 1981 through June 1986, high grade cathodes, settlement price; subsequently, grade A Tin (Malaysian), Straits quality, ex-smelter, Penang, official settlement price Nickel (Canadian), electrolytic cathodes, Ni 99.9% shipping point; from 1980 (LME) cathodes, minimum 99.8% purity, official morning session weekly average bid/asked price Aluminum (LME), cash price, standard grade, minimum 99.5% purity Lead (LME), settlement price, refined lead, purity 99.97% Zinc (LME), settlement price, good ordinary brand; from Sept. 1984, High Grade Brand Iron Ore (Brazilian), 65%, c.i.f. North Sea ports Bauxite, crude and dried, US import reference price based on imports from Jamaica through 1974; from 1975 US import price, c.i.f. US port Gold (UK), 99.5% fine, London afternoon fixing, average of daily rates Silver (Bandy & Harman), 99.9% grade refined, New York Fertilizers Phosphate Rock (Moroccan), 72% BPL, FAS Casablanca; from 1981, 70% TPL contract Urea (any origin), bagged, f.o.b. N.W. Europe TSP (Triple Superphosphate), bulk, f.o.b. US Gulf DAP (Diammonium Phosphate), bulk, f.o.b. US Gulf Potassium Chloride (Muriate of Potash), bulk, f.o.b. Vancouver -viii- SUMMARY Short-Term Price Forecasts: 1990-92 The price forecasts made in this report are brought together in constant 1985 dollars in Table 1 and in current dollars in Table 2. The various commodity price indices maintained by the World Bank are shown in Table 3 (constant dollars) and Table 4 (current dollars) with the indices based on 1979- 81=100. The indices are also calculated for the forecast period to 2005. The deflator used to derive the constant dollar values is the Manufacturing Unit Value (MUV) index. This and other price indices are presented in Table 5 for the period 1948-2005. Non-fuel primary commodity prices in aggregate nominal terms are estimated to have declined by 6.8% in 1990. All sub-indices with the exception of "other foods" fell during the year; the largest declines were seen in fats and oils (down 15.5%) and beverages (down 11.9%). With the MUV index estimated to increase by 6.3% in 1990, the non-fuel commodity index measured in constant dollars fell 12.3%. Non-fuel commodity prices in aggregate nominal terms are forecast to be unchanged in 1991 and to increase by 3.3% in 1992. As the MUV is anticipated to increase by 9% in 1991, there is an expected decline in non-fuel commodity prices in real terms of 8.3% in 1991. The constant dollar index turns upwards in 1992--increasing by 2.1%. The decline in metals and minerals prices expected in 1991 as a consequence of the anticipated slowdown in industrial activity in the OECD, especially in the United States, will be offset by the increase expected in coffee prices. Cereal prices are also expected to fall in 1991, continuing the decline of recent months. In 1992, metals and minerals prices are expected to decline further in nominal terms because of the slow pace of OECD growth anticipated. Cereal prices are also expected to decline under pressure from production increases and increasing stock levels. Beverages, fats and oils, other foods (mainly sugar), and agricultural raw materials are all forecast to show some increase in prices in 1992. The cocoa market should begin to see some recovery in prices as the rapid production growth of recent years begins to taper off. The vegetable oils market is also expected to rebound from the lows of 1990 and 1991 with producers reducing planting and harvesting activity. The 1988 forecast of a boom in sugar prices in the 1988-90 period was not realized, although there was a substantial rise in prices in the period--with sugar in the world markets going as high as USQ16/1b. However, the good crop expectations for 1990/91 have brought prices down to the USP,9-10/lb level presently. Still, the world stocks-to-consumption ratio is near the critical range at which sharp price increases have been experienced in the past. Thus, there remains a high probability that a production shortfall will trigger a sharp run-up in prices in the next two to three years. A major source of uncertainty in the short term is the confrontation in the Mid-East which led to the recent rapid increase in crude oil prices. Theprice forecasts summarized here are based on the expectation that the crisis will be resolved in the near term and that the uncertainty over crude oil supplies from the Gulf region will be sharply reduced. If, indeed, crude oil prices are maintained at levels well above $20/bbl for a much longer period, there will be a significant impact on most other primary commodity prices. Most commodity prices, especially industrial raw materials, could be expected to fall as a result of the impact of high energy prices and lowered GNP growth on demand for investment and consumer goods. -ix- Table 1: Commodity Prices and Price Projections in 1985 Constant Dollars/a --------------Actual------------ ----------------------Projections-------------------- --------------- Short-Term-------------- -Long-Term- 1970 1980 1985 1988 1989 1990 1991 1992 1993 1994 1995 2000 2005 Energy Petroleum $/bbl 3.6 29.1 26.7 9.8 11.8 14.7 14.8 12.6 11.4 11.9 12.3 15.2 14.5 Coal $/mt n.a. 41 47 27 29 29 27 26 27 27 28 30 30 Food Coffee c/kg 314 328 321 218 172 135 137 140 147 153 164 207 207 Cocoa c/kg 185 248 225 114 90 86 81 85 88 91 94 109 126 Tea 0/kg 300 213 198 129 146 139 134 136 149 146 153 147 166 Sugar $/mt 222 602 90 162 204 188 181 274 262 208 200 223 227 Beef 9/kg 357 263 215 181 186 174 158 155 171 177 179 189 160 Bananas $/mt 452 361 378 344 395 364 318 322 324 320 311 284 261 Oranges $/mt 460 372 398 326 322 363 315 314 313 312 310 300 290 Rice $/mt 394 414 216 217 231 195 168 163 170 176 179 190 170 Wheat $/mt 172 182 173 129 145 106 88 88 99 107 109 134 110 Maize $/mt 160 119 112 77 81 74 66 63 66 67 67 80 72 Grain Sorghum $/mt 142 123 103 71 76 71 62 59 62 63 63 76 68 Fats and Oils Palm Oil $/mt 711 556 501 315 253 194 184 210 258 248 239 208 183 Coconut Oil $/mt 1,087 642 590 407 373 228 231 307 345 351 375 387 314 Groundnut Oil $/mt 1,036 819 905 425 559 656 548 400 344 360 430 380 289 Soybean Oil $/mt 840 569 572 334 312 304 280 305 311 306 302 281 257 Soybeans $/mt 320 282 224 218 199 167 156 176 180 175 168 150 162 Copra $/mt 615 432 386 286 251 156 146 196 209 214 227 272 221 Palm Kernels $/mt 460 329 291 192 181 126 122 158 172 175 187 177 156 Groundnut Meal $/mt 279 229 143 151 144 126 120 147 139 132 125 108 126 Soybean Meal $/mt 282 250 157 193 178 141 131 165 162 154 146 123 141 Non-Food Cotton c/kg 173 195 132 101 121 124 111 112 117 118 119 117 110 Jute $/mt 749 294 583 266 270 277 234 228 232 231 226 217 210 Rubber 0/kg 127 155 92 93 81 70 65 70 74 79 86 86 84 Tobacco $/mt 2,702 2,192 1,950 1,397 1,368 1,257 1,184 1,214 1,205 1,201 1,195 1,181 1,161 Timber Logs (Meranti) $/cm 102 186 136 168 162 143 137 142 149 150 153 166 184 Logs (Sapelli) $/cm 118 240 174 195 198 232 224 234 251 254 252 288 317 Sawnwood S/cm 254 348 276 221 305 361 343 366 370 372 374 394 421 Metals and Minerals Copper $/mt 3,865 2,080 1,417 1,873 2,057 1,801 1,443 1,291 1,200 1,154 1,100 1,403 1,292 Tin C/kg 982 1,567 1,154 508 616 414 393 401 408 414 411 488 399 Nickel S/mt 7,785 6,214 4,899 9,917 9,610 6,014 5,390 5,053 4,826 4,718 4,738 5,272 5,015 Aluminum $/mt n.a. 1,692 1,041 1,836 1,409 1,114 1,106 1,140 1,129 1,138 1,174 1,294 1,178 Lead $/mt 831 864 391 472 486 550 399 388 359 365 440 464 378 Linc $/mt 807 725 783 894 1,198 1,033 779 739 712 731 763 830 731 Iron Ore $/mt 41.6 25.5 22.7 16.6 19.1 19.8 18.8 18.2 18.0 17.8 17.7 19.3 18.1 Bauxite $/mt 32.8 30.5 35.7 21.8 20.6 20.4 19.9 19.8 20.4 20.7 21.1 22.0 19.5 Gold S/toz 98 579 318 315 275 260 255 265 278 292 293 293 276 Silver 0/toz 484 1,967 614 471 397 327 280 308 334 341 346 376 357 Fertilizers Phosphate Rock S/mt 30 45 34 26 29 26 28 28 30 30 31 31 31 Urea $/mt 132 212 136 112 95 107 106 114 121 128 129 120 112 Tsp $/mt 116 172 121 114 104 90 93 94 103 110 114 114 115 Dap $/mt 148 212 169 141 125 117 118 122 132 141 145 143 140 Potassium Chlor /b $/mt 86 110 84 63 71 67 64 65 69 71 72 72 72 n.a. = not available /a Computed from unrounded data and deflated by MUV (1985=100). /b Potassium chloride, also known as muriate of potash. Source: World Bank, International Economics Department. December 19, 1990 -X- Table 2: Coumodity Prices and Price Projections in Current Dollars/a ----------------Actual-------------- ------------------------Projections------------------------ ----------------- Short-Term----------------- --Long-Term- 1970 1980 1985 1988 1989 1990 1991 1992 1993 1994 1995 2000 2005 Energy Petroleum $/bbl 1.3 30.5 26.7 13.6 16.3 21.6 23.8 20.5 18.5 19.6 20.9 31.1 35.7 Coal $/mt n.a. 43 47 37 41 42 44 43 44 44 47 61 75 Food Coffee 0/kg 115 344 321 303 239 198 220 228 238 252 280 424 511 Cocoa 0/kg 68 260 225 159 124 127 130 138 143 150 160 223 311 Tea 4/kg 110 223 198 179 202 204 215 220 240 240 260 301 408 Sugar $/mt 81 632 90 225 282 277 290 445 424 342 341 457 560 Beef 0/kg 130 276 215 252 257 256 254 252 276 290 305 388 394 Bananas $/mt 165 379 378 478 547 535 511 523 524 525 530 582 643 Oranges $/mt 168 391 398 453 445 534 505 510 506 513 529 615 713 Rice $/mt 144 434 216 301 320 287 270 264 275 289 305 389 419 Wheat /mt 63 191 173 180 201 156 141 143 160 175 185 274 270 Maize $/Mt 58 125 112 107 112 109 106 102 107 109 114 164 178 Grain Sorghum $/mt 52 129 103 99 106 104 100 96 100 103 108 155 168 Fats and Oils Palm Oil /mt 260 584 501 437 350 285 295 341 417 408 408 425 450 Coconut Oil $/mt 397 674 590 565 517 336 370 497 558 577 639 793 774 Groundnut Oil 8/mt 379 859 905 590 775 965 880 649 556 591 733 779 713 Soybean Oil $/mt 307 597 572 463 432 448 450 495 503 503 515 575 634 Soybeans V/mt 117 296 224 304 275 246 250 286 290 287 286 306 400 Capra $/mt 225 453 386 398 348 230 235 318 337 352 387 557 544 Palm Kernels $/mt 168 345 291 267 251 185 195 256 278 287 318 363 385 Groundnaut Meal $/mt 102 240 143 210 200 186 193 238 225 217 212 222 310 Soybean Heal $/mt 103 262 157 268 246 208 210 268 262 254 248 252 347 Non-Food Cotton 0/kg 63 205 132 140 167 182 179 182 189 194 203 240 272 Jute /mt 274 308 583 370 373 408 375 370 375 380 385 445 516 Rubber 0/kg 46 162 92 129 112 103 105 114 120 130 146 176 206 Tobacco $/mt 988 2,300 1,950 1,941 1,894 1,850 1,900 1,970 1,948 1,972 2,037 2,420 2,860 Timber Logs (Meranti) $/cm 37 195 136 233 225 210 220 230 241 247 260 340 452 Logs (Sapelli) $/cm 43 252 174 271 274 341 360 380 406 418 430 590 781 Sawnwood $/cm 93 365 276 307 422 532 550 595 597 612 637 808 1,038 Metals and Minerals Copper $/mt 1,413 2,182 1,417 2,602 2,848 2,650 2,315 2,095 1,940 1,896 1,874 2,875 3,182 Tin o/kg 359 1,644 1,154 705 853 610 630 650 660 680 700 1,000 983 Nickel $/mt 2,846 6,519 4,899 13,778 13,308 8,850 8,650 8,200 7,800 7,750 8,075 10,800 12,350 Aluminum $/mt n.a. 1,775 1,041 2,551 1,951 1,640 1,775 1,850 1,825 1,870 2,000 2,650 2,900 Lead $/mt 304 906 391 656 673 810 640 630 580 600 750 950 930 Zinc $/mt 295 761 783 1,242 1,659 1,520 1,250 1,200 1,150 1,200 1,300 1,700 1,800 Iron Ore $/mt 15.2 26.7 22.7 23.1 26.4 29.2 30.2 29.6 29.1 29.2 30.2 39.5 44.6 Bauxite $/mt 12.0 32.0 35.7 30.3 28.5 30.0 32.0 32.2 33.0 34.0 36.0 45.0 48.0 Gold S/toz 36 608 318 437 381 383 410 430 450 480 500 600 680 Silver 0/toz 177 2,064 614 654 550 481 450 500 540 560 590 770 880 Fertilizers Phosphate Rock $/mt 11 47 34 36 41 41 45 46 48 50 52 64 76 Urea $/mt 48 222 136 155 132 157 170 185 195 210 220 245 275 Tsp $/mt 43 180 121 158 144 132 150 153 167 180 194 234 283 Dap $/mt 54 222 169 197 173 172 190 198 214 231 247 292 346 Potassium Chlor /b $/mt 32 116 84 88 99 98 103 105 111 117 122 147 177 n.a. = not available /a Data have been rounded. /b Potassium chloride, also known as muriate of potash. Source: World Bank, International Economics Department. December 19, 1990 -Xi- Table 3: Weighted Index of Commodity Prices (Constant US Dollars) (1979-81=100) Petroleum 33 Commodities --------------------------Agriculture--------------------------------- Timber Metals (Excluding Total -----------------------Food--------------------- Non-Food & (Weights- Energy) Total Beverages Cereals Fats & Oils Other Minerals %Share) (1) (100.0) (67.7) (53.2) (22.3) ( 9.4) ( 9.3) (12.3) (14.4) ( 5.2) (27.1) 1948 30.0 112.2 123.6 119.2 86.2 153.7 188.4 100.7 139.8 43.0 97.1 1949 25.8 112.5 120.9 118.9 99.5 162.2 147.1 99.6 128.6 47.1 104.1 1950 26.1 148.4 166.6 150.6 145.6 176.0 175.8 121.1 226.0 56.3 120.5 1951 22.7 155.6 171.7 145.2 140.3 165.4 182.1 110.9 269.5 71.9 131.4 1952 21.7 136.9 139.6 129.0 127.7 156.5 146.3 97.4 178.6 51.4 146.6 1953 23.6 131.3 135.7 134.0 134.0 161.3 150.6 100.4 142.2 48.3 136.3 1954 25.5 144.0 154.3 157.2 194.3 153.2 142.9 103.6 143.6 67.9 133.2 1955 25.0 140.1 141.7 133.3 151.5 132.9 130.3 102.8 172.8 53.4 152.8 1956 24.2 137.2 137.3 133.3 153.3 129.8 129.0 102.7 152.3 49.6 154.0 1957 23.6 127.6 130.9 127.1 137.3 121.0 127.2 113.1 144.7 46.8 135.1 1958 22.0 116.9 119.3 116.1 123.0 120.6 117.7 99.1 131,0 43.9 124.9 1959 19.8 116.7 119.3 110.5 109.7 116.3 127.3 94.9 151.9 52.4 122.7 1960 18.2 114.9 116.3 105.5 104.2 108.5 118.5 95.7 156.2 56.4 122.8 1961 17.9 108.4 108.0 101.8 97.1 114.6 117.9 88.5 131.0 57.4 119.1 1962 16.4 105.8 106.1 100.3 90.7 124.2 113.1 89.9 127.6 61.7 113.5 1963 16.7 109.9 112.2 109.9 91.4 126.6 121.7 122.0 120.8 61.4 113.3 1964 15.3 116.8 114.0 112.1 103.2 124.0 123.3 110.8 120.9 51.6 136.3 1965 15.1 118.6 109.0 106.7 98.1 120.4 134.5 91.0 117.4 59.1 154.1 1966 14.7 118.9 106.8 104.6 92.7 131.5 126.2 89.1 115.2 60.1 160.4 1967 14.5 110.2 104.4 103.4 89.3 136.8 119.5 91.5 108.2 63.5 133.6 1968 14.6 111.7 104.8 102.5 89.1 134.4 115.4 92.8 113.2 65.7 138.0 1969 13.9 112.2 103.7 100.6 87.8 126.5 108.4 98.3 115.2 60.1 143.6 1970 13.1 110.9 102.5 102.8 96.0 108.9 120.6 97.1 101.4 59.8 141.7 1971 16.2 97.5 93.2 92.3 79.3 99.8 114.4 93.3 96.4 57.9 115.9 1972 16.6 93.6 92.1 92.3 80.0 96.5 103.6 103.0 91.1 52.5 105.5 1973 20.4 123.8 123.9 123.7 87.9 170.2 184.9 107.1 124.3 79.2 132.3 1974 69.3 134.3 134.7 140.3 83.1 202.4 171.6 172.9 114.0 77.9 144.2 1975 60.7 100.8 99.8 102.7 71.0 142.4 103.7 129.2 89.2 52.8 112.6 1976 64.3 111.8 115.9 117.3 134.0 114.8 109.5 94.7 110.7 70.0 109.7 1977 63.9 122.6 133.9 142.4 205.3 96.0 123.5 77.9 102.4 74.0 103.9 1978 56.0 101.4 107.9 110.9 132.3 100.1 112.3 79.1 96.8 67.7 91.8 1979 71.3 104.8 105.5 106.4 121.0 92.2 113.4 85.6 101.9 104.3 103.1 1980 106.6 104.8 104.3 103.8 99.0 100.4 95.8 121.1 106.3 109.4 105.1 1981 119.4 90.9 90.8 90.4 82.0 106.7 92.0 92.1 92.0 86.7 92.1 1982 109.6 82.6 81.4 81.1 85.1 79.0 76.1 79.3 82.3 88.3 84.5 1983 101.7 89.1 89.4 87.9 88.0 87.3 91.8 85.4 94.6 84.1 89.6 1984 101.7 92.3 94.5 95.7 104.0 85.2 110.3 77.5 90.0 98.9 85.8 1985 97.9 81.3 81.6 83.4 95.1 74.0 76.7 74.5 75.0 79.9 80.9 1986 42.0 69.3 71.4 75.1 98.6 54.9 50.1 66.7 57.8 75.3 63.0 1987 48.7 63.4 59.2 57.6 58.9 47.1 53.1 66.5 65.3 100.4 66.5 1988 35.9 71.1 63.1 63.5 61.4 59.3 65.0 69.4 61.8 98.6 85.8 1989 43.2 70.0 60.4 60.0 50.8 63.6 58.8 74.6 62.0 95.3 89.2 1990 53.8 61.4 53.2 51.8 42.1 54.3 46.8 71.4 58,3 83.8 77.4 1991 54.4 56.3 49.6 48.5 42.1 47.2 43.7 65.1 53.7 80.5 68.4 1992 46.3 57.5 52.4 51.5 43.1 45.5 51.5 71.3 55.5 83.2 65.4 1993 42.0 58.6 54.4 53.5 45.5 48.2 54.1 71.7 57.6 87.4 63.7 1994 43.8 58.6 54.5 53.3 46.9 49.7 52.5 68.2 59.2 88.3 63.1 1995 45.0 59.4 55.7 54.2 49.8 50.4 51.4 67.1 61.2 89.6 62.9 2000 55.7 64.5 58.9 58.4 59.6 57.8 46.0 65.9 60.7 97.3 72.0 2005 53.2 62.6 57.7 57.5 61.9 51.1 45.9 63.1 58.6 107.8 66.1 (1) Weighted by 1979-81 developing countries' export values. Source: World Bank, International Economics Department. December 19, 1990 -xii- Table 4: Weighted Index of Conmodity Prices (Current US Dollars) (1979-81=100) Petroleum 33 Connodities --------------------------Agriculture------------------------------- Timber Metals (Excluding Total ----------------------Food---------------------- Non-Food & (Weights- Energy) Total Beverages Cereals Fats & Oils Other Minerals %Share) (1) (100.0) (67.7) (53.2) (22.3) ( 9.4) ( 9.3) (12.3) (14.4) ( 5.2) (27.1) 1948 8.3 31.0 34.1 32.9 23.8 42.4 52.0 27.8 38.6 11.9 26.8 1949 6.8 29.8 32.0 31.5 26.4 43.0 39.0 26.4 34.1 12.5 27.6 1950 6.1 34.7 39.0 35.2 34.1 41.2 41.1 28.3 52.9 13.2 28.2 1951 6.1 41.8 46.2 39.1 37.7 44.5 49.0 29.8 72.5 19.3 35.4 1952 6.1 38.6 39.4 36.4 36.0 44.1 41.3 27.5 50.4 14.5 41.3 1953 6.5 36.0 37.2 36.7 36.7 44.2 41.3 27.5 39.0 13.2 37.4 1954 6.8 38.6 41.4 42.1 52.1 41.1 38.3 27.8 38.5 18.2 35.7 1955 6.8 38.2 38.7 36.4 41.3 36.3 35.6 28.1 47.2 14.6 41.7 1956 6.8 38.8 38.9 37.7 43.4 36.7 36.5 29.1 43.1 14.0 43.6 1957 6.8 36.9 37.8 36.7 39.7 35.0 36.8 32.7 41.8 13.5 39.0 1958 6.5 34.4 35.1 34.1 36.2 35.4 34.6 29.1 38.5 12.9 36.7 1959 5.8 33.9 34.6 32.0 31.8 33.7 36.9 27.5 44.1 15.2 35.6 1960 5.4 34.0 34.4 31.2 30.9 32.1 35.1 28.3 46.2 16.7 36.4 1961 5.4 32.6 32.5 30.6 29.2 34.5 35.5 26.6 39.4 17.3 35.8 1962 5.0 32.5 32.6 30.8 27.8 38.1 34.7 27.6 39.2 18.9 34.8 1963 5.0 33.1 33.8 33.1 27.5 38.1 36.6 36.7 36.3 18.5 34.1 1964 4.7 35.7 34.9 34.3 31.6 37.9 37.7 33.9 37.0 15.8 41.7 1965 4.7 36.7 33.7 33.0 30.3 37.2 41.6 28.1 36.3 18.2 47.6 1966 4.7 37.9 34.1 33.4 29.6 41.9 40.3 28.4 36.8 19.2 51.2 1967 4.7 35.6 33.7 33.4 28.8 44.2 38.6 29.6 35.0 20.5 43.2 1968 4.7 35.8 33.5 32.8 28.5 43.0 36.9 29.7 36.2 21.0 44.2 1969 4.7 37.8 35.0 33.9 29.6 42.6 36.5 33.1 38.8 20.3 48.4 1970 4.7 39.7 36.7 36.8 34.4 39.0 43.2 34.8 36.3 21.4 50.7 1971 6.1 36.8 35.2 34.9 30.0 37.7 43.2 35.3 36.5 21.9 43.8 1972 6.8 38.6 37.9 38.0 33.0 39.7 42.7 42.4 37.5 21.6 43.5 1973 9.7 59.1 59.1 59.0 41.9 81.2 88.2 51.1 59.3 37.8 63.1 1974 40.3 78.0 78.2 81.5 48.3 117.6 99.7 100.5 66.2 45.3 83.8 1975 39.2 65.1 64.5 66.3 45.8 92.0 67.0 83.5 57.6 34.1 72.7 1976 42.1 73.2 75.9 76.8 87.7 75.2 71.7 62.0 72.5 45.8 71.9 1977 46.0 88.3 96.4 102.6 147.8 69.1 88.9 56.1 73.7 53.3 74.8 1978 46.4 84.0 89.3 91.8 109.5 82.8 93.0 65.5 80.2 56.1 76.0 1979 66.9 98.3 98.9 99.8 113.5 86.5 106.4 80.3 95.6 97.9 96.7 1980 109.7 107.8 107.3 106.8 101.8 103.3 98.5 124.6 109.4 112.6 108.2 1981 123.4 93.9 93.8 93.4 84.7 110.2 95.0 95.1 95.0 89.6 95.1 1982 111.5 84.0 82.7 82.5 86.5 80.3 77.4 80.7 83.7 89.8 85.9 1983 101.1 88.6 88.8 87.4 87.5 86.8 91.3 84.8 94.0 83.6 89.1 1984 98.9 89.8 91.9 93.1 101.2 82.9 107.3 75.4 87.5 96.3 83.4 1985 96.0 79.8 80.1 81.8 93.3 72.6 75.2 73.1 73.6 78.4 79.3 1986 48.6 80.1 82.5 86.8 114.0 63.4 58.0 77.1 66.8 87.1 72.8 1987 61.9 80.5 75.2 73.1 74.9 59.9 67.5 84.4 83.0 127.5 84.5 1988 48.9 97.0 86.0 86.5 83.6 80.9 88.6 94.6 84.3 134.4 117.0 1989 58.6 95.1 82.0 81.4 69.0 86.3 79.9 101.3 84.2 129.4 121.1 1990 77.7 88.6 76.8 74.8 60.8 78.4 67.5 103.1 84.2 120.9 111.6 1991 85.6 88.7 78.1 76.4 66.2 74.2 68.8 102.4 84.5 126.7 107.6 1992 73.7 91.6 83.4 82.0 68.7 72.5 81.9 113.6 88.4 132.4 104.2 1993 66.5 93.0 86.2 84.8 72.2 76.5 85.8 113.6 91.3 138.5 101.0 1994 70.5 94.5 87.9 85.9 75.6 80.1 84.6 109.9 95.3 142.3 101.6 1995 75.2 99.3 93.0 90.5 83.2 84.2 85.9 112.1 102.3 149.8 105.1 2000 111.9 129.5 118.3 117.3 119.7 116.2 92.5 132.5 122.0 195.5 144.7 2005 128.4 151.2 139.4 138.8 149.5 123.5 110.8 152.3 141.4 260.4 159.6 (1) Weighted by 1979-81 developing countries' export values. Source: World Bank, International Economics Department. December 19, 1990 -xiii- Table 5: Inflation Indices: 1948-2005 Year ---G-5 MUV Index /a-- ---US GNP Deflator--- -G-5 GNP Deflator /b- ------G-7 CPI /c----- 1985=100 % Change 1985=100 % Change 1985=100 % Change 1985=100 % Change 1948 28.12 21.27 7.01 1949 27.02 -3.90 21.16 -0.52 1950 23.81 -11.90 21.59 2.01 18.18 1951 27.45 15.30 22.63 4.82 19.35 6.44 1952 28.76 4.80 22.97 1.51 20.07 3.72 1953 27.96 -2.80 23.34 1.61 22.78 20.37 1.49 1954 27.34 -2.20 23.71 1.60 23.18 1.75 20.75 1.87 1955 27.86 1.90 24.48 3.24 23.68 2.16 20.79 0.19 1956 28.87 3.60 25.30 3.36 24.68 4.22 21.16 1.78 1957 29.47 2.10 26.21 3.60 25.47 3.24 21.74 2.74 1958 29.97 1.70 26.75 2.05 25.77 1.18 22.39 2.99 1959 29.55 -1.40 27.43 2.57 25.77 0.00 22.65 1.16 1960 30.18 2.10 27.89 1.68 26.37 2.33 23.15 2.21 1961 30.69 1.70 28.16 0.96 27.27 3.41 23.70 2.38 1962 31.30 2.00 28.79 2.22 28.27 3.66 24.44 3.12 1963 30.71 -1.90 29.20 1.44 29.07 2.83 25.27 3.40 1964 31.24 1.75 29.68 1.64 29.87 2.75 25.90 2.49 1965 31.47 0.74 30.44 2.57 30.77 3.01 26.75 3.28 1966 32.58 3.50 31.51 3.50 31.77 3.25 27.69 3.51 1967 32.95 1.16 32.40 2.82 32.77 3.14 28.47 2.82 1968 32.64 -0.96 34.01 4.98 33.97 3.66 29.62 4.04 1969 34.40 5.40 35.86 5.42 34.97 2.94 31.06 4.86 1970 36.56 6.27 37.88 5.65 37.31 6.71 32.89 5.89 1971 38.54 5.42 40.00 5.59 40.31 8.03 34.60 5.20 1972 41.99 8.97 41.91 4.77 44.45 10.26 36.15 4.48 1973 48.65 15.84 44.65 6.55 50.42 13.44 39.04 7.99 1974 59.27 21.84 48.64 8.93 55.01 9.11 44.51 14.01 1975 65.90 11.18 53.46 9.91 62.23 13.11 49.40 10.99 1976 66.81 1.38 56.85 6.34 63.99 2.83 53.37 8.04 1977 73.39 9.85 60.64 6.67 69.76 9.02 57.70 8.11 1978 84.46 15.08 65.09 7.34 81.17 16.35 61.69 6.92 1979 95.65 13.26 70.82 8.79 90.47 11.46 67.37 9.21 1980 104.91 9.68 77.26 9.10 99.90 10.42 75.51 12.08 1981 105.34 0.41 84.69 9.62 99.20 -0.70 82.89 9.77 1982 103.72 -1.53 90.14 6.43 98.50 -0.70 88.49 6.76 1983 101.36 -2.28 93.62 3.86 99.00 0.51 92.30 4.31 1984 99.20 -2.14 97.11 3.73 97.80 -1.21 96.34 4.37 1985 100.00 0.81 100.00 2.98 100.00 2.25 100.00 3.80 1986 117.91 17.91 102.70 2.70 121.28 21.28 101.93 1.93 1987 129.51 9.84 106.07 3.28 136.76 12.77 104.67 2.69 1988 138.94 7.28 109.72 3.45 145.93 6.71 107.89 3.08 1989 138.49 -0.32 114.26 4.14 144.53 -0.97 112.56 4.33 1990 147.17 6.27 118.53 3.73 158.19 9.46 117.44 /d 4.68 /e 1991 160.48 9.04 125.07 5.52 170.96 8.07 1992 162.30 1.14 128.09 2.42 177.09 3.59 1993 161.62 -0.42 131.39 2.58 177.93 0.47 1994 164.26 1.64 135.27 2.95 182.86 2.77 1995 170.43 3.76 139.25 2.94 191.32 4.63 1996 177.29 4.03 142.99 2.69 199.58 4.32 1997 185.65 4.71 147.15 2.91 208.35 4.39 1998 191.68 3.25 151.81 3.17 214.59 2.99 1999 198.26 3.43 156.68 3.21 221.63 3.28 2000 204.88 3.34 161.89 3.32 229.20 3.42 2005 246.28 3.75 188.20 3.06 274.58 3.68 /a Unit value index in US dollar terms of manufactures exported from the G-5 countries (France, Germany, Japan, UK, and US) weighted proportionally to the countries' exports to the developing countries. /b Aggregate index of GNP deflators in US dollar terms for the G-5 countries, using SDR-based moving weights. /0 Aggregate consumer price index in US dollar terms for the G-7 countries (Canada, France, Germany, Italy, Japan, UK and US) weighted by the countries' 1985-87 average GNP in current dollars. /d Actual January - October average. /e Percent growth rate calculated based on Jnauary through October 1990 as compared to the same period in 1989. Sources: G-5 MUV index, G-5 GNP deflator and US GNP deflator (for period 1984-2005)--World Bank. G-7 CPI and US GNP deflator (for period 1948-83)--International Monetary Fund. World Bank, International Economics Department. October 26, 1990 -xiv- Long-Term Price Forecasts: 1993-2005 Because of the steady growth path of world economic growth assumed during the period and the relatively low growth in the MUV index, non-fuel primary commodity prices are expected to increase in both nominal and real terms over the 1993-2000 period. The 33-commodity, non-fuel index is expected to increase by 11.7% in constant dollar terms over this period. All commodity groups, with the exception of fats and oils and other foods, are anticipated to increase in real terms. There should be an increase in beverage prices, especially in coffee and cocoa, as a result of the declining production growth rate. This will be brought about by the slowdown in planting now under way because of the low prices of the past year or so. Cereal prices are expected to show steady increases in real terms in the period to 2000, especially wheat and maize, as a result of steadily increasing consumption in the developing countries, particularly in East and South Asia. Shifting preferences away from rice towards wheat and increasing emphasis on meat in their diets will lead to rapid increases in wheat and maize consumption in the Asia region. As well, yield growth has slowed in the developing countries because of the widespread adoption of the high-yielding rice and wheat varieties bred since the 1960s and the lack of new improved varieties available for sowing. Vegetable fats and oils prices are expected to continue to decline in real terms over this period because of the substantial new plantings which have been made of palm oil over the past decade or so and the increases expected in soybeans plantings in several countries. Growth of consumption of vegetable oils will remain strong because of the dietary improvements being made in most developing countries. However, the continuing increases in production should keep pushing prices down in real terms. Metals and minerals prices are expected to show a solid increase in real terms over the 1995-2000 period. As the section on global assumptions underlying these forecasts argues, good growth in investment activity is expected in this period. Investment activities are raw materials intensive, and an upswing in investment would lead to a sustained increase in raw materials prices in real terms. Tropical timber prices are also expected to increase significantly in real terms throughout the forecast period. Supplies of logs and sawnwood are being restricted by the major tropical timber producers through the use of export bans or licensing of felling or exporting. The government intervention stems from concerns over depletion of the forests and environmental degradation as a result of timber harvesting, and desires to increase the value-added of the timber industry by giving incentives to domestic processing. Over the 2000-2005 period, non-fuel commodity prices are expected to decline in real terms, with the exception of beverages and tropical timber. This period of decline is predicated on several assumptions. First, that the rising real prices in the period 1995-2000 will promote investment in production capacity which will come on-stream during the latter period. Second, there will be continuing productivity increases which will be given additional momentum by the 1995-2000 period of higher real prices. And third, competition from substitutes will also have been promoted by the period of higher prices. Petroleum Price Forecasts: 1990-2005 Petroleum prices are expected to average $21.60/bbl in 1990--an increase of 33% over 1989--as a result of the embargo on crude oil from Iraq and Kuwait following the Iraqi invasion of Kuwait. Assuming that crude oil supplies return to near normal in the latter half of 1991 and given the assumption of a slowdown in OECD activity, crude oil prices are expected to fall from present -xv- levels of $25-30/bbl by mid-1991 and to average $23.80/bbl in 1991. The decline in oil prices, in nominal terms, should continue through 1992 and 1993, in the absence of any further supply disruptions. Given our expected long-term growth in crude oil consumption of 1.3% p.a. and a slowing of non-OPEC supplies (mainly in the United States and the USSR), oil prices should experience upwards pressure in real as well as nominal terms throughout the 1993-2000 period. This is a trend forecast. With the increasing concentration of oil supplies in a few suppliers in the Gulf region, the potential for supply disruptions is large. Therefore, crude oil prices will remain highly variable and these forecasts are subject to a large degree of uncertainty. COMMODITY MARKETS IN 1987-90 Non-Fuel Primary Commodities During the 1987-90 period, primary commodity prices staged a broad- based rally from the lows reached in 1986. The World Bank's current dollar index of non-fuel primary commodity prices increased 19% between 1986 and 1989 (see Table 1 and Figure 1). However, primary commodity prices barely kept up with increases in the unit value of manufactured exports; the World Bank's non-fuel commodity price index deflated by the Manufactured Unit Value (MUV) index increased by only 1.3% over the 1986-89 period. The non-fuel nominal price index began to rise sharply in the second half of 1987 and continued to increase through 1988, to reach a peak in the first quarter of 1989. Between the first quarter of 1987 when the index reached a record low and the first quarter of 1989, the index rose 37.6%. It subsequently declined during most of 1989 and the first quarter of 1990, but rose again during the second and third quarters of 1990, only to fall in the fourth quarter. The index for the third quarter of 1990 stood at 11% below its peak level during the first quarter of 1989. All primary commodity groups, except beverages, enjoyed price increases during the review period. The suspension of the export quota regime in the International Coffee Agreement (ICA) in July 1989, after members failed to agree on new export quotas, and the 26% increase in world cocoa production were the main causes of a 39.5% decline in the beverage price index between 1986 and 1989. With beverages carrying a large weight (22.3%) in the World Bank's index, an implication is that the developing countries exporting primary commodities other than beverages have enjoyed much larger price increases than what the aggregate index suggests. Among the primary commodity groups, metals and minerals' prices experienced the sharpest increase, with a 65.2% jump between 1986 and 1989; followed by timber (up 48.6%), fats and oils (up 38.1%), cereals (up 36.1%), other agricultural food (up 31.4%), and non-food commodities (up 29.3%). Many of the factors that had depressed primary commodity prices during the 1985-86 period reversed direction during the 1987-89 period.1 Between 1986 and 1989, the OECD's GDP and industrial production grew at an average annual rate of 3.7% and 4.3% p.a., respectively, compared with 2.5% and 1.9% during 1980-86. In the developing countries, GDP growth accelerated from 3.9% p.a. during 1980-86 to 4.6% p.a. for the subsequent three years, although there were wide disparities in growth performance among developing countries. These GDP growth rates represent modest rather than spectacular growth performance. However, the impact of the economic expansion on the demand for primary commodities has been impressive, particularly for the industrial raw material commodities. Lower petroleum prices after 1985 and the pent-up demand for investment led to faster growth of the material-intensive capital goods' sector and the construction industry than in the rest of the economy. From the dismally low rates of growth in the 1980-86 period, consumption of metals and agricultural raw materials in industrial economies increased at 4.6% and 1.9% p.a., respectively, over the 1986-88 period. Consumption of agricultural food commodities also increased at a modest rate, but higher than in the previous ten years. 1 The following observations on the relative importance of various market fundamentals in explaining changes in primary commodity price indices are based on simulation results with price equation estimates in C. L. Gilbert, "The Impact of Exchange Rates and Developing Country Debt on Commodity Prices," Commodity Studies and Projections Division Working Paper No. 1986-4, March 1986, and B. J. Choe, "The Metals Price Boom of 1987-89: The Role of Supply Disruptions and Stock Changes," PRE Working Paper No. 542, November 1990, World Bank. -2- Table 1: Commodity Price Data Monthly Annual Averages Quarterly Averages Average Percent Change (%) 1987 1988 1989 1989 1990 1990 1989/86 Jul-Sep 1990/ Unit Jan-Mar Jul-Sep Nov Jan-Dec Oct-Dec 1986 Energy Crude oil: $/BBL 17.2 13.6 16.3 15.2 23.8 29.0 21.1 76.5 *Spot Coal *Australian $/MT 27.5 34.9 38.0 38.0 40.5 40.5 22.1 33.9 *us $/MT 36.2 37.1 40.5 40.5 42.5 42.5 -7.8 -1.5 Beverages Cocoa C/KG 199.4 158.5 124.1 144.2 133.4 134.7 -40.0 -34.1 Coffee C/KG 250.5 303.4 238.7 317.9 203.2 186.8 -44.4 -41.2 Tea O/KG 170.8 178.9 201.9 183.8 183.2 228.6 4.7 -9.7 Cereals Rice $/MT 230.3 301.4 320.3 279.4 271.9 276.3 52.2 35.4 Grain Sorghum $/MT 72.8 98.5 105.9 110.1 104.1 98.2 28.5 48.6 Maize $/MT 75.7 106.9 111.5 118.0 108.8 100.4 27.4 57.4 Wheat $/MT 133.5 179.6 201.2 211.5 139.9 125.8 25.3 5.7 Fats and Oils Palm Oil $/MT 342.6 437.2 350.4 394.3 284.7 331.0 36.4 -1.6 Coconut Oil $/MT 442.3 564.8 516.8 540.0 291.7 343.0 74.3 -22.8 *Soybean Oil $/MT 334.3 463.4 431.5 424.0 452.7 455.0 26.0 41.3 Soybeans $/MT 215.8 303.5 275.0 312.7 250.7 239.0 32.0 25.3 Other Foods Beef O/KG 238.6 251.7 256.9 245.5 263.7 253.4 22.8 23.5 Sugar C/KG 14.9 22.5 28.2 23.3 24.9 22.2 111.6 99.2 Oranges $/MT 456.0 453.4 445.4 404.3 595.0 520.0 13.1 50.2 Agric. Non-foods Cotton C/KG 164.8 139.9 167.4 141.2 186.5 182.0 58.5 55.5 Jute $/MT 322.8 370.0 373.3 370.0 410.0 410.0 38.2 83.6 *Wool C/KG 446.0 578.9 539.3 600.0 388.0 378.4 63.1 18.8 Rubber C/KG 111.7 128.8 111.7 126.4 104.1 102.0 18.2 4.0 Logs $/CUM 221.4 233.4 224.7 228.0 218.7 217.2 48.5 41.9 Metals and Minerals Copper $/MT 1,782.5 2,602.2 2,848.4 3,251.7 2,919.3 2,585.9 107.3 121.4 Tin:Malaysian C/KG 669.0 705.2 853.4 801.5 584.6 598.1 38.5 -2.9 Nickel:LME $/MT 4,872.2 13,778.3 13,308.1 17,802.0 10,373.2 8,587.4 242.9 186.6 Lead C/KG 59.7 65.6 67.5 62.9 86.3 70.1 65.9 81.6 Zinc C/KG 79.9 124.2 165.9 187.6 159.7 127.8 120.0 91.3 Aluminum $/MT 1,565.4 2,549.7 1,951.3 2,218.1 1,806.5 1,759.0 69.7 58.1 *Silver C/TOZ 700.9 653.5 549.9 593.1 487.7 416.9 0.5 -12.0 Iron ore $/MT 22.2 23.1 26.4 26.4 28.8 29.4 20.2 30.2 Phosphate rock $/MT 31.0 36.0 40.8 41.5 40.5 40.5 18.9 16.6 Selected Price Indices (1979/81=100) Agriculture: Food 73.1 86.5 81.4 88.3 75.0 72.7 -6.2 -3.7 Agric.: Non-food 83.0 84.3 84.2 83.4 82.5 84.0 26.1 20.6 (excl. logs) Metals and Minerals 84.5 116.9 121.2 133.4 118.6 109.0 66.5 64.3 33 Selected Commodities 80.5 97.0 95.1 102.1 91.0 86.9 18.7 19.9 * = Not Included in Index. ** Note: The 33 commodity index includes commodities shown above plus bananas, copra, groundnut oil, groundnut meal, soybean meal, tobacco and bauxite. The asterisked items, however, are not included. Source: World Bank, International Economics Department. December 24, 1990 -3- Figure la: World Bank Indices of Primary Commodity Prices, 1980-90 (third quarter) (In current US Dollar terms, 1985 =100) Metals & Minerals * 150 .-. * / 1 ,'33 Commodities 100 --Total Food 50% Petroleum ,q 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Source: World Bank, International Economics Department. Figure I b: World Bank Indices of Primary Commodity Prices, 1980-90 (third quarter) (deflated by G-6 MUV Index, 1985= 100) 150 ... . . g5 ,Metals & Minerals **. 100 33 Commodities I w Total Food \ I Petroleum / - 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Source: World Bank, International Economics Department. -4- US dollar depreciation vis-a-vis other major currencies until the third quarter of 1988 had a strong positive impact on commodity prices. Depreciation of the US dollar makes primary commodities cheaper in terms of currencies of other major industrial countries and hence increases their import demand. On the other hand, primary commodity supplies will be reduced in countries where US dollar depreciation results in lower prices in local currencies. Actually, much of the terms-of-trade changes alluded to earlier, in terms of primaries vis-a-vis manufactures, resulted from US dollar depreciation during the period.2 Figure 2 shows that the increases in the US dollar prices of primary commodities represented only small gains or even declines in terms of other major currencies or the Special Drawing Rights (SDR)--at least for the period of US dollar depreciation. Studies have indicated that the exchange rate impact on commodity prices takes time to work its way through supply and demand. Thus, the positive impact of US dollar depreciation on commodity prices probably was largest in 1987, because of the cumulative impact of dollar depreciation since 1985, and gradually tapered off through 1988. In 1989, exchange rate changes probably had a negligible net impact on commodity prices, as the impact of the dollar's appreciation since late 1988 was largely being offset by the lagged impact of depreciation prior to that time. Supply disruptions, either for natural or man-made causes, have been an important contributor to the rise in metals prices and those of foodstuffs. While bad weather (such as the 1988 drought in North America) did not last for more than a season, disruptions in the mining industries, due to strikes, accidents, and social and political disturbances, have persisted throughout the past three years. The supply shortfalls caused by the disruptions had a large impact on prices of metals, agricultural raw materials, and some foodstuffs because the market balances for these commodities were already tight or were in deficit. World stocks were drawn down over the 1987-89 period for rice, wheat, maize, sugar, fats and oils, cotton, natural rubber, and most metals and minerals. Changes in short-term interest rates and petroleum prices appear to have been relatively unimportant contributors to the changes in commodity prices. Over the 1987-89 period, nominal interest rates slowly increased but remained relatively low by recent standards. Thus, their negative impact on commodity prices was only minor. The combination of the North American drought in 1988 and US policies aimed at reducing cereal production and stocks were the major factors explaining the price increases in wheat and coarse grains over the 1988-89 period. The drought, and the application of the US acreage set-asides, as well as the depressing effect of a long period of low prices (1985-87) on the production of other exporters, had the effect of changing the cereal situation rapidly from overproduction to production below consumption and led, therefore, to a rapid decline in stocks. Prices of wheat and coarse grains increased significantly. The rapid turnaround was more marked in wheat than in the coarse grains market. Between 1988 and 1989, grains prices increased as follows: Canadian wheat (up 12.1%), US wheat (up 14.6%), US maize (up 4.3%), and US sorghum (up 7.5%). World wheat ending stocks at the end of 1989/90 were 114 million tons, the lowest level in more than a decade; ending stocks of coarse grains had declined to 115.1 million tons, the lowest level since 1983/84. The stocks-to-utilization ratio for wheat was 21%, the lowest level in 30 years, while the ratio for coarse grains was 14%, the lowest level in the last 10 years. 2 Manufactures tend to have a lower exchange rate pass-through than primaries. Thus, in periods of dollar depreciation their prices in local currencies will be reduced by less than primaries (see P. Varangis and R.C. Duncan, "The Response of Japanese and US Steel Prices to Changes in the Yen- Dollar Exchange Rate," PRE Working Paper No. 367, March 1990, World Bank). -5- Figure 2: World Bank Non-fuel Primary Commodity Price Index in Selected Currencies, 1980 - 89 ( in current terms, 1985 = 100) 160 140 \2 US Dollar 100 *..*R .****. 80 *'.. D. Mark. 60 ~~"'Yen 40 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Source: World Bank. International Economics Department. -6- The rice market has undergone significant supply and demand changes over the period. Rice prices increased and imports reached high levels in several countries in 1988 and 1989, as demand increased for consumption and stock building, following the crop shortfalls in 1987. Prices then declined due to record harvests in Southeast Asia and the re-emergence of Viet Nam as the third largest exporter, next to Thailand and the United States. World rice ending stocks at the end of the 1989/90 season are estimated at 53.6 million tons, 19% above the level in 1987/88. Declines in coffee and cocoa prices dominated the changes in the beverage price index, far outstripping moderate increases in tea prices. After recovering somewhat in 1988 due the re-introduction of the ICA export quota system (after its suspension between February 1986 and September 1987), coffee prices collapsed in July 1989 when the International Coffee Organization failed to agree on new export quotas. The suspension of the quota system in 1989 led to large increases in coffee exports, part of which was contributed by stocks accumulated in producing countries during the time of the export quotas. Chronic oversupply of cocoa, despite modest demand increases, has been the main culprit for steady declines in cocoa prices. Between 1986 and 1989, cocoa production increased by over 25% mainly due to the high producer prices in Cote d'Ivoiret the large numbers of trees coming to maturity in Cote d'Ivoire, Chana, Indonesia, and Malaysia, and the relatively good weather conditions for cocoa growing. The tea price increases in 1988 and 1989 were in the nature of a recovery from extremely low levels recorded in 1987. The recovery was helped by low production in India and Sri Lanka, due to adverse weather in 1989 and a sharp increase in import demand by the USSR. Fats and oils prices generally increased in 1987 and 1988 but declined in 1989. The 1988 drought in North America reduced the soybean crop sharply and triggered a price rally across all fats and oils, markets. Producers in the southern hemisphere, particularly Brazil and Argentina, responded with increased plantings in 1989 and, despite bad weather and marketing problems, contributed to easing supplies and lowering of prices. The largest increase in production took place in Southeast Asia, mostly in palm products. Import demand for fats and oils has shown only small increases. Among the other agricultural food commodities, the more-than-doubling of sugar prices between 1986 and 1989 was moderated by much less steep increases in beef prices, bananas, and oranges. Sugar prices rose due to the sustained deficit of supplies and the decline in stocks for the fifth consecutive year. Strong demand growth has been the main cause of price increases for cotton and natural rubber, the two important commodities comprising the non-food agricultural commodity group. World consumption of these commodities has exceeded production in the last three years, except for cotton in 1988 when production and consumption was closely balanced. However, world stocks of these commodities have been declining steadily throughout the period. A temporary pause in consumption growth in 1988 at a time of large production increases resulted in a decline in cotton prices in that year. However, cotton prices rose in 1989 as production declined and consumption increased to a record level. The growth rate of world natural rubber consumption eased from 5.9% in 1988 to 4.2% in 1989, reflecting a slowdown in the automobile sector. Natural rubber production failed to catch up with consumption increases, however, growing at 4.8% and 1.6% in 1988 and 1989, respectively. The increases in timber prices were due to the imposition of logging restrictions and sawnwood and log export restrictions by several log-producing countries. The restrictions are aimed at reducing logging activity for forest conservation purposes and to increase the value-added of timber exports. Demand for timber products during 1986-89 increased significantly in Japan and the United States due to the boom in the construction sector, but stagnated in Western Europe. -7- The period 1987-89 was marked by relatively high metals prices over an extended period. The World Bank's nominal price index for the base metals increased steadily between 1986 and 1989, to reach a peak during the first quarter of 1989 at a level more than 80% higher than in 1986. The index started to retreat from the second quarter of 1989, but picked up again during the third quarter. Copper, nickel, lead and zinc achieved the sharpest price increases and their prices remained high through 1990. Aluminum and tin prices, after reaching highs in 1988 and 1989, respectively, have subsequently declined to low levels due to large supply increases. The growth of industrial production in the industrial countries and in the industrializing countries of Asia has been the most consistently important factor in the higher metals prices. A large part of the price boom was also due to such transitory factors as exchange rate changes, supply disruptions, and low stocks. In particular, frequent supply disruptions in the wake of the industries' restructuring and capacity reductions during the 1982-86 period pushed up prices to new highs for copper, nickel, lead and zinc. Hardest hit by the supply disruptions were Peru (copper, lead and zinc), Papua New Guinea, Zambia, Chile, Zaire (copper), and Canada (copper, nickel, lead and zinc). It has been most unfortunate that developing country producers have been unable to take full advantage of the metals price boom. But the low prices of the 1982-86 period made it difficult for many of them to import materials to maintain their production capacity. So that when the demand for metals increased they were unable to respond. In fact, the lack of facility maintenance led to breakdowns in production. The high prices also led to a sharp increase in strikes as labor attempted to recover the losses in real wages suffered during the period of low prices. Petroleum The petroleum market has been characterized by on-again off-again OPEC behavior; as a result, crude oil prices increased from $13.60/bbl in 1986 to $17.20/bbl in 1987, declined back to $13.60/bbl in 1988, only to rise again to $16.40/bbl in 1989. Crude oil prices remained relatively high in 1987 as OPEC members broadly stayed within their production quotas agreed upon in July 1986, while global oil demand increased by 1.6% in response to the sharp price decline in 1986. However, the discipline started to break down towards the end of 1987 when Iran and Iraq violated their quotas to finance war expenditures. Iran offered discounts to circumvent the US-imposed sanctions, an action which was imitated by other OPEC members. Crude oil prices declined sharply in 1988 despite increases in global oil consumption, as repeated attempts by OPEC to control production proved futile. In November 1988, however, OPEC was able to agree on a new set of quotas and cut production by 3 mb/d. As a result, crude oil prices rose sharply in the first quarter of 1989. The price increases were also sustained by strong demand increases, the tanker accident off Alaska, and fire and weather-related damages to oil facilities in the North Sea region. By mid-1989, crude oil prices had begun to fall again over uncertainties about production in the United Arab Emirates and Kuwait, in the wake of their demands for a 30% increase in their quotas at the June meeting of OPEC (that had agreed on a pro-rata quota increase to 19.5 mb/d). Despite a subsequent quota increase to 20.5 million b/d, strong weather-related product demand pushed up prices again, to $17.10/bbl, during the fourth quarter of 1989. The OPEC-dominated chronology of price movements masks important changes that have been taking place in the crude oil market. First, there has been a boost in the "upstream" activity in recent years as oil companies seek oil exploitation and development opportunities around the world. Second, world petroleum consumption increased to a ten-year high in 1989, growing at 2.5% p.a. -8- over the 1985-89 period.3 This growth resulted from a combination of low petroleum prices and sustained growth in GDP. The low prices improved petroleum's competitiveness against coal and natural gas and resulted in its increased use in end-uses where substitution is possible. Consumption growth was most spectacular in the Asia-Pacific region, where consumption is estimated to have increased by 7% in 1989, led by the Republic of Korea (14%). Third, growth in non-OPEC crude oil production has stagnated since 1987, after increasing at 2.2% p.a. over the 1980-87 period. Between 1987 and 1989, production increases from developing countries and Norway have been mostly offset by declines in the United States and the USSR (the world's two largest oil-producing countries, at present accounting for about 34% of world oil production). The negative impact of low petroleum prices on drilling activity, particularly in the United States, and declines in USSR output, due to declining reservoir pressure in key oil-producing provinces as well as ethnic turmoil and domestic transportation problems, have been the main causes of the stagnation in non-OPEC production. The net result of these changes has been a gradual increase in the demand for OPEC oil; thus, OPEC production increased from 18.6 mb/d in 1986 to 21.6 mb/d in 1989. 3 Increases in petroleum consumption were mainly due to the recovery in fuel oil demand, reversing the 1979-85 trend during which time heavy fuel oil demand fell by about 40%. -9- GLOBAL ASSUMPTIONS UNDERLYING THE PRIMARY COMMODITY FORECASTS Overview The detailed long-term projections for primary commodities contained in these volumes are grounded in a set of assumptions regarding the economic and demographic conditions expected to prevail over the period from 1990 to 2005. The long-term economic forecasts have been prepared by the staff of the International Economics Department of the World Bank, integrating the projections of population growth which are prepared regularly by the Population and Human Resources Department.1 Several elements of the long-term projections have direct bearing upon supply and demand conditions for primary commodities during the 1990s and beyond. The evolution of GDP growth among the industrial and low- and middle- income countries--as well as the degree of success of perestroika in the USSR and Eastern Europe--will exert strong influence upon the demand for food and feedstuffs, fuels, metals, and industrial rawmaterials. Additionally, diverging trends in world population growth (and in its composition), will play an important role in shaping the profile of demand, particularly that for foodstuffs. Trends in world prices--including those of manufactured-goods exports, and interest and exchange rates--are likely to impact both the demand and supply side of world commodity markets. While the rapid pace of change in technology, and its faster implementation through investment in new plant and equipment--and through the introduction of innovative procedures in manufacturing--will carry important implications for demand for industrial materials. The world economy in the 1990s is likely to continue the process of economic integration currently under way--encompassing the industrial and newly industrializing economies (NIEs) and the centrally planned economies that are becoming market economies. The rapid pace and varied nature of technological change and increased competition in international markets are the driving forces behind this trend toward integration- -reinforced throughout the world by policy reform, economic restructuring, and political liberalization that have been gathering momentum since the early 1980s. Developments during the second half of 1990 have brought these latter elements into much sharper focus--including the unification of Germany, the steps toward market reform in the USSR (embodied in the "500 Days" and other reports), and the widespread impacts upon economic growth and financing stemming from the crisis in the Gulf region. On longer-term perspective, the economic performance of the industrial countries (OECD) is expected to be markedly better in the 1990s than it was in the late 1970s or early 1980s (Figure lA). The pace of productivity growth and real income in the OECD countries is unlikely to reach the record growth rates of the 1960s (the so-called Golden Age), but it should accelerate-- assuming stable world financial markets. Real GDP growth is anticipated to average 3% over the 1990-2005 period. Average per capita real income for these countries is expected to rise 2.6% p.a. in the 1990s, compared with 2.3% during the 1980s. The average rate of inflation is expected to remain fairly low-- between 3% and 4% p.a. (Table 1 presents summary measures of the economic projections for the period through 2005.) 1 Details on the economic projections may be found in: Long-Term Outlook for the World Economy, S. Fardoust and A. Dhareshwar, Policy & Research Series, World Bank 1990. Detailed population projections by country and region may be found in: Population Projections, 1989-90 Edition, Working Papers (#328-331), World Bank, November 1989. -10- Table 1: Selected International Economic Indicators 1965-2005 (Annual Average Percentage Change) Trend (1965-88) 1989 1990-2005 Real GDP Industrial Countries 3.1 3.5 3.0 United States 3.0 3.0 2.7 Germany 2.8 4.0 3.3 Japan 5.8 4.8 4.1 Low & Middle Income 5.2 3.4 5.1 Sub-Saharan Africa 3.4 3.2 3.7 Asia 6.4 5.2 6.2 Europe/Mid East/N. Africa 4.7 1.6 3.5 Latin America 4.4 1.5 4.2 Population Industrial Countries 0.8 0.6 0.5 Low and Middle Income 2.3 2.1 1.9 World Trade Volume Total Merchandise 4.7 7.2 5.8 Manufactures 6.5 8.0 6.5 OECD Inflation a/ 6.6 3.6 3.2 LIBOR (average % p.a.) 8.7 9.4 8.0 SDR/US$ Exchange Rate -1.1 4.9 -0.5 a/ GDP deflator in local currency terms, weighted by dollar-based GDP in current prices. For the low- and middle-income countries (LMICs), the prospects for the 1990s are less clear and mixed, because of uncertainty about the level and cost of financial flows to them, the success individual countries may have in implementing policy reform and structural adjustment, and the strength of world trade and the openness of industrial-country markets to exports from developing countries. Average per capita real income in the LMICs could rise as much as 3% p.a. in the 1990s (5% growth in GDP), with substantial diversity among countries. Income is expected to grow more than 6% p.a. (5% per capita) in the Asian NIEs, for example, but only 4% p.a. (less than 1% per capita) in Sub-Saharan Africa. The disparity in expected growth performance between these two groups is intimately related to different levels of investment, spending on human capital; outward orientation, macroeconomic stability, industrialization, and external debt, as well as differences in population growth rates and income distribution. Many developing economies could experience faster growth in the 1990s than they did in the 1980s, if they successfully implement policy reform and structural adjustment. But this will be a doubly formidable challenge. Due to the debt overhang, many of these countries may be forced to rely more on domestic savings and foreign direct investment to finance domestic investment projects and maintain access to new technologies. Moreover, the labor supply in many of these countries is expected to increase substantially in the 1990s because of relatively fast population growth in the last two decades. Thus, these countries -11- must raise their level of productivity and at the same time absorb large additions to the labor force. The volume of world trade grew 6.7% p.a. over 1986-88--more than double the rate in 1980-85--in response to the higher level of economic activity in the industrial countries. But many developing countries were unaffected by this surge in trade- -partly because of poor domestic policies (such as overvalued exchange rates and distorted trade regimes) and inadequate supply capacity, and partly because the pickup in world trade involved mostly trade in manufactures, which is still only a small fraction of total exports in many developing countries. The volume of world trade in manufactures increased an average of 8.5% p.a. in 1986-88, achieving a 72% share in total world trade by 1988. Moreover, trade in capital goods, which accounts for about 40% of total manufactures trade, expanded even faster than trade in manufactures as a whole because of heavier business investment in machinery and equipment in the industrial countries and in some developing countries, and a sharp increase in direct investment, especially in the Asian NIEs. Strong investment in machinery and equipment should continue in the industrial countries in the 1990s, so world trade in manufactures is likely to grow about 6.5% to 7% p.a., putting it about 1 to 1.5 percentage points above the trend for the 1980s (Figure lB). This projection is not overoptimistic if the Uruguay Round of trade negotiations and integration of the European countries succeed in reducing trade barriers, paving the way for more liberal trade. The trade outlook for the developing countries depends to varying degrees upon: LMIC trade reform policies, together with movement toward resolution of their external debt problems; the outcome of world trade negotiations; and the effects of European market unification, and progress toward reform (and market openings) in Eastern Europe and the USSR. Indeed, considerable uncertainty must be attached to these projections for economic developments over the period to 2005. There will inevitably be fluctuations in economic activity worldwide. However, the current turmoil in the Mid-East, which has led to higher oil prices, poses a special risk at present, and could set off a reaction which would lead to a widespread recession. Disappointing progress in the Uruguay Round of trade negotiations, together with the massive balance-of-payments imbalances in the major industrial countries could be triggers for increased barriers to trade. On the up-side, we may well be underestimating the potential for an upswing in investment activity, and also underestimating the progress to be made in reforming the Eastern European countries and the USSR. The road to reform, however, is likely to be a long and difficult one for most of these countries. Major Trends and Key Factors Shaping the Economic Outlook Major trends emerging during the 1980s. Several important trends have increased the degree of interdependence among countries over the past two and one-half decades, and indeed have served to quicken the transmission of economic impulses throughout the world economy (indicators of these changes are presented in Table 2). First, the ratio of trade to GDP has increased steadily in nearly all countries, with only brief interruptions during the recessions of 1975 and 1982. This reflects directly the growing integration, through trade, of the major world economies. Second, international financial markets have expanded rapidly, outpacing growth in international trade. The astonishing growth of financial markets has been reflected in the rapid increase in international currency trading, which is directly related to the deregulation of markets and, to some extent, appears to have been influenced by the massive current account imbalances of the major industrial countries in the 1980s. Third, both the direction and composition of international financial flows have changed profoundly since the early 1980s. Because of its huge trade surplus, Japan became the largest supplier of international capital in the mid- 1980s--a position held by the United States in the 1960s and 1970s. Moreover, -12- FIGURE 1 (A): GDP Growth OECD and LMIC 1965 - 2005 Compound Annual Growth Rates Percent 6- 6 5 -5 ..I!g OECD nl LMIC -4 3- - 3 Trend 1965-1988 Recent 1989 Forecast 1990-2005 World Bank International Economics Department FIGURE 1 (B): WORLD TRADE GROWTH 1965 - 2005 Compound Annual Growth Rates Percent 8- ag TOTAL Merchandise am Manufactures 7- 7 66 5- . 5 4. .4 3-3 1- 1 Trend 1965-1988 Recent 1989 Forecast 1990-2005 World Bank International Economics Department -13- Table 2: Trends in World Trade and Financial Flows (In Percentage Points) Percent of World GDP a/ 1965 1973 1987 International Trade b/ 11.9% 13.9% 19.0% Manufactures 5.6 8.0 11.0 Raw Materials c/ 2.0 1.6 1.3 Commercial Services d/ ... 2.7 3.5 International Banking e/ Gross Market Size 1.5 6.2 29.4 Net Market Size 0.9 3.7 17.0 Percent of LMIC GNP 1970 1982 1988 Stock of External Debt 13.7 35.7 44.0 Percent of World Trade (USD) 1978 1988 Growth 1987-88 Intra North America 4.7% 5.2% 16.2% Intra West-Europe 28.0 31.0 11.5 Intra West-Pacific f/ 4.8 9.0 31.8 World ... ... 14.0 a/ World GDP, excluding USSR and Eastern Europe, in current prices and dollar exchange rates. b/ World exports of goods and services, excluding USSR and Eastern Europe. c/ Excluding food and fuels. d/ World exports of commercial services: shipment, passenger services, port services, travel and other private services. e/ Morgan Guaranty series are used to estimate the amount of international bank credit. Net market size excludes interbank claims. f/ Inclusive of Japan, East and Southeast Asia, Australia, and New Zealand. Source: World Bank, International Economics Department. Some of the calculations are based on Morgan Guaranty Trust Company, World Financial Markets (various issues), and GATT, International Trade 1988-1989. the role of commercial banks in channeling capital flows declined dramatically as international investments in bonds and equities surged during the 1980s. Net flows from private creditors to the developing countries, which amounted to about $55 billion in the early 1980s, dropped to only $12.5 billion in 1989, while net flows from commercial banks fell from $32 billion in 1980 to near zero in 1989. One important structural shift has been the sharply increased ratio of external debt to GNP for the developing countries as a group; total external debt stock as a share of GNP rose from about 13.7% in 1970 to 35.7% in 1982 and 44% in 1988. Fourth, in response to changes in world demand and the effect of new technologies on production processes, the role of raw materials in world production and consumption has steadily declined. Partly because of the industrial countries' protectionist policies on agricultural trade, and partly due to the growth of manufacturing in developing countries, raw materials' share of international trade has decreased while that of manufactures has increased. -14- Finally, there is a trend toward more concentration of trade flows within three major trading blocs: North America, the EEC, and East Asia. Since the early 1980s, the volume of trade within each of these blocs has risen faster than total world trade. Because of recent trade agreements within these trading blocs, intra-trade is expected to become even more important. Key factors shaping the outlook for the 1990s. One conclusion that may be drawn from the above is that structural changes in the past three decades, particularly in international trade, have, by increasing economic efficiency, flexibility, and dynamism, benefited the high-income countries and some middle- income countries. The trend toward greater economic interdependence is likely to continue in the 1990s. Several factors highlighted above will likely play key roles in determining the future pattern of economic activity, trade and financial flows, and trends in world prices. (i) Disequilibria in the industrial countries Much economic adjustment in the industrial countries is in response to massive balance-of-payments disequilibria among the major industrial countries and their attempts at market deregulation in the 1980s. In 1988, the US current account deficit amounted to about $127 billion--nearly equal to the combined surplus of the Federal Republic of Germany and Japan- -and was financed by massive inflows of private capital ($100 billion) into the United States. These imbalances have declined from their peak, both absolutely and as a percentage of GDP, but the correction process has been slow and absolute levels are still large by historical standards- -estimates of the US current deficit for 1990 range between $100-110 billion. A critical macroeconomic question for the 1990s is how sustainable these huge US imbalances--and their financing--are, without leading to sharp increases in interest rates. So far, the liberalization of capital movements in the industrial countries and the system of floating exchange rates have allowed smooth financing of the US current account deficit. In the Federal Republic of Germany and Japan, gross domestic savings easily exceeded gross domestic investment in the 1980s. Because of excess savings and deregulation of their capital markets in the last few years, private investors in Japan and Germany could continue financing the US external deficit for a few years. But financing problems could arise if the US external deficit grows and capital inflows into the United States are under pressure because of, say, the financing requirements of Eastern Europe. Economic events in the next few years are likely to be shaped by the impact of the US, German, and Japanese current account balances on international interest rates, exchange rates, prices of assets and commodities, and trade and financial flows. The speed with which these disequilibria unwind and the manner in which the US current account deficit is financed will influence the medium- term prospects for economic growth and inflation in the industrial countries. These factors, in turn, will affect trade volume, terms of trade, and the cost of borrowing for the developing countries. (ii) Financial developments in the 1990s Deterioration of monetary and financial conditions in the 1990s is one possibility in the medium- to long-term outlook that could seriously limit the effect of positive impulses in the global economy. Volatile exchange rates and interest rates are part of any realistic scenario for the 1990s. Volatility does not necessarily lead to serious economic instability, but it is unclear how much volatility in financial prices can efficiently be absorbed by existing institutions without damaging growth prospects in both the industrial and developing countries. -15- For the developing countries as a group, net commercial bank lending, which used to finance two-thirds of current account deficits in the late 1970s and early 1980s, has nearly come to a halt and is not expected to be important in the 1990s. On the other hand, net direct investment, which provided about 10% of the developing countries' financing requirements in the early 1980s, has become more important, accounting for about 35% of their net financing needs in the second half of the 1980s. But direct foreign investment flows have been directed mainly toward the East Asian NIEs, and have not provided much relief to the severely indebted countries. Since the early 1980s, direct foreign investment flows to the severely indebted middle-income countries have slowed down significantly and proportionately more flows have been associated with debt equity conversion. This situation could change, however, and non-debt-creating flows to the developing countries, including the severely indebted countries, could increase if the macroeconomic situation in those countries stabilizes and the governments implement needed reforms. The prospects for significantly more flows to the developing countries in the 1990s remain highly uncertain, however, given the increased demand for capital expected from Eastern Europe and the USSR. The developing countries' external debt problem must be resolved for the development process in those countries to resume in the 1990s. According to baseline projections, the relatively high growth (3% p.a.) envisioned in the industrial countries for the 1990s is not enough by itself to raise the growth rate of per capita income significantly in stagnant developing regions. Even relatively strong export performance in the severely indebted countries will not substantially reduce the net transfer of resources out of these countries, which in 1986-89 was more than $112 billion. For the indebted countries, there is a substantial trade-off between the benefits from more activity in the OECD area and the costs of higher international interest rates that may result. If the OECD's economic expansion is investment-led (as in the late 1980s), real interest rates could rise in response to more demand for loanable funds from business firms. The severely indebted developing countries may benefit from more exports to the OECD countries but will be hit hard if interest rates climb, too. Reduced debt service and more non-debt-creating capital inflows are what the severely indebted countries need to get back on a higher growth path. (iii)Evolution of international trade Institutional changes in international trade could have important repercussions on economic growth in the 1990s. Three events have particular implications: Project 1992 in Europe; the Uruguay Round of trade negotiations and trade reform in developing countries; and perestroika in the USSR, together with radical economic and political change in Eastern Europe. Project 1992 aims to dismantle national barriers to the free movement of labor, capital, goods, and services across the national boundaries within the EEC--creating the largest single market in the world (nearly 320 million consumers) by the end of 1992. This project, if successful, could significantly increase the level of competition in the European market, particularly for non- European exporters, and in markets outside Europe. There has already been increased investment in Europe by both European and non-European transnational companies. Initially, there will be some economic disruption as national and transnational firms rationalize their Europe-based operations. The impact of Project 1992 on Western Europe will be positive, but its effect on the rest of the world is less certain. It will depend partly on the macroeconomic policies followed in Europe, particularly in dealing with the inflationary consequences of more rapid growth. The results of macroeconometric simulation suggest that in the medium term, the level of the EEC' s real GDP could rise some 4.5% above the no-Project-1992 level, with both productivity and employment increasing significantly. How Project 1992 affects developing countries will likely vary from region to region. Ultimately, the EEC will probably favor products made in member countries over those from elsewhere. But -16- as long as external barriers are not raised by the EEC, and growth performance in the area is strong, the developing countries could benefit. A more rapid pace of investment and demand growth in Europe should have a significant, positive effect on the economies of commodity-exporting countries. The effect on major exports of manufactures will depend on how much access they have to the European market after 1992. Under the General Agreement on Trade and Tariffs (GATT), the Uruguay Round of multilateral trade negotiations- -the most complex and far-reaching attempt to liberalize trade ever made--reached its midterm review in late 1988 and was scheduled to end in December 1990. Progress has been made in some areas, but many important issues remain unresolved and several have been controversial-- including those on agriculture, textiles and clothing, intellectual property rights (TRIPS), and safeguards. From statements made by the United States and the Cairnes Group, among others, the most important deadlock has been on agriculture, with the EEC and the United States far apart in their proposals for a framework for reducing farm support. The reduction or elimination of agricultural subsidies in the industrial countries could, through its effect on demand and supply for farm products, have important implications for the developing countries. In the short run, countries with serious food shortages could suffer from higher prices, but agricultural producers in all developing countries should benefit in the long run. The industrial countries have accepted the concept of a gradual "loosening" of the Multi-Fibre Arrangement (MFA), affecting trade in textiles and clothing, but have not yet agreed to its phaseout. If agreement is reached in all areas of negotiation, trade among industrial countries will benefit and the GATT framework will be strengthened. What happens is critical to the outlook for the developing countries in the 1990s. The long-term effect of these negotiations on developing-country trade will be positive but its magnitude is difficult to predict and depends heavily on their access to industrial-country markets in manufactures and agriculture and on the prospects for technology transfer. Added to this is uncertainty about the longer-term effect of Project 1992 on the world economy and on trade among developing countries (South-South trade). Many developing countries, as part of their adjustment programs in the 1980s, have reformed their trade policies to varying degrees--for example, reducing barriers to exports and imports and correcting misaligned exchange rates. In many of these countries, progress has been made in correcting exchange rate distortions and reducing disincentives to exporting, but results are mixed on imports. Overall, policy reform has improved export performance, and thus economic growth. Although great near-term uncertainties are associated with the economic transformation of Eastern Europe and the USSR, over the medium to longer term, such market reforms are bound to benefit the major exporters of manufactures- -particularly those of Western Europe, but also Japan and the United States. Moreover, exporters of tropical beverages and agricultural products should find demand increasing for products long in tight supply in the East European countries. The initial effects are likely to be modest, however, as the USSR and Eastern Europe face severe foreign exchange constraints, and USSR trade relations are not yet well developed. In 1988, the USSR's share of world merchandise trade was only 3.9%, compared with more than 11.5% for the Federal Republic of Germany, which has an economy one-third the size of the USSR. But, in the long run, the enormous potential (in human capital and natural resources and as a large market) of the USSR and some of the East European countries means competition for the developing countries in international trade and financing from the industrial countries. Investment opportunities in Eastern Europe (particularly in Czechoslovakia, Hungary, and Poland) are likely to induce substantial flows of foreign direct investment into the area. -17- (iv) Rapid pace of technological change Technological advance has always been a key determinant of economic growth but the current phase of technological progress has particularly important economic and social implications. New technologies generate new products and industrial sectors, transform methods of production, blur the distinctionbetween manufacturing and services, and radically change the terms of international competition and comparative advantage. The most important of recent innovations is microelectronic information and communication technologies, followed by the new biotechnologies, and the new materials technologies. These technologies are at different stages of invention, innovation, and diffusion, but many important innovations are already in widespread use. These technologies should be the catalyst for substantial investment in the 1990s. The upturn in investment in the industrial countries over the past two years appears to have been driven by these innovations. (v) Demographic shifts Demographic models suggest that as fertility rates continue to decline, population growth will drop significantly in the industrial countries in the next two decades, from an average 0.6% p.a. in the 1980s, to only 0.4% in the second half of the 1990s, to almost zero in the first decade of the twenty- first century. If so, there will be major social and economic implications from a rapidly aging population, a higher ratio of dependents to workers (dependency ratio), and a further shift in the balance of world population away from the industrial countries. Aging will affect the demand for social services and the patterns of consumption, savings, investment, wage formation, and employment in the industrial countries. These effects will be more pronounced in Germany and Japan, in which dependency ratios are expected to increase sharply in the 1990s. In the long run, savings could decline as the proportion of retirees in the population rises. Reduced savings and increased consumption could boost real interest rates and reduce investment and thus output growth. Demographic changes and new production technologies (particularly robotics and automation) could increasingly shape growth and inflation in the industrial countries. But the ultimate economic impact of lower population growth is uncertain. An older work force is generally more experienced--possibly more productive--than a younger one, but the net effect of changes in population growth on capital formation and technical progress are unknown. By contrast, in many developing countries, particularly the poorer ones, rapid population growth is expected to continue well into the 1990s, albeit at a slower pace--from 2.1% p.a. in the late 1980s to 1.9% p.a. in the 1990s. In many of these countries, youth will remain by far the largest segment of the population. Preliminary estimates suggest that these countries' economies must grow faster than 4% p.a. to absorb new additions to their labor forces. Hence, the developing countries must raise their labor productivity while absorbing new members of the work force--especially in Africa, where population growth rates are very high and productivity levels have been declining since the late 1970s. Substantial resources must be mobilized to increase food production and water supplies and to protect the environment, all of which are under severe pressure from population increases. Investments in education and skills in these countries must increase greatly in level and quality to deal with the surge in their youth population and to train their labor force to work with new technologies. -18- Summary of Global Projections to 2005 GNP growth in the industrial countries. Assumptions about the macroeconomic policies of the industrial countries center on the fiscal and monetary policies of the G-3 (Germany, Japan, and the United States), with US fiscal policy playing a key role. It is assumed that: o The United States will reduce its fiscal deficit gradually in the next few years, mainly by reduced (mainly military) spending and modest tax increases. o The US budget deficit will shrink significantly--to less than 2% of nominal GDP by 1993--and will be balanced before the end of the decade. - The main objective of monetary policy in all major industrial economies will remain that of continued downward pressure on inflation- -but under more restrictive fiscal policy, monetary policy will not have to play so heavy a role in fighting inflation. Monetary and fiscal policies in Europe will accommodate a relatively high rate of growth because of the process of market unification. - Japan's macroeconomic policy will be accommodating, allowing for strong growth in domestic demand. Barring major adverse shocks and given a policy mix that sustains the momentum of noninflationary growth, growth rates of real per capita income in the industrial countries should accelerate in the 1990s (Table 3). The industrial countries are expected to maintain an average real GDP growth of about 3% in the 1990s, which is somewhat higher than in the 1980s. It is assumed that the favorable effects of the new technological revolution on labor productivity will begin to be more clearly observed in the second half of the 1990s, particularly in Europe and Japan, which have been undergoing major structural adjustments. With population growth slowing to 0.4% p.a. in the industrial countries, the average growth of per capita GDP for those countries will be about 2.6% p.a., which is faster than at any time since the early 1970s but is still in line with their long-term trend. The average growth rate of output in the United States and Western Europe is expected to be about 2.8% p.a., but Europe, because of Project 1992, should grow somewhat faster in the mid-1990s; and per capita growth in Europe will be higher than in the United States because of lower population growth in Europe. Japan's growth is projected at about 4% p.a., which is more than 1 percentage point higher than in Europe and the United States. Inflation rates in the major industrial countries are expected to be moderate (2.5% to 5.5% p.a.), averaging about 3.5% p.a. for the group in the 1990s and remaining moderate in the second half of the decade despite accelerated growth. This is because of the favorable supply-side effects that it is assumed will result from heavy investment and retooling in manufacturing earlier in the decade. Financial conditions. Inflation in the industrial countries is expected to remain moderate over the forecast period, ranging between 3.5% to 4% p.a. as measured broadly by GNP deflators (see Table 4). This view is supported by the likelihood of widespread gains in productivity, coupled with more modest demand pressures and an assumption of fairly tight stances adopted by the monetary authorities. Interest rates in the United States and in Continental Europe are expected to decline by an average of 200 and 100 basis points, respectively. Those in Japan are more likely to increase moderately in response to continued deregulation of financial markets and strength in domestic demand conditions. Contrasted with a level of 9.4% during 1989, US dollar-LIBOR is anticipated to average 7.4% p.a. over the forecast period; while adjusted for US inflation, the 'real' measure of LIBOR should drop from current levels of 4.7% toward 3.7% p.a. (Figure 2A). It should be noted that such projected movements in interest rates -19- Table 3: Long Term Trends and Baseline Projections 1965-2005 (Annual Average Percentage Change) Trend (1965-88) 1989 1990-2005 Real GDP Industrial Countries 3.1% 3.5% 3.0% United States 3.0 3.0 2.7 Germany 2.8 4.0 3.3 Japan 5.8 4.8 4.1 Low & Middle Income 5.2 3.4 5.1 Sub-Saharan Africa 3.4 3.2 3.7 Asia 6.4 5.2 6.2 Europe/Mid East/N. Africa 4.7 1.6 3.5 Latin America 4.4 1.5 4.2 Population Industrial Countries 0.8 0.6 0.5 Low and Middle Income 2.3 2.1 1.9 Real CDP per capita Industrial Countries 2.4 2.9 2.6 United States 2.0 2.0 1.9 Germany 2.5 3.0 3.2 Japan 5.0 4.0 3.6 Low & Middle Income 2.9 1.4 3.2 Sub-Saharan Africa 0.5 0.0 0.5 Asia 4.1 3.3 4.6 Eur/MidEst/N.Africa 2.7 -0.3 1.8 Latin America 2.0 -0.6 2.3 World Trade Volume Total Merchandise 4.7 7.2 5.8 Manufactures 6.5 8.0 6.5 are conservative, as it is probable that the large financing requirements of the United States will continue to exert pressure upon the pool of world savings for an extended portion of the 1990s- -maintaining real interest rates at high levels during this interval. Volatility is likely to remain a key issue in exchange rate markets during the 1990s, although the dramatic overvaluation and subsequent decline of the US dollar that so dominated markets in the 1980s is unlikely to be repeated. This view is based on the likelihood that policy coordination, gleaned from the lessons of the Palace and Louvre accords, should serve to maintain movements in major exchange rates within more conservative bands. Hence, with fundamentals proving the major determinants of longer-term exchange rate movements, the dollar is expected to decline moderately at an annual rate of 0.5% against the SDR--a decline of 1% p.a. as measured in real effective terms (Figure 2B). On balance, expected conditions in world financial markets--combining modest declines in industrial-country inflation and in the level of interest rates, together with a downtrend in the value of the dollar- -supports a view for increases in the average "price" of OECD manufactured-goods exports (manufactures export unit value or MUV) of about 3.6% p.a. over the forecast period (Figure -20- Table 4: Global Assumptions: Economic Environment in the 1990s (Annual Average Percentage Change) Trend (1980-88) 1989 1990-2005 Measures of Inflation GNP Deflator in USD a/ 4.8 -0.9 4.0 GNP Deflator in SDR 4.4 4.0 3.4 GNP Deflator in LCU b/ 4.2 3.6 3.4 Mfgr Export Unit Value (USD) 3.3 -0.5 3.6 Interest Rates (nominal) c/ US Dollar 10.3% 9.4% 7.4% Deutchemark 6.4 7.1 6.8 Yen 6.0 5.0 5.7 Real USD LIBOR d/ 5.5 4.7 3.7 Exchange Rate Measures e/ SDR per USD -0.5% 4.9% -0.5% DM per USD -0.4 6.8 -0.4 MERM Real Effective USD Rate -0.9 9.0 -1.0 a/ Aggregate of GNP deflator indices for G-5 countries: United States, Germany, Japan, France and the United Kingdom; measured in US dollar terms and weighted by dollar-denominated GNP in current prices. b/ G-5 GNP deflator measured in Local Currency Units. c/ London Interbank Offer Rates (LIBOR) on six-month deposits, period averages in percent p.a. d/ USD LIBOR adjusted for US GNP inflation. e/ Percentage point change per annum. 2A). (The MUV, together with LIBOR rates, provides one of the key linkages between the industrial and developing country groups, representing the average import price faced by the latter group.. an 'uncontrollable' element in the LMICs terms of trade). Eastern Europe and the USSR. Virtually all Eastern European countries are currently in the process of implementing economic reforms. Until very recently, the intended aim of reforms in some countries was to improve the workings of the traditional socialist economic system. After the recent wave of changes, however, it seems clear that such limited approaches no longer suffice and that more radical departures will be made--shifts to a fully-fledged market economy. Poland and Hungary have advanced furthest in this respect; Czechoslovakia, Romania, and Bulgaria are viewed as likely to adopt less dramatic approaches, while policymakers in the USSR continue to assess the costs and eventual benefits of more radical reforms (the "500 Days" plan) against the background of rapid political changes occurring in the country. Over the longer term, reforms raise the possibility of overcoming the large systemic weaknesses in these economies, allowing the development and integration of trade and financial ties with the West. During the stages of implementation and adjustment, however, the current poor state of these economies, and the dislocation to production and employment, will likely produce a period of weak (to negative) growth in economic activity. Export supply has, -21- FIGURE 2 (A): US. Dollar LIBOR and Manufactures Unit Value 1981-2005 LIBOR in Percent AflV: Percent Change Percent 20- -20 15. -15 - LIBOR- - MUV Ch(%) 10. - 10 -5 -5 82 85 88 91 94 97 00 03 World Bank International Economics Department FIGURE 2 (B): SDR per U.S. Dollar 1981-2005 SDR L.00- 1.00 0.95- -0.95 0.90-0.90 00.85 0.80- -0.80 0.75- - 0.75 0.701 . . . ........... 0.70 81 84 87 90 93 96 99 02 05 World Bank International Economics Department -22- in many countries, been cut, while the pressure to import has increased, serving to widen current account deficits--at a time when commercial banks are increasingly cautious about extending new funds. The success of transition toward market-based economies appears to hinge upon international support initiatives (financial and technical), as well as on involvement by the private sector of Western countries, in direct investment including joint-venture operations. The first half of the 1990s is likely to prove the critical period over which the effects of perestroika may ultimately be judged. Low- and middle-income countries. The baseline projections for the UICs present a mixed picture for the 1990s. Despite a relatively optimistic outlook for the industrial countries, the economic situation in some developing regions is expected to remain weak, particularly in the first half of the 1990s. Real interest rates are likely to remain at high levels during this period, suggesting, in part, that a continued negative transfer of resources will impede economic growth in many developing countries. However, countries that were low performers in the 1980s but that are expected to implement needed policy reforms (reducing budget deficits, improving incentives for private investment, building up domestic confidence, and reforming and restructuring their trade and financial sectors) are now expected to increase their per capita income growth significantly by the mid-1990s. The low- and middle-income countries face different demographics than the high-income countries. In the 1990s, the population (and labor force) in the developing countries is expected to grow substantially faster (roughly 1.9% p.a.) than in the industrial countries (roughly 0.5% p.a.). This means that the developing countries, on average, must grow significantly faster than the industrial countries just to maintain their relative position in terms of real per capita income. Projections for the low- and middle-income countries as a group indicate average per capita growth in GDP of about 3% p.a. for the 1990s. Thus, performance is expected to be better than in the 1980s--but this average figure masks serious differences in growth rates among countries. Moreover, there is considerable uncertainty. This uncertainty stems mainly from three related factors: first, the level and cost of financial flows to the developing countries and the level of domestic savings that must be mobilized to finance the investment needed to achieve 2-3% p.a. growth in per capita income in the 1990s; second, the degree of success of individual countries in implementing policy reform, including measures to cope with the risks and opportunities ahead; and third, the strength of world trade and the openness of industrial-country markets to developing-country exports. The average annual growth rate of per capita income in the severely indebted middle-income countries is expected to climb to about 2% in the 1990s-- from an average of -0.5% p.a. in the 1980s--but their socioeconomic situation is expected to remain delicate for the next few years. Even the 2% annual growth in per capita income is based on the optimistic assumption of a gradual decline in the ratio of debt service to exports and a resumption of net financial transfers to several countries in the group after the mid-1990s. The per capita income of the NIEs is expected to continue growing at rates significantly above average for the developing countries, albeit more slowly than in the 1980s. In all likelihood, the process of "graduation" will continue; by the year 2000, most of the current NIEs should have joined the ranks of the industrial countries, and several other developing economies will have become the new members of the NIE group. China and India should also grow faster than the average for the developing countries, because of progress in adopting market-oriented policies. The economic situation in many poor African countries is expected to remain precarious. The average per capita income in Sub-Saharan Africa is -23- expected to grow less than 1% p.a. in the first half of the 1990s, then somewhat faster later in the 1990s. Even by the year 2000, the average per capita income in Africa will be less than in the mid-1960s. But, as a result of major structural improvements in their economies in the late 1980s, economic performance in some African countries is expected to improve considerably over conditions in the 1970s and 1980s, at a pace significantly above average for the region. Summary and Implications On balance, the projections for economic activity and world price levels during the 1990-2005 period suggest two key implications for conditions underpinning supply and demand in primary commodity markets: o the geographic distribution of demand for major primary commodities is likely to continue to shift markedly from that witnessed during the recent historical period (the 1970s and 1980s): - growth in industrial-country demand for primary commodities is likely to decelerate o slackening domestic demand, tied in part to slower growth in population and an aging of population profiles, will serve to reduce demand for food and feedstuffs, fuels, and other commodities; o advances in technology will allow substitution away from several industrial raw materials, toward synthetics and new materials, placing downward pressures on materials demand (see discussion in the raw materials chapters). - growth in developing country demand will accelerate o population pressures, especially in Sub-Saharan Africa and South Asia, will heighten the requirements for food and feedstuffs in these regions--the availability of finance will be a key constraint to making demand effective; o continued robust growth in the economies of East and South Asia will underpin strong demand for primary commodities; o the market-oriented reforms in Eastern Europe and the USSR will, in the long run, accelerate their growth in demand for commodities; o the commodity composition of demand (and supply) will shift over the 1990-2005 period - changes in industrial efficiency, and product and process innovations are likely to increase demand pressures for and "more exotic" raw and semi-processed materials, at the expense of basic commodities; - environmental concerns may serve to emphasize the use of cleaner materials and fuels in both industrial and consumer demand areas, largely within the industrial countries; - continued industrialization of the group of low- and middle-income countries will likely provide a foundation, albeit at lower levels of demand, for standard industrial raw materials and consumer staples. ENERGY -24- ENERGY Summary Global energy demand is expected to increase by 2.1% p.a. over the forecast period (1990-2005), with the strongest growth taking place in the developing countries which are expected to account for about 53% of the total increase in energy demand in that period. As a result, the share of developing countries in global energy demand will increase from 25.5% in 1988 to 34% in 2005. Due mainly to low and declining growth in the demand for oil, the share of the industrial countries in total energy demand is expected to decline to around 43% (from 49.8% in 1988). The share of the former CPEs is anticipated to decline marginally to 24% (from 24.7% in 1988). Global petroleum consumption (including NGLs) increased at an average rate of 2.5% p.a. over the period 1985-89. However, growth in petroleum demand is expected to slow to an average rate of 1.2% p.a. over the forecast period and its share to decline from 39% in 1988 to 33% by the year 2005. Several factors are expected to contribute to the slowdown in global petroleum demand, including (a) high international oil prices (b) increases in taxes on petroleum products, and (c) efficiency improvements. The growth in petroleum demand in the industrial countries is likely to be tied mainly to use in the transport sector. In the developing countries, however, petroleum use is expected to increase in the residential and power-generation sectors, as the transition from traditional fuels to crude oil products (kerosene, LPG) accelerates with urbanization and the need to expand electricity generation capacity. The share of coal will remain significantly unchanged, at around 28%. The main source of the projected demand for coal is its increased use in coal- fired electric power-generation capacity- -although industrial activity will also support increases in coal demand. Natural gas and primary electicity demand will take an increasing share of the world energy market. The growth in natural gas demand is expected primarily in the residential sector--largely due to the increase in the number of gas-heated housing units--and for power generation, as electricity generation with gas-fired, base-load capacity comes on-stream worldwide towards the latter half of the 1990s. Environmental concerns are also likely to favor natural gas use, given its clean-burning property. In the developing countries, increases in natural gas use will be supported by energy policies, as increased utilization of natural gas continues to remain at the core of fuel use diversification policies. In the industrial countries, increases in electricity use are expected for lighting, space heating, and power drive. In the developing countries, electricity is the energy source most strongly influenced by income changes. Primary electricity generation is expected to grow at a slightly slower rate (4.3% p.a.) than the assumed 5% p.a. economic growth rate (over the 1989-2005 period). This is likely to be supported by expected growth in electricity demand as well as primary fuel substitution in power generation. Its use in the residential and commercial sectors is likely to be supported by demands for cooking, refrigeration, air conditioning, and water heating and, in the industrial sector, as lighter manufacturing and more modern technologies are put into place. It is expected that the share of natural gas will increase from 20.5% in 1988 to 24.6% in 2005, and that of primary electicity to increase from 12.1% to 13.6% over the same period. One of the strongest trends evident in the energy sector is the rapidly increasing production of primary electricity worldwide. Another trend of considerable intensity is the rapid expansion of natural gas supplies, particularly in the USSR and the developing countries. While the trend in natural gas will likely continue over the forecast period, primary electricity generation is expected to slow-down. Given the low potential for increases in oil supplies in the industrial countries and the USSR, it is likely that natural -25- gas will increase its share in global energy supplies. During the 1970s, increases in electricity supplies were supported by the enormous expansion of nuclear power generation. In recent years, however, public opinion has turned against nuclear power due to plant safety concerns and environmental problems associated with the disposal of radioactive wastes. Although these factors will impede nuclear power generation, it will continue to be one of the solutions to substantial generation needs. Given the substantial hydro electric potential, mainly in the developing countries, hydroelectric power capacity is also likely to increase. The availability of enormous reserves of natural gas in the USSR and in several developing countries will ensure that natural gas will supply an increasing share of global energy requirements. The development of natural gas is a key, if not a major component, in the energy strategies of several developing countries, namely, Indonesia, Malaysia, Pakistan, China, India, and Brazil. In the USSR, recent gas discoveries in Western Siberia and in the Yamel Peninsula's Kara Sea will support increases in gas supplies. The increases in gas supplies in the industrial countries are most likely in Australia (through the development of the North West Shelf reserves and the North Sea (through the development of the Troll and Sleipner complexes). Despite abundant coal reserves, the share of coal will remain significantly unchanged given moderate growth in demand, while oil's share in global energy supplies is expected to decline. In the industrial countries, coal production is expected to increase in Australia and North America, while production increases in the developing countries will likely be concentrated in a few countries, notably, China, India, South Africa, Colombia, Indonesia, and Venezuela. The world will become increasingly dependent on the Mid East region for additional supplies of crude oil, notably from Saudi Arabia, Iran, Iraq, Kuwait, and the UAE--although Venezuela is also expected to increase crude oil output over the forecast period. It is projected that the share of industrial countries in global energy supplies will decline to 30.6% in 2005 (from 36.6% in 1988), while that of the former CPEs will drop marginally to 25% in 2005 (from 27% in 1988). The bulk of the increase in global energy supplies will, therefore, be supplied by the developing countries. The share of the developing countries in total energy supplies is expected to grow to about from 36.3% in 1988 to about 44.4% in 2005. Demand Outlook Under our long-term baseline GDP assumption of 2.9% p.a. growth in the industrial countries and 5% p.a. in the developing countries, global energy demand is expected to grow at an average rate of 2.1% p.a. over the forecast period, i.e., from 7,955 mtoe in 1988 to 11,287 mtoe in 2005. This forecast growth rate is slightly less than the 2.6% p.a. rate since 1970. As a result of the changes in resource allocation brought about by recent and expected changes in energy prices and energy pricing policies, including those directed to environmental objectives, the pattern of fuel use will change over the forecast period. Oil demand is expected to increase at an average rate of 1.2% p.a.; however, while its share will decline (to 33% by 2005 from 39% in 1988), it will continue to be the largest energy source (see Table 1). The share of coal is expected to remain unchanged at around 28%. Natural gas demand is expected to increase at an average rate of 3.2% p.a., and primary electricity is forecast to grow at 2.7% p.a. Thus, the shares of these two sources will increase from 20.5% and 12.1%, respectively, in 1988 to 25.0% and 13.6% in 2005 (see Table 1). Industrial countries. Under our long-term baseline GDP assumption of 2.9% p.a. growth in the industrial countries, total energy demand in the industrial countries is projected to grow at an average rate of 1.1% p.a., from 3,963 mtoe in 1988 to 4,804 mtoe (Table 2). This is slightly below the historical growth rate. In the period 1970-88, energy consumption in the Table 1: Global Energy Consumption by FueL Type, 1961-88 (Actual), 1995 and 2005 (Projected) ------1961------ ------1970----- ------1988------ -------1995------ ------2005----- mtoe % mtoe % mtoe X mtoe % mtoe % Liquid fuels 1,159.7 38.7 2,285.9 46.0 3,067.4 38.9 3,405.4 36.6 3,759.3 33.36 Natural gas 409.5 13.7 851.7 17.2 1,629.3 20.5 2,026.0 21.9 2,774.2 24.6 Solid fueLs 1,241.9 41.5 1,510.6 30.4 2,292.8 28.5 2,631.3 28.2 3,214.6 28.5 Primary electricity 184.0 6.1 315.9 6.4 965.5 12.1 1,177.2 12.7 1,538.9 13.6 Total 2,995.1 100.0 4,964.1 100.0 7,955.0 100.0 9,239.9 100.0 11,287.0 100.0 Note: Details may not add to total due to rounding. Sources: United Nations, Energy Statistics (actual); World Bank (projected). I' Table 2: Global Energy Consumption by Country Groups, 1961-88 (Actual), 1995 and 2005 (Projected) ----- 1961 ----- ----- 1970 ----- ----- 1988 ----- ----- 1995 ----- ----- 2005 ----- mtoe % mtoe % mtoe % mtoe % mtoe % Industrial 1,930.0 64.4 3,121.2 62.9 3,963.0 49.8 4,363 47.2 4,804 42.6 Eastern Europe & USSR 652.0 21.7 1,052.0 21.2 1,963.0 24.7 2,158 23.4 2,683 23.8 Developing 412.6 13.7 789.5 15.9 2,029.0 25.5 2,720 29.4 3,799 33.6 Total 2,995.1 100.0 4,963.1 100.0 7,955.0 100.0 9,241.0 100.0 11,286.0 100.0 Note: Details may not add to totals due to rounding. Sources: United Nations, Energy Statistic (actual; World Bank (projected). -28- industrial countries grew at an average rate of 1.3% p.a.). Factors contributing to the slowdown in energy demand include (a) higher energy prices, both in the short term (due to higher international prices and increases in energy taxes) and in the long term; (b) improvements in energy efficiencies; and (c) improved inter-fuel substitution technologies. The implied income elasticity of energy demand in the industrial countries is below unity. Since 1970, the growth in demand for electricity has outpaced that of other sources of heat, light, and power. Between 1970 and 1988, primary electricity consumption in the industrial countries grew at an average rate of 5.8% p.a. Because it is a reasonably versatile and a highly convenient form of energy, it is the preferred fuel in many end-uses. Due to expected improvements in energy efficiencies in many end-use applications (through capital stock replacement and/or retrofitting), such as for lighting, space heating, and industrial power, the rate of growth of primary electricity will likely slow to around 1.8% p.a. Its share in total primary energy consumption is thus expected to increase from 16% in 1988 to 18% in 2005 (Table 3). Related to the expected increase in the demand for electrical energy is the demand for coal. The main source of the projected demand for thermal coal is its increased use in coal-fired electric power-generation capacity- -although increases in metallurgical coal use in the production of metal smelting industries will support the increase in the industrial countries. It is expected, therefore, that coal demand in the industrial countries will increase at an average rate of 1.4% p.a. so that its share in total energy consumption will remain unchanged at around 22-23%. It is expected that nuclear generation will increase in the industrial countries (albeit at a much reduced rate) given the high nuclear power generation capacity and its success in several industrial countries, particularly France and Japan. Concerns over the environmental impact of coal use (due to its high contribution to green-house gas emissions) and nuclear power generation (due to concerns over nuclear waste disposal and plant safety) are likely to increase the demand for natural gas with an increase in gas-fired capacity. A critical impediment to coal use is its large contributor to greenhouse gas emissions. If, however, clean coal utilization technologies are developed that are capable of meeting environmental concerns, which seems not to have been the case to date, coal demand would likely be higher than we have anticipated. These would involve the development of atmospheric and pressurized fluidized bed combustion technologies and integrated coal gasification, combined- cycle technologies on a commercial scale. However, the high cost of for these technologies will likely impede their implementation. Natural gas demand in the industrial countries is expected to increase by about 1.6% p.a., with gas the fastest-growing fossil fuel. Its role is expected to increase in all sectors. In the US residential sector, for instance, strong increases in natural gas use are expected largely due to the increase in the number of gas-heated housing units. In the power-generation sector, increases in gas use are likely due to the relaxing of the regulation that restricted the construction of gas-fired power plants (1987 amendment). Natural gas consumption is expected to increase even more rapidly in Western Europe. The view that natural gas resources are higher than assumed earlier, as well as the relaxing of the EEC's 14-year ban on gas use for electricity generation, will be the main factors behind the growth in gas use. The expected growth in gas-fired, combined-cycle power generation, which is suitable for base-load capacities are likely to enhance gas use in electric utilities in the industrial countries. However, these developments are likely to come about in the late 1990s. Although efforts to reduce dependence on oil from the Mid East region will continue to encourage gas use, large investments are needed for exploration and development of gas reserves, as well as for developing gas transport and transmission networks. Table 3: Energy Consumption by Country Groups and Major Fuels, 1961-88 (Actual), 1995 and 2005 (Projected) ------1961------ ------1970------ ------1988------ ------1995------ ------2005------ mtoe % mtoe % mtoe % mtoe % mtoe % Industrial 1,930.5 100.0 3,121.2 100.0 3,963.1 100.0 4,362.3 100.0 4,804.0 100.0 Liquid fuels 817.5 42.3 1,576.4 50.5 1,718.6 43.4 1,828.1 41.9 1,880.0 39.1 Natural gas 322.1 16.7 621.1 19.6 750.8 18.9 850.7 19.5 970.3 20.2 Solid fuels 646.1 33.5 705.9 22.6 856.3 21.6 957.9 22.0 1,094.8 22.8 Primary electricity 144.8 7.5 226.8 7.3 637.4 16.1 725.6 16.6 859.0 17.9 Eastern Europe & USSR 652.0 100.0 1,052.4 100.0 1,962.4 100.0 2,157.8 100.0 2,683.1 100.0 Liquid fuels 150.5 23.1 324.9 30.9 545.0 27.8 544.0 25.2 563.5 21.0 Natural gas 68.2 10.5 188.8 17.9 632.2 32.2 783.7 36.3 1,139.0 42.5 Solid fuels 416.7 63.9 503.0 47.8 656.1 33.4 652.4 30.3 710.4 26.5 Primary electricity 16.5 2.5 35.6 3.4 128.9 6.6 177.7 8.3 270.2 10.0 Developing 412.6 100.0 789.5 100.0 2,029.5 100.0 2,720.7 100.0 3,799.1 100.0 Liquid fuels 191.5 46.4 383.5 48.6 803.8 39.6 1,033.2 38.0 1,315.9 34.6 Natural gas 19.2 4.7 50.9 6.4 246.1 12.1 392.6 14.4 665.0 17.5 Solid fuels 179.1 43.4 301.6 38.2 780.4 38.5 1,021.0 37.5 1,409.4 37.1 Primary electricity 22.7 5.5 53.5 6.8 199.2 9.8 273.9 10.1 408.8 10.8 Note: Details may not add to total due to rounding. Sources: United Nations, Energy Statistics (actual); World Bank (projected). -30- As a result of the sharp decline in international oil prices in 1986, oil consumption in the industrial countries increased at an average rate of 2.2% p.a. over the 1985-89 period. This was in sharp contrast to the period 1979-85, during which oil consumption declined by 411 mtoe (3.6% p.a.) mainly as a result of the sharp increases in oil prices and sluggish OECD economic growth (2.5% p.a.). We expect oil demand in the industrial countries to continue to increase, but only at an average rate of 0.5% p.a. It is anticipated that oil demand growth in the industrial countries will slow to about 0.9% p.a. between 1989 and 1992 in response to the recent sharp increase in oil prices and the forecast slowdown in OECD economic growth. Between 1992 and 1995, we expect oil demand to be stimulated by higher OECD growth (at around 2.9% p.a.) and lower world oil prices--although the effects of the higher oil prices in late 1990 and 1991 and higher energy taxes will still have an impact. Between 1995 and 2000, we expect OECD oil demand to slow to around 0.6% p.a., due to expected increases in oil prices, and even to decline beyond the turn of the century due to improvements in energy efficiencies, slower population growth and aging population, and availability of alterative fuels. We expect growth in oil consumption in the industrial countries to be increasingly dependent on the transport sector; increased opportunities for fuel substitution in the industrial and residential sectors and the availability of gas-fired power generation will reduce the use of oil in these sectors. Developing countries. Energy demand in the developing countries is a function of a country's stage of development, the structure of its economy, urbanization, and other demographic and geographic factors. Between 1961 and 1973, energy consumption in the developing countries increased at an average rate of 7.6% p.a.; however, it has declined to around 5% p.a. since then. Slow adjustment to the higher energy prices as well as the slowdown in economic growth, have been the main factors in the decline in the growth rate of energy consumption. With energy consumption growing much faster in the developing countries than elsewhere, the share of developing countries in global energy consumption has increased from 16% in 1970 to over 26% in 1988 (see Table 2). It is expected that the role of the developing countries in global energy consumption will become even more important over the forecast period. Energy demand in the developing countries is forecast to increase at an average rate of 3.7% p.a. over the forecast period (accounting for almost 53% of the global increase in energy consumption), and its share will increase to 33.6% by 2005 (from 25.5% in 1988). Energy consumption is expected to grow in all developing country regions; however, it is likely to be strongest in the Asia-Pacific region. The increase in urbanization, more extensive and intensive industrialization, increased levels of motorization, and other effects of strong economic growth will all contribute to increases in energy demand. However, since industrialization in the developing countries is likely to be supported by the utilization of more up-to-date energy-efficient technologies, this will moderate the growth in energy demand to below historical levels. The closer alignment of energy prices to international prices should also contribute to a slowdown in energy demand growth. From the analysis of end-use energy demand, it is expected that the demand for primary electricity in developing countries will grow at an average rate of around 4.2% p.a.--slower than GDP growth--and its share of total energy consumption will increase to 10.8% by 2005 from 9.8% in 1988 (see Table 3). Electricity use is expected to grow faster than any other energy source in the residential sector. In the residential and commercial sectors, the increase in electricity is likely to be supported by demands for cooking and heating, (substituting for kerosene and LPG), refrigeration, and air conditioning, etc. Electricity appears to be the energy source most strongly influenced by income changes in the developing countries. -31- The pattern of natural gas use in the developing countries is significantly different from that in the industrial countries. In the industrial countries, the residential sector is the largest user of natural gas. In the developing countries, power generation holds the largest share (e.g., Egypt 58%, Pakistan 31%, Thailand 74%). However, it is expected that increasing volumes of natural gas will be used in other sectors --particularly in the residential market for cooking and heating. In recent years, the increased utilization of natural gas has been at the core of fuel use diversification policies in several developing countries. Significant investments have been undertaken in countries, including Algeria, Egypt, Iran, Kuwait, Mexico, Indonesia, Malaysia, Pakistan, and Thailand, for the gathering and distribution of natural gas to the residential/commercial, industrial, and power-generation sectors. In other countries, such as India and Brazil, efforts are being launched to increase the market penetration of natural gas. In Brazil, gas is being pushed into the residential and service sectors and even into the transport market. In India, gas has only recently become an important commercial fuel due to the discovery of non-associated gas. Its utilization will likely increase over the forecast period as increasing supplies become available. Because of the low carbon content of natural gas, an increase in its use is also likely to be supported by the international initiatives on greenhouse gas emissions.' Although environmental factors have to date not been a major issue in the developing countries, they are now assuming more importance. Environmental concerns will likely manifest themselves through incremental capacity, becoming based largely on gas- or dual-fired, combined-cycle plants. However, the heavy investments needed to develop indigenous gas, as well as to install gas transmission and transport networks, could impede significant gas availibilities for another decade or so. Given these trends, we expect natural gas use in the developing countries to increase at about 6% p.a. The developing countries' share of total natural gas consumption is anticipated to increase from 12.1% in 1988 to around 17% by 2005 (see Table 3). Liquid fuel consumption is expected to increase much faster in the developing countries than in the industrial countries to support increasing levels of motorization and urbanization. It is anticipated that over three- fourths of the global (excluding former CPEs) incremental oil consumption over the forecast period will occur in the developing countries. Although oil consumption will grow in all the developing country regions, it is envisaged to be most rapid in the Asia-Pacific region- -mainly due to the strong growth in the use of transport fuels. On the basis of the economic growth assumptions and forecasts of increases in vehicle fleets (nearly quadruple over the next 20 years), it is expected that oil demand in the transport sector will increase at a rate of 4.5% p.a. over the period 1989-2005, and the transport sector's share of total end-use oil consumption will increase from 40% to above 45%. In the residential and commercial sectors, oil use is expected to increase at an average rate of 3.9% p.a. due to increases in the number of urban households, offices, hotels, and government establishments, as well as to the continuing transition from traditional fuels (kerosene and LPG). In the industrial sector, oil use is expected to increase in the production of basic industrial materials in line with the expected increase in economic activity. In the power generation sector, growing demand for oil products by utilities is expected for peak generation, given that large volumes of natural gas will not be available before the turn of the century. 1 Carbon emissions from natural gas combustion are about 57% and 71% of emissions from coal and liquid fuel use, respectively, on a per unit basis. -32- The industrial and power-generation sectors provide the greatest potential for fuel substitution. Future energy demand in these sectors will likely be sensitive to the price of oil relative to other energy sources. The demand for oil is likely to decline if the price of oil is high relative to other energy sources, primarily natural gas. Energy policies, such as increases in taxes on petroleum products, import tariffs, regulations, etc., designed to guard against balance-of-payment problems, will likely impede oil use and encourage interfuel substitution and the rate of adoption of more efficient technologies. Therefore, despite the expectation that oil demand will increase, its share in total primary energy consumption in the developing countries will likely decline to 33.5% by 2005 (from 39.6% in 1988, see Table 3). Eastern Europe and the USSR. Energy demand in the USSR and Eastern Europe is projected to grow at an average rate of 2.0% p.a., from 1,963 mtoe in 1988 to 2,683 mtoe in 2005 (see Tables 2 and 3). A substantial portion of this growth (about 70%) is expected to be supplied by natural gas; its share in total energy consumption is projected to increase from 32% in 1988 to 42.5% in 2005. Primary electricity is projected to increase its share from 6.6% in 1988 to 10% in 2005. In contrast, the shares of coal and liquid fuels are expected to decline substantially. Coal use in these countries is extremely inefficient and polluting, and for this reason, its demand is likely to be curtailed. The share of this region in global energy consumption is anticipated to decline marginally, from 24.7% in 1988 to 23.8% in 2005 (see Table 2). Because of the market-oriented changes under way, we do not expect oil demand in these countries to increase substantially. Higher energy prices now being charged (resulting from reductions in subsidies on oil supplies and higher world prices), as well as improvements in efficiency and shifts away from energy-intensive industrial activities (both of which will come later), are likely to offset any increases in demand due to faster growth. The impact of the shift towards market-orientated reforms is already reflected in increases in end- use energy prices in some COMECOM member countries--as well in efficiency improvements. In the USSR and Eastern Europe economies, there is tremendous scope for further energy efficiency improvements. In the industrial sector, the largest consumer of energy (about 60% in the USSR and nearly 50% in East European economies), improvements in energy efficiency will be achieved through retrofitting of old machinery, as well as through the use of modern technologies. Although the rate of industrial change is uncertain, the expected changes will likely de-emphasize heavy industry development. In the transport sector, fuel efficiency will come about from modernization of the vehicle fleet. Further electrification of railways is also likely to improve efficiencies. Energy planners are expected to put more emphasis on the use of natural gas. Also, it is likely that security of supply considerations in East Europe and the USSR may increase oil strategic stockpiles by governments, republics, and industries. While increased availability of natural gas will ensure its increased penetration, the introduction of improved gas combustion technologies-- particularly for power generation and space heating--are likely to improve the energy intensity in gas use. Supply Outlook Energy supply forecasts to 2005 and the expected changes in the shares of the various fuels in total energy supplies in the major country groups are shown in Table 4. Almost 43% of the increase in energy production between 1961 and 1988 took place in the developing countries; as a result, the share of the developing countries in global energy supplies increased from 25% to 36%. Industrial countries and the former CPEs accounted for about 28% and 29%, respectively, of the increase. The share of industrial countries in world energy supplies declined from 51% in 1961 to 37% in 1988, while the share of the former CPEs grew from 23% to 27% (Table 5). Table 4: Energy Production by Country Groups, 1961-88 (Actual), 1995 and 2005 (Projected) ---7--1961------ ------1970------ ------1988------ -----1995------ ------2005------ Countries/Economies mtoe % mtoe % mtoe % mtoe % mtoe % Industrial 1,539.4 100.0 2,135.5 100.0 2,912.7 100.0 3,194.4 100.00 3,451.9 100.0 Liquid fuels 439.1 28.5 604.2 28.3 778.7 26.7 791.4 24.8 728.5 21.1 Natural gas 325.3 21.1 620.1 29.0 668.6 23.0 726.6 22.7 768.3 22.3 Solid fuels 629.8 40.9 684.6 32.1 824.7 28.3 938.6 29.4 1,073.8 31.1 Primary electricity 145.2 9.4 226.5 10.6 640.7 22.0 737.8 23.1 881.3 25.5 CentralLy Planned 696.7 100.0 1,121.5 100.0 2,147.7 100.0 2,356.0 100.0 2,827.3 100.0 Liquid fuels 184.5 26.5 377.9 33.7 651.5 30.3 605.6 25.7 564.4 20.0 Natural gas 67.8 9.7 188.8 16.8 672.2 31.3 883.4 37.5 1,233.9 43.6 Solid fuels 427.7 61.4 503.0 46.3 690.7 32.2 691.4 29.4 761.3 26.9 Primary electricity 16.6 2.4 35.6 3.2 133.3 6.2 175.6 7.4 267.7 9.5 Developing 759.8 100.0 1,767.6 100.0 2,895.0 100.0 3,690.2 100.0 5,008.1 100.0 Liquid fuels 842.2 71.4 1,358.8 76.9 1,637.5 56.5 2,008.4 54.4 2,466.4 49.2 Natural gas 20.4 2.7 56.0 3.2 288.5 10.0 416.9 11.3 771.9 15.4 Solid fuels 174.7 23.0 299.4 16.9 777.5 26.9 1,001.1 27.1 1,379.4 27.5 Primary electricity 23.6 3.0 53.4 3.6 191.5 6.6 263.8 7.2 390.4 7.9 Note: Details may not add to total due to rounding. Sources: United Nations, Energy Statistics (actual); World Bank (projected). TabLe 5: Energy Production by Country Groups, 1961-88 (ActuaL), 1995 and 2005 (Projected) ------1961------ ------1970------ ------1988------ -----1995------ ------2005------ Country Economies mtoe % mtoe % mtoe % mtoe % mtoe % Industrial 1,539.4 51.4 2,135.5 42.5 2,912.7 36.6 3,194.4 34.6 3,451.0 30.6 CentralLy planned 696.7 23.2 1,121.5 22.3 2,147.7 27.0 2,356.0 25.5 2,827.4 25.0 Developing 759.8 25.4 1,767.6 35.2 2,895.0 36.4 3,690.3 39.9 5,008.6 44.4 World 2,995.9 100.0 5,024.5 100.0 7,955.4 100.0 9,240.7 100.0 11,287.0 100.0 Note: Details may not add to total due to rounding. Sources: United Nations, Energy Statistics (actual); World Bank (projected). -35- It is projected that the share of the industrial countries in global energy supplies will decline further to 30.6% in 2005, while that of Eastern Europe and the USSR will drop marginally to about 25%. The increase will, therefore, be supplied by the developing countries (including OPEC countries) whose share in total energy supplies will grow to about 44.4% in 2005 (see Table 5). One of the strongest trends evident in the energy sector is the rapidly increasing production of primary electricity. Another trend of considerable intensity is the rapid expansion of natural gas supplies, particularly in the USSR and in the developing countries. The limited potential for increases in oil supplies in the industrial countries and the USSR will likely lead to increases in the shares of natural gas and primary electricity in global energy supplies-- although environmental concerns will likely limit the growth of primary electricity. It is anticipated that the share of natural gas will increase from 20.5% in 1989 to 24.6 by 2005; the share of electricity is expected to increase marginally from 12.2% to 13.6%. The share of coal will remain unchanged at around 28%, while that of liquid fuels is projected to decline from 38.6% in 1988 to 33.3% in 2005 (Table 6). Prospects for supplies of primary electricity and natural gas are presented below. Prospects for supplies of petroleum and coal are presented in the respective chapters of this report. Prospects for Primary Electricity. Primary electricity has been the fastest growing segment of the global energy supply picture since the 1950s, due mainly to the enormous expansion of nuclear power generation in the 1970s. In recent years, however, and since the Chernobyl disaster, in particular, public opinion has turned strongly against nuclear power. Plant safety concerns and the environmental problems associated with the disposal of ratioactive waste are likely to continue to impede nuclear power generation. While the prospects for nuclear electricity generation generally do not appear very promising, some countries, both industrial and developing, appear committed to the nuclear option. At the top of the list of industrial countries are France and Japan-- although even in these countries the expansion of nuclear power will likely slow in response to growing public safety and environmental concerns and due to the fact that these countries have already achieved a high penetration of the market. In France, for example, about 70% of electricity generation is provided by nuclear plants. At present, France supplies roughly 40 terawatt hours of electricity to other European countries. The increasing demand for electricity exports to other Western European countries, enhanced by the unification of Europe, will likely increase nuclear electricity generation in France. In other industrial countries, such as Sweden, plans include phasing out of nuclear power plants over the next two decades or so. While in several other industrial countries including Spain, the Netherlands, and Switzerland, growing public opinion against nuclear energy will likely impede the growth of nuclear electricity generation. Among the developing countries, Brazil, India, and Pakistan have nuclear capacity and have plans of varying degrees of firmness to build more. However, these programs have not been unqualified successes, and their future is uncertain. There have been problems in all three countries over the operation of the plants and substantial cost overruns have been commonplace. In the Republic of Korea, where nuclear power plants account for about one-half of the electricity generated, the lack of an adequate fossil fuel reserve base will likely lead to an increase in nuclear electricity generation capacity. China has two nuclear plants under construction, reflecting the continuation of its nuclear expansion program. The Philippines has one moribund reactor and the Indonesia government has shown fluctuating interest in nuclear development for some years. In other countries, including in Malaysia and Thailand, grid and capacity needs are as yet scarcely able to absorb a nuclear plant; however, this could change as smaller units (about 600 mw) are being designed for commercial offering in the late-1990s. Table 6: Global Energy Production by FueL Type, 1961-88 (Actual), 1995 and 2005 (Projected) - 1961 --19 ------ ----19700------ -----1988------ -----1995------ ------2005------ atoe % mtoe % mtoe % mtoe % mtoe % Liquid fueLs 1,166 38.9 2,341 46.6 3,067 38.6 3,405 36.9 3,759 33.3 Natural gas 414 13.8 866 17.2 1,629 20.5 2,025 21.9 2,771 24.6 Solid fuels 1,232 41.1 1,503 29.9 2,293 28.7 2,631 28.5 3,214 28.5 Primary electricity 184 6.1 316 6.3 965 12.2 1,178 12.7 1,542 13.6 Total 2,996 100.0 5,026 100.0 7,954 100.0 9,239 100.0 11,286 100.0 Note: Details may not add to total due to rounding. Sources: United Nations, Energy Statistics (actual); World Bank (projected). I -37- There appears to be substantial worldwide hydroelectric capacity world wide. In terms of gigawatt electric, significant hydroelectric power capacity exists in several countries, including the United States (89.7), Canada (57.7), Japan (36.4), Norway (25.4), and France (24.3) in the industrial countries, and Brazil (40.1) and China in the developing countries. At present China has about 32 gigawatts of installed hydro, generating 109 terawatt hours (Twh) of electricity. In the USSR, hydroelectric power capacity is estimated at 62.7 gigawatt electric.2 While hydro power electricity generation will increase in total in the industrial countries--notably in Canada, Japan, Norway, and Spain--in the United States and in other Western European countries, growth will be slow--given that much of the hydro power potential has already been harnessed. There is immense hydro electric potential in the USSR and in the developing countries, however. China has plans for the expansion of its hydro capacity which would raise generation potential up to 1,900 Twh by the end of the century. The largest potential (about 70%) is located in the South West (some 1,000 miles from the major load centers); it is cheaper to tap and as well it is not encumbered by the resettlement problems and the inundation of large areas of agricultural land that would be associated with China's Three Gorges Projects (presently on hold). Finance is a major stumbling block for these and other major projects. Eventually, a choice may have to be made between the development of a few major schemes and the broader application of funds over many small ones. Technical problems associated with the simultaneous development of hydro and long distance power transmission could be a further bottleneck for hydro development. Despite already supplying 24% of current primary energy needs and nearly 90% of its electricity, Brazil has exploited less than 20% of the country's estimated hydro potential. Another 12% is under construction or planned over the rest of the century. The completion of these massive projects and the future exploitation of hydro resources is severely constrained financially, however. Environmental considerations are also beginning to play a role, and hydro is no longer emphasized in the country's investment plans. In both India and Pakistan, hydro power continues to provide one of the most promising avenues for development of indigenous energy resources. The potential in both countries is substantial; under 10% has been developed in Pakistan and only about 13% in India. There are, however, problems with silting in Pakistan. In India, the length of time needed for construction and the capital required in relation to other options has moved the focus away from hydro. The main potential domestic source of energy in the Philippines is geothermal, of which only some 11% has been utilized. Hydro power resources are also largely untapped, but their development is relatively costly due to the distance of the better sites from the grid. Some 36% of the hydro potential of Thailand has already been tapped, but there is substantial additional potential in international rivers. These would require agreements mainly with Burma and Laos, and seem likely to remain untapped for many years to come. Currently, although hydro contributes around 7% of Malaysia's energy needs, it has the potential to increase its role significantly. However, the location of many of the untapped sources, their economics, and the availability of gas make it unlikely that any major schemes will be completed in this century. In Indonesia, as well, the major hydro potential lies outside the main consumption areas. Large-scale development of these largely unexploited 2 DOE/EIA: International Energy Agency (1989): "International Energy Outlook 1990." -38- resources requires the costly development of a substantial electricity load away from Java or the installation of undersea links between Sumatra and Java. Some geothermal power is already being used in Indonesia and potential exists for more use. Unfortunately, the economics of the various sites often compare unfavorably with other sources of electricity. Prospects for Natural Gas. The availability of enormous reserves of natural gas in the USSR and in several developing countries will ensure that natural gas will supply an increasing share of energy requirements in these countries. Over the past three decades, large reserves of natural gas have been proven in the form of associated gas--in conjunction with giant crude petrolem deposits--as well as in natural gas fields. As a result, proven gas reserves have more than doubled since 1970. Estimated proven world gas reserves at the end of 1988 were 3,955 tcf (equivalent to roughly 675 billion barrels of oil), compared with 1,588 tcf in 1970. The most significant additions to reserves were realized in the USSR and in the Mid East; however, sizeable discoveries were also made in Western Europe, Africa, Southeast Asia, and the Pacific (Table 7). As a result of recent finds, there has been a significant change in the shares of proven reserves held by the major economic regions. The share of the USSR and Eastern Europe, which accounted for 27.7% of world gas reserves in 1970, increased to about 39% in 1988. The USSR is the leading exporter of gas to the European market. Exports of USSR gas to East European countries have been increasing in an effort to free oil for exports to the West. The USSR's recent discoveries have been concentrated in Western Siberia and the Asian Republics. There appears to be great potential for large natural gas finds in the shallow waters of Yamel Peninsula's Kare Sea. The developing countries have increased their share of natural gas reserves from 42% in 1970 to 49% in 1988. Proven reserves now exceed those in the former CPEs (Table 8). The share of industrial countries has declined from 31% in 1970 to about 12.6% in 1988. Table 7: Proven Gas Reserves, by Geographical Region, 1970-88 Reserves-to- ------ 1970------ ------1980------ ------1988------ output tcf a/ % tcf % tcf % (years) Asia-Pacific 56.33 3.5 166.29 6.4 272.35 6.8 51 Western Europe 147.73 9.3 159.31 6.0 200.12 5.1 29 Middle East 354.26 22.3 752.41 28.5 1,182.12 29.9 340 Africa 191.52 12.1 208.47 7.9 253.31 6.4 112 Western Hemisphere 396.55 25.1 438.11 16.6 518.44 13.1 22 Eastern Europe & USSR 440.00 27.7 910.00 34.6 1,529.00 38.7 51 Total 1,588.39 100.0 2,638.50 100.0 3,955.34 100.0 55 Note: Details may not add to totals because of rounding. a/ TCF = trillion cubic feet. Source: Oil and Gas Journal. About 90% of the developing countries' reserves are located in the oil- exporting developing countries. Iran leads this group, with around 12.5% of total reserves, followed by Abu Dhabi (4.6%), Qatar (4%), Saudi Arabia (3.7%), and Algeria (2.6%). Many oil-importing developing countries have improved their reserves position over the past two decades, however. Among this group, Argentina, China, Pakistan, and India are most prominent. -39- Table 8: Proven Gas Reserves, by Economic Grouping, 1970-88 ------1970----- ------1980----- ------1988------ Economic Region tcf a/ % tcf % tcf % Industrial countries 486.33 30.6 446.48 16.9 500.49 12.6 Eastern Europe & USSR 440.00 27.7 910.00 34.5 1,529.00 38.7 Developing countries 662.06 41.7 1,282.02 48.6 1,925.85 48.7 Total 1,588.39 100.0 2,638.50 100.0 3,955.34 100.0 Note: Details may not add to total due to rounding. a/ TCF = Trillion cubic feet. Source: Oil and Gas Journal. The global reserves-to-output ratio has increased from around 42 years in 1970 to nearly 55 years in 1988. On the basis of 1988 output numbers, the reserves-to-output ratio is the lowest for the Western Hemisphere and Western Europe and highest in the Mid East, followed by Africa (see Table 7). The reserves-to-output ratio for the industrial countries is now around 18 years. The United States, with estimated reserves of 187.2 tcf and output at around 17.24 tcf (around 24% of world output) in 1988, has one of the lowest reserves-to-output ratios (11 years). Other industrial countries with very low reserves-to-output ratios are France (10 years), Germany (15 years), and the United Kingdom (13.5 years). The reserves-to-output ratio is considerably longer in several other industrial countries, such as Canada (26 years), Norway (79 years), the Netherlands (25 years), and Australia (32 years). Among the oil-exporting developing countries, the reserves-to-output ratio in Algeria, Indonesia, and Mexico is 64 years, 60 years, 78 years, respectively, while in Saudi Arabia and Venezuela, the ratio is around 150 years and 142 years, respectively. Iran's reserves-to-output ratio is over 650 years. With the natural gas reserves discovered over the past two decades, the reserves- to-output ratio in the populous low-income developing countries, such as China and Pakistan, has increased significantly. In these countries, the ratio is now 63 years and 39 years, respectively. It is expected that natural gas production in the industrial countries will increase by 100 mtoe (0.8% p.a. growth) over the period 1988-2005 (see Table 4). Increases in supplies are most likely in Australia and the North- Sea region. In Norway, new developments, such as those of the Troll and Sleipner complex, will enhance the Western Europe supply situation, as well as increase supplies to the United States. In the Pacific region, development of the North West Shelf reserves will help meet increasing domestic demand in Australia, as well as supplying large quantities of natural gas in the form of LNG to Japan and other markets. Despite their large gas reserves, the potential for exploitation of natural gas is far from being realized in the developing countries. Algeria is one of the largest producer of natural gas in the developing countries. It is anticipated that countries such as Iran and Qatar, with significant gas reserves, will supply increasing volumes of gas. The development of natural gas is already a key, if not a major component, in the energy strategies of several other developing countries, notably, Indonesia, Malaysia, Thailand, and Pakistan. In China, India, and Brazil, the potential for a substantial natural gas resource base is beginning to be realized and the 1990s should see the rapid development -40- of gas use in these countries. The development of gas transportation and transmission infrastructure, to enhance international trade in gas, is also expected. This includes the expansion of Algeria's trans-Mediterranean line to feed into central Europe and its LNG projects in Portugal, Greece and Turkey--as well as its second trans-Mediterranean line through Morroco and Spain. Venezuela's plans include an LNG export project to the United States. Export pipelines from Bolivia to Brazil and from Argentina to Chile are also under implementation. It is expected that the production of natural gas in the developing countries will grow at 5.8% p.a. during the forecast period, reaching 772 mtoe in 2005 (up from 290 mtoe in 1988). By that time, the share of natural gas in total energy supply in the developing countries is expected to be over 15% (see Table 4). The enormous discoveries over the past three decades (proven gas reserves are equivalent to 655 billion barrels of oil) have greatly enhanced the supply outlook for natural gas. Because of its relatively underutilized reserves, the breadth of its end-use applications (except, perhaps, in some forms of transportation, which might be overcome by either liquification or conversion to methanol), and the possibility of its manufacture from the abundant supplies of coal, natural gas will supply a growing share of the global requirements for energy products. Amid concerns over global warming and air pollution, the clean- burning quality of natural gas is expected to provide a further stimulus to its market penetration. However, the rapid development of natural gas supplies faces three major constraints. First, the geographical occurrence of the existing reserves is not proportionate to the regional markets; second, and relatedly, the expansion of both domestic and international use calls for costly investments in production and distribution facilities; and, third, there is a high degree of regulation in the natural gas industry. On the last point, considerable progress has been made in the deregulation of the natural gas market in the United States and in European markets. To overcome the first two constraints, higher natural as prices (around $3/mcf, compared with the present $1.70/mcf well-head price in the United States) will be needed to encourage exploration and development expenditure, as well as to expand gas transmission and transport networks. Table Al: Energy - Production by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons ofOlEquivalent)------------------------------------------ ----------- (% p.a.)------ Industrial 2,110 2,537 2,915 2,934 2,983 3,023 3,065 3,107 3,150 3,193 3,326 3,451 2.4 1.8 1.0 North America 1,600 1,748 1,900 1,908 1,921 1,939 1,957 1,975 1,993 2,011 2,079 2,135 2.2 0.9 0.7 United States 1,435 1,500 1,589 1,581 1,588 1,600 1,613 1,626 1,638 1,651 1,705 1,738 1.8 0.5 0.6 Canada 165 247 318 327 331 337 343 349 355 361 374 398 5.3 3.5 1.2 EEC-10 363 514 601 579 598 606 616 627 638 646 653 665 1.7 2.9 0.9 United Kingdom 107 200 233 206 217 222 226 231 236 241 220 208 2.6 4.6 0.1 Germany, Fed. Rep. 122 124 125 123 126 127 130 131 134 130 132 135 -0.1 0.1 0.6 Other W. Europe 48 120 184 204 215 220 225 229 234 240 257 269 6.3 7.5 1.7 Industrial Asia 49 57 80 82 85 88 91 94 97 100 121 145 1.5 2.9 3.6 Industrial Oceania 49 98 150 161 164 170 176 182 188 195 215 238 7.3 6.2 2.5 Australia 45 91 138 148 150 155 161 166 172 178 196 213 7.8 6.2 2.3 Eastern Europe & USSR 1,128 1,697 2,147 2,124 2,153 2,192 2,232 2,273 2,315 2,356 2,571 2,827 4.3 3.7 1.8 USSR 866 1,377 1,780 1,772 1,795 1,829 1,864 1,899 1,935 1,971 2,150 2,370 4.8 4.2 1.8 Eastern Europe 262 320 367 352 358 363 368 374 380 385 421 457 2.4 1.9 1.6 Poland 90 117 134 124 126 127 128 129 130 131 139 147 2.8 2.2 1.1 Developing 1,743 2,563 2,892 3,059 3,171 3,266 3,367 3,469 3,578 3,692 4,342 5,011 5.1 2.8 3.1 Asia 1,068 1,695 1,880 1,982 2,050 2,120 2,191 2,267 2,345 2,426 2,886 3,365 5.2 2.1 3.4 China, People's Rep. 204 437 641 682 707 730 754 778 804 830 960 1,098 7.3 5.2 2.8 Saudi Arabia 198 502 289 292 355 372 365 357 351 346 445 538 5.3 2.5 3.9 Iran 206 114 130 153 175 181 187 194 200 207 249 281 2.9 -2.5 3.8 India 51 92 163 170 177 183 189 195 202 208 243 282 6.3 6.7 3.2 Africa 318 400 438 468 491 500 510 521 532 545 612 684 10.2 8.2 2.4 Nigeria 53 98 73 94 94 97 97 98 99 100 109 107 13.0 1.6 0.8 South Africa 34 66 95 96 100 103 106 110 113 117 137 160 5.2 6.1 3.2 America 323 424 519 548 569 583 600 614 632 648 759 859 3.0 2.6 2.8 Venezuela 201 138 117 135 . 140 133 136 140 144 147 178 210 -1.1 -3.1 2.8 Mexico 39 137 178 180 185 189 193 197 202 206 235 261 7.9 8.6 2.3 Southern Europe 34 44 54 59 61 63 65 67 69 73 85 103 4.2 2.3 3.5 World 4,981 6,798 7,954 8,117 8,307 8,481 8,664 8,849 9,042 9,241 10,239 11,289 3.7 2.6 2.1 /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)l World Bank, International Economics Department (projected). Table A2: Energy - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of01Equivalent)------------------------------------------ ----------- ( Pa.)------ Industrial 3,097 3,686 3,963 4,036 4,097 4,149 4,201 4,253 4,305 4,361 4,614 4,804 2.7 1.3 1.1 North America 1,744 2,023 2,165 2,214 2,235 2,261 2,286 2,312 2,339 2,366 2,481 2,546 2.3 1.2 0.9 United States 1,574 1,785 1,893 1,940 1,955 1,976 1,997 2,019 2,041 2,063 2,171 2,218 2.1 1.5 0.8 Canada 157 224 257 261 265 269 273 277 282 287 295 314 3.8 2.7 1.2 EEC-10 904 1,068 1,112 1,122 1,143 1,156 1,170 1,184 1,198 1,212 1,285 1,338 2.6 1.0 1.1 Germany, Fed. Rep. 234 279 279 272 277 280 283 287 291 293 311 321 2.3 0.9 1.0 United Kingdom 211 209 212 206 209 211 214 216 219 221 234 245 0.8 -0.03 1.1 France 158 201 208 212 217 221 225 229 233 237 257 277 3.0 1.4 1.7 Other W. Europe 121 153 176 172 176 178 179 180 182 184 190 200 3.7 2.7 0.9 Industrial Asia 270 359 414 427 440 449 458 467 476 486 531 578 5.3 2.3 1.9 Industrial Oceania 57 83 96 101 103 105 107 109 111 113 127 142 4.1 2.8 2.2 Australia 49 72 78 85 86 88 89 91 92 94 104 115 4.0 2.5 1.9 Eastern Europe & USSR 1,059 1,578 1,963 1,936 1,964 2,001 2,040 2,077 2,117 2,158 2,410 2,683 4.2 3.5 2.1 USSR 762 1,155 1,491 1,467 1,485 1,514 1,543 1,574 1,605 1,636 1,837 2,054 4.5 3.9 2.1 4- Eastern Europe 296 423 471 469 479 487 496 503 512 522 573 629 3.3 2.6 1.9 Poland 81 119 129 129 130 132 134 135 137 139 149 159 3.3 2.5 1.3 Developing 775 1,440 2,029 2,145 2,246 2,331 2,424 2,519 2,619 2,722 3,214 3,802 6.1 5.4 3.6 Asia 436 835 1,258 1,354 1,413 1,468 1,528 1,590 1,654 1,720 2,055 2,470 6.7 5.7 3.8 China, People's Rep. 203 419 618 667 692 718 744 772 800 830 978 1,128 7.1 6.2 3.3 India 62 113 179 187 196 205 213 223 233 243 286 347 5.9 6.1 3.9 Africa 85 154 226 234 245 253 263 271 281 292 341 401 6.7 6.9 3.4 South Africa 44 65 82 84 88 90 93 96 98 101 118 136 4.1 3.7 3.1 America 195 348 428 445 466 483 503 521 542 563 650 741 4.9 4.5 3.2 Mexico 40 92 104 108 114 118 122 126 130 134 153 172 6.0 5.5 3.0 Brazil 39 91 126 131 138 144 150 157 163 169 198 226 7.1 6.7 3.5 Southern Europe 58 102 104 111 122 126 131 136 142 147 168 190 4.2 2.7 3.4 World 4,931 6,704 7,954 8,117 8,307 8,481 8,664 8,849 9,042 9,241 10,238 11,289 3.8 2.7 2.1 /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual): World Bank, International Economics Department (projected). Table A3: Energy - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Ratesia Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of OilEquivalent)------------------------------------------ -----------( p.a.)------ Industrial 289 500 676 682 698 706 713 718 726 736 769 797 6.4 4.5 1.0 North America 122 168 218 219 222 224 226 228 230 232 237 242 6.0 2.8 0.6 United States 49 79 99 101 102 103 103 104 103 106 109 113 4.7 2.9 0.7 EEC-10 143 237 286 284 284 285 286 285 286 287 292 299 5.1 3.7 0.3 Netherland 42 85 83 87 87 88 89 89 90 91 96 99 6.3 3.6 0.8 United Kingdom 19 62 100 78 87 90 93 96 100 103 75 54 8.4 9.1 -2.3 Other W. Europe 9 61 105 109 120 123 124 126 129 133 147 152 13.0 13.8 2.1 Norway 3 47 84 106 114 117 121 124 127 130 139 138 19.0 21.2 1.7 Industrial Asia 1 2 2 3 3 3 3 3 3 3 3 3 4.3 3.8 0.0 Industrial Oceania 13 31 65 67 69 71 74 76 78 81 90 101 11.3 9.4 2.6 Eastern Europe & USSR 151 280 381 382 391 394 399 403 406 415 415 417 6.1 5.3 0.6 USSR 116 235 317 331 337 342 348 354 359 365 365 354 6.9 5.8 0.4 Eastern Europe 36 45 64 51 54 52 51 50 46 50 50 63 3.2 3.2 1.3 *P Developing 1,260 1,555 1,350 1,424 1,433 1,448 1,475 1,512 1,551 1,580 1,832 1,996 3.6 0.3 2.1 Asia 737 1,037 853 873 916 927 951 984 1,019 1,044 1,220 1,328 3.8 -0.6 2.7 Saudi Arabia 180 472 234 237 283 277 272 266 261 259 340 409 4.7 2.0 3.5 Iran 181 75 82 108 121 125 129 133 137 142 171 185 2.0 -4.1 3.4 Iraq 75 107 119 131 88 109 121 135 152 171 206 225 3.5 2.8 3.4 United Arab Emirates 40 83 82 86 95 99 95 90 86 81 98 113 0.0 4.4 1.7 Africa 268 293 252 274 288 291 293 296 298 301 324 341 14.8 7.8 1.4 Libya 147 82 48 59 61 62 63 64 65 66 80 92 8.0 -1.7 2.8 Nigeria 50 90 62 82 82 85 86 86 85 85 93 90 12.8 1.1 0.6 Algeria 42 55 69 70 71 72 73 73 74 75 81 86 4.1 -0.2 1.3 America 253 212 193 209 213 213 214 215 215 216 265 299 -0.1 -1.7 2.3 Mexico 4 46 76 77 79 81 83 85 87 89 102 114 12.7 17.1 2.5 Venezuela 178 100 78 82 83 84 85 87 88 89 106 126 -2.3 -4.9 2.7 Southern Europe 2 13 14 15 16 17 17 18 18 19 23 28 5.4 3.2 4.0 World 1,700 2,334 2,407 2,488 2,522 2,548 2,587 2,633 2,683 2,731 3,016 3,210 4.5 1.8 1.6 /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)l World Bank, International Economics Department (projected). Table A4: Energy - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons ofOlEquivalent)------------------------------------------ ----------- ( p.a.)------ Industrial 1,292 1,694 1,726 1,784 1,807 1,827 1,848 1,869 1,893 1,913 2,040 2,135 4.6 1.5 1.1 North America 276 469 474 503 531 539 548 557 566 575 601 622 4.8 3.1 1.3 United States 196 387 403 460 469 477 487 497 506 519 575 593 5.2 4.2 1.6 EEC-10 685 803 809 827 830 832 835 837 842 844 902 953 4.1 0.6 0.9 Germany, Fed. Rep. 137 184 174 170 174 177 179 181 183 186 201 209 5.1 1.1 1.3 France 120 168 126 127 133 134 135 137 138 139 144 148 3.6 0.1 1.0 Italy 123 139 138 144 146 149 151 154 156 154 162 170 4.4 0.5 1.0 United Kingdom 122 73 79 78 79 80 81 81 82 82 87 90 1.0 -2.5 0.9 Netherland 69 85 107 109 110 112 113 113 114 116 124 130 4.7 2.1 1.1 Other W. Europe 84 97 97 95 97 99 100 102 102 103 105 110 3.6 0.9 0.9 Industrial Asia 225 307 336 348 338 346 354 362 370 379 418 435 7.3 2.0 1.4 Industrial Oceania 22 17 10 11 11 11 11 12 12 12 14 15 -1.5 -4.4 2.0 Eastern Europe & USSR 83 166 193 194 198 201 205 209 213 217 242 269 7.0 4.9 2.1 USSR 13 14 25 26 27 28 28 29 29 30 34 38 5.4 4.2 2.4 Eastern Europe 70 152 168 168 171 173 177 180 183 187 208 231 7.0 4.9 2.0 Developing 296 444 488 510 518 520 535 554 578 601 734 806 4.0 2.7 2.9 Asia 108 181 231 245 265 281 288 300 313 327 420 454 5.5 4.2 3.9 Korea, Rep. of 10 32 53 59 62 64 66 68 71 73 85 95 16.1 10.0 3.0 Singapore 20 39 48 53 55 55 56 56 57 63 69 76 7.4 4.7 2.3 Africa 38 50 40 40 42 43 44 45 46 47 52 58 3.7 1.6 2.3 South Africa 12 17 18 18 19 20 20 21 21 22 26 30 5.7 2.6 3.2 America 124 139 102 106 112 116 120 124 129 133 157 181 0.8 -1.2 3.4 Brazil 21 50 49 52 52 54 57 59 61 64 69 83 5.7 4.8 3.0 Southern Europe 26 73 64 67 78 80 83 85 90 94 105 113 4.4 3.1 3.3 World 1,672 2,304 2,407 2,488 2,523 2,548 2,588 2,632 2,683 2,731 3,016 3,210 4.6 1.9 1.6 /a Least squares trend for historical periods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual); World Bank, International Economics Department (projected). Table AS: Natural Gas - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Mllon Tons of 1Equivalent)------------------------------------------ ----------- (% p.a.)------ Industrial 611 699 669 687 692 699 705 712 718 726 747 768 2.7 0.5 0.7 North America 541 522 504 514 516 520 524 528 532 536 549 561 1.8 -0.5 0.5 United States 492 455 421 423 425 429 432 435 439 442 452 462 1.3 -0.9 0.5 Canada 49 68 83 90 91 91 92 93 93 94 96 99 6.3 2.9 0.6 EEC-10 65 140 119 124 124 125 125 126 126 127 130 133 9.2 3.6 0.4 Netherland 26 71 44 49 49 49 49 49 50 50 51 52 12.3 19.0 0.4 United Kingdom 11 33 42 41 41 41 41 41 41 42 43 44 26.6 8.3 0.4 Other W. Europe 2 25 27 29 29 29 29 29 30 30 32 34 11.5 15.5 1.0 Norway 0 24 26 29 29 29 29 29 29 30 32 34 0.0 0.0 1.0 Industrial Asia 3 2 2 2. 2 2 2 3 3 3 3 4 2.7 -1.5 4.4 Industrial Oceania 1 9 17 19 21 23 24 26 28 29 33 37 - 14.8 4.3 Eastern Europe & USSR 198 408 672 694 725 754 784 816 849 883 1042 1234 8.9 7.4 3.7 USSR 166 360 625 646 676 703 732 761 792 824 972 1150 9.4 8.0 3.7 Un Eastern Europe 32 48 47 47 49 51 53 55 57 59 71 84 5.1 2.5 3.7 Romania 23 35 36 35 36 37 39 40 42 44 52 62 4.7 2.6 3.6 Developing 56 153 288 308 328 344 361 379 397 417 567 772 10.4 9.6 5.9 Asia 24 71 142 153 162 171 181 191 202 214 297 432 11.7 10.0 6.7 Iran 9 10 14 15 16 17 18 19 19 20 27 37 10.7 1.6 5.8 Indonesia 2 14 31 33 35 36 38 39 41 43 58 78 9.9 20.4 5.5 Africa 3 23 70 75 80 83 86 90 93 97 128 145 41.4 38.5 4.2 Algeria 2 16 57 61 64 67 70 73 76 79 103 125 40.4 36.9 4.6 Nigeria 0 1 3 4 4 4 4 5 5 5 7 10 - 21.5 5.9 America 28 57 73 76 82 91 100 111 122 101 135 185 6.6 5.3 5.7 Mexico 10 23 24 24 27 29 31 33 36 38 57 70 5.9 4.4 6.9 Argentina 5 8 19 21 22 23 23 24 25 26 36 44 8.7 7.7 4.7 Venezuela 9 15 19 20 21 21 22 23 23 24 27 30 5.2 4.3 2.6 Southern Europe 1 2 3 4 4 4 4 5 5 5 7 10 12.2 6.5 5.9 World 865 1260 1629 1689 1745 1797 1850 1906 1965 2026 2356 2774 5.2 3.6 3.2 /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual): World Bank, International Economics Department (projected), Table A6: Natural Gas - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of OilEquivalent)------------------------------------------ -----------( p.a.)------ Industrial 606 746 751 787 798 809 819 829 840 850 908 970 3.2 1.1 1.3 North America 534 524 493 517 523 527 532 537 541 546 568 589 1.8 -0.5 0.8 United States 504 478 437 458 464 467 471 475 479 483 502 521 1.4 -0.8 0.8 Canada 30 46 57 59 59 60 60 61 61 63 66 68 6.3 3.7 0.9 EEC-10 65 184 190 196 201 204 208 212 215 218 235 253 10.6 7.4 1.6 Germany, Fed. Rep. 14 48 43 45 46 47 48 49 50 50 55 58 16.1 6.7 1.6 United Kingdom 12 43 50 46 48 48 49 50 51 52 56 60 27.4 8.7 1.7 Italy 11 24 31 34 34 35 36 36 37 37 41 43 6.2 6.2 1.5 Other W. Europe 3 7 9 10 10 10 10 10 10 12 16 21 7.1 6.9 4.7 Industrial Asia 3 22 42 45 45 46 48 49 50 52 62 74 14.9 14.4 3.2 Industrial Oceania 1 9 17 20 20 20 21 22 22 23 28 33 - 14.8 3.2 Eastern Europe & USSR 200 386 632 636 655 679 704 729 756 784 952 1,139 8.6 7.0 3.7 USSR 166 318 550 552 568 588 610 632 655 679 826 989 8.9 7.3 3.7 Eastern Europe 34 69 82 84 87 90 94 97 101 105 126 150 7.1 5.2 3.7 Romania 23 36 39 40 42 43 45 47 49 51 61 72 5.2 3.2 3.7 Developing 50 119 246 265 292 310 329 348 370 392 496 665 10.6 9.2 5.9 Asia 21 48 122 132 143 153 163 174 185 197 269 396 11.0 10.2 7.1 Saudi Arabia 1 1 23 23 25 26 27 28 30 31 42 56 - - 6.1 Iran 8 8 14 15 16 17 18 19 20 21 27 36 10.7 2.0 5.6 Africa 1 13 46 51 55 58 61 64 68 72 88 102 39.3 35.3 4.4 Algeria 1 8 33 36 38 40 42 44 46 49 64 83 20.5 41.4 5.4 America 27 55 71 74 82 86 90 95 100 106 121 147 6.8 5.2 4.1 Mexico 10 21 19 20 24 25 27 29 31 34 43 51 6.1 3.7 3.2 Argentina 5 9 21 22 23 25 26 27 28 29 30 40 9.2 8.3 3.1 Southern Europe 1 3 7 7 13 14 15 16 17 18 19 20 15.2 10.8 6.8 World 856 1,252 1,629 1,688 1,745 1,797 1,851 1,907 1,965 2,025 2,356 2,774 5.3 3.7 3.2 /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual); World Bank, International Economics Department (projected). Table A7: Natural Gas - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of OilEquivalent)------------------------------------------ -----------(X p.a.)------ Industrial 32 89 84 93 93 94 96 97 99 100 105 109 11.4 5.8 1.0 North America 21 23 26 32 32 32 28 28 28 33 33 35 6.7 1.2 0.6 Canada 20 21 25 31 31 32 32 32 32 32 32 34 6.8 1.4 0.6 EEC-10 11 44 33 33 33 32 32 33 33 37 40 40 - 6.8 1.2 Netherland 11 42 28 30 31 31 31 32 32 32 34 34 - 6.2 0.8 Other W. Europe 0 23 26 29 29 29 29 29 29 30 32 34 - - 1.0 Norway 0 23 26 29 29 29 29 29 29 30 32 34 - - 1.0 Eastern Europe & USSR 3 46 78 89 111 113 115 117 120 122 153 171 21.2 19.9 4.2 USSR 3 46 77 89 110 112 114 116 119 121 152 170 23.6 20.5 4.1 Developing 6 37 71 74 79 82 86 89 93 97 130 164 16.0 15.4 5.1 Asia 4 24 43 45 49 51 3 55 57 60 81 108 26.3 13.6 5.6 Indonesia 0 11 15 15 16 17 17 18 18 19 26 36 - - 5.6 Africa 2 10 26 27 28 24 21 19 16 34 45 51 - - 4.1 . Algeria 2 8 25 26 27 28 29 30 30 31 40 44 - 5.4 3.3 _ America 1 4 2 2 2 2 2 3 3 3 4 5 1.8 3.6 5.9 World 42 172 233 256 283 290 297 304 311 319 388 444 14.3 10.4 3.5 /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)s World Bank, International Economics Department (projected). Table A8: Natural Gas - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/& Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of OilEquivalent)------------------------------------------ -----------( p.a.)------ Industrial 35 140 183 200 218 220 222 225 227 229 270 310 13.7 9.8 2.8 North America 22 27 27 35 39 40 36 37 37 42 52 63 5.9 1.4 3.7 United States 21 27 27 35 39 40 36 37 37 42 52 63 5.8 1.2 3.7 EEC-10 12 89 103 115 117 119 121 123 125 129 149 162 - 12.8 2.2 Germany, Fed. Rep. 4 34 33 35 37 38 39 40 41 42 47 52 - 14.1 2.5 France 3 18 20 21 22 22 23 23 24 24 28 31 - 10.9 2.5 Belgium-Luxembourg 4 11 9 9 10 10 10 10 10 11 13 14 - 5.0 2.8 Italy 0 13 19 21 22 22 22 23 23 24 28 33 - - 2.8 United Kingdom 1 10 13 13 13 14 14 15 15 15 17 19 - 8.6 2.4 Other W. Europe 1 5 8 9 9 9 9 10 10 9 12 16 - 10.3 4.4 Industrial Asia 1 20 40 43 43 44 45 46 48 49 57 68 - 22.4 2.9 Eastern Europe & USSR 6 26 43 46 51 53 56 60 63 67 85 96 18.9 12.7 4.7 USSR 4 4 2 2 3 4 4 5 6 6 7 9 - -0.5 9.8 Eastern Europe 2 22 42 44 47 50 52 5 57 62 78 88 18.9 23.2 4.4 p. 00 Developing 0 3 7 10 14 16 17 19 21 23 33 38 14.4 18.8 8.7 Asia 0 0 2 3 5 6 7 8 9 11 19 22 13.7 - 13.2 America 0 2 2 2 2 2 2 3 3 3 3 4 10.9 10.9 4.4 Southern Europe 0 1 4 5 7 7 8 9 9 9 11 12 - - 3.4 World 41 169 233 256 283 289 296 303 311 319 388 444 14.3 10.4 3.5 Ia Least squares trend for historical periods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)s World Bank, International Economics Department (projected). Table A9: Primary Electricity - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of Oil Equivalent)------------------------------------------- Industrial 230 421 641 655 676 687 699 711 725 738 797 880 5.7 5.9 1.9 North America 112 211 291 302 310 315 320 325 330 335 345 370 5.7 5.7 1.3 United States 72 137 192 200 205 206 208 209 210 211 218 225 6.4 5.3 0.7 Canada 40 74 99 102 105 109 112 116 120 124 127 145 5.6 5.1 2.2 EEC-10 49 88 177 178 184 186 189 193 197 200 221 244 6.7 7.4 2.0 France 15 34 89 91 93 96 98 101 104 107 123 141 8.8 11.6 2.8 Germany, Fed. Rep. 5 16 36 36 37 37 38 38 39 39 41 43 10.3 12.2 1.1 Other W. Europe 42 70 93 91 95 96 98 98 99 101 107 116 4.5 4.7 1.5 Norway 15 22 29 29 30 31 31 31 32 32 35 37 4.3 3.6 1.5 Sweden 12 22 33 33 34 34 34 34 34 34 34 34 5.2 6.3 0.2 Industrial Asia 22 43 70 73 76 78 81 84 86 89 108 131 5.3 6.6 3.7 Industrial Oceania 6 8 10 10 11 11 12 12 13 13 15 19 4.8 3.4 4.1 Eastern Europe & USSR 35 73 133 136 143 149 155 162 169 176 217 268 8.1 7.7 4.3 USSR 32 61 113 114 119 124 129 134 140 145 178 217 7.3 7.6 4.1 Developing 52 126 192 203 216 225 234 244 254 264 321 390 8.2 7.4 4.2 Asia 19 43 76 80 86 90 93 97 102 106 131 161 8.3 7.4 4.5 China, People's Rep. 5 15 27 28 30 32 34 36 39 41 55 72 11.3 9.1 6.1 India 7 13 15 15 16 17 18 19 20 21 26 34 7.0 5.2 5.2 Africa 6 14 13 13 14 14 15 15 15 16 18 21 8.1 5.9 3.0 America 20 56 88 93 99 103 107 111 116 120 146 177 8.8 8.4 4.1 Brazil 10 32 51 53 57 59 62 65 67 70 86 106 10.3 9.8 4.4 Southern Europe 7 13 14 16 18 19 19 20 21 22 26 32 5.5 3.3 4.4 World 317 621 966 994 1,035 1,061 1,089 1,117 1,148 1,178 1,335 1,538 6.3 6.4 2.8 /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sourcest United Nations Energy Statistics (Actual)s World Bank, International Economics Department (projected). Table A10: Primary Electricity - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons ofOilEquivalent)------------------------------------------ ----------- ( p.A.)------ Industrial 230 421 637 645 665 677 688 700 713 725 781 859 5.6 5.9 1.8 North America 112 211 292 297 304 309 313 318 323 328 340 366 5.7 5.6 1.3 United States 72 144 200 207 212 214 216 218 220 222 232 243 6.1 6.1 1.0 Canada 39 67 92 90 92 95 97 100 103 106 108 123 4.8 4.7 2.0 EEC-10 50 92 177 178 184 187 191 194 198 201 220 240 7.7 7.2 1.9 France 15 35 81 80 83 85 87 89 92 94 108 125 8.4 11.0 2.8 Germany, Fed. Rep. 7 18 37 36 38 38 39 39 40 40 42 44 9.1 1Q.3 1.3 Other W. Europe 40 66 89 87 90 91 92 92 93 94 98 103 3.9 3.1 1.1 Norway 15 22 26 26 27 27 28 28 28 29 31 33 4.2 3.5 1.5 Sweden 12 22 33 32 33 33 33 33 33 33 33 33 4.9 6.0 0.2 Industrial Asia 22 43 70 73 76 78 81 84 86 89 108 131 5.3 6.6 3.7 Industrial Oceania 6 8 10 10 11 11 12 12 13 13 15 19 4.8 3.4 4.1 Eastern Europe & USSR 35 72 131 137 144 150 157 163 170 178 219 270 8.4 7.4 4.3 USSR 31 56 103 110 115 120 124 129 135 140 170 207 7.4 6.9 4.0 m Developing 52 127 199 211 225 234 243 253 264 274 335 409 9.5 10.0 4.2 Asia 19 44 79 84 90 94 98 102 107 111 138 170 8.4 7.6 4.5 China, People's Rep. 5 15 27 30 31 33 35 38 40 43 57 75 10.3 9.6 5.9 India 7 13 17 18 19 20 21 22 23 24 31 40 7.4 5.0 5.1 Africa 6 14 12 12 13 14 14 15 15 16 19 23 7.7 5.6 4.2 America 20 56 93 97 103 107 111 115 120 125 151 183 8.9 8.7 4.0 Brazil 10 32 55 58 61 63 66 69 71 74 90 109 9.5 9.9 4.0 Southern Europe 7 14 15 18 19 20 20 21 22 23 28 34 6.1 4.1 4.1 World 317 620 967 993 1,034 1,061 1,088 1,117 1,147 1,177 1,335 1,538 6.6 6.4 2.8 /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)g World Bank, International Economics Department (projected). Table All: Primary Electricity - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of 1Equivalent)------------------------------------------ ----------- (% p.a.)------ Industrial 13 29 43 44 45 45 46 47 47 48 51 56 8.3 6.9 1.5 North America 2 9 14 15 15 15 16 16 16 16 17 18 8.6 10.6 1.1 Canada 2 8 13 14 14 14 15 15 16 16 16 18 9.6 13.2 1.6 EEC-10 6 11 16 16 17 17 17 17 18 18 20 22 8.7 6.3 2.0 Germany, Fed. Rep. 2 4 3 3 3 3 3 3 3 3 4 4 7.3 3.6 1.8 France 1 3 10 10 10 10 10 11 11 12 13 15 11.8 12.0 2.6 Other W. Europe 5 9 13 12 13 13 13 13 14 14 14 16 6.6 5.3 1.8 Eastern Europe & USSR S 9 14 14 15 15 16 17 17 18 22 27 11.1 8.9 4.2 USSR 1 5 7 7 8 8 8 9 9 9 12 14 24.5 9.4 4.4 Developing 1 4 3 4 4 4 4 4 4 5 6 7 6.9 13.8 3.6 Asia 0 0 0 0 0 0 0 0 0 0 0 1 - - - Africa 0 3 1 1 1 1 1 1 1 1 1 2 3.2 9.9 4.4 America 0 0 1 1 1 1 1 1 1 1 2 2 15.6 18.7 4.4 Southern Europe 0 1 1 1 2 2 2 2 2 2 2 3 12.6 17.5 7.1 World 16 42 60 61 63 65 66 68 69 71 79 90 8.7 7.6 2.5 /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). 1b Estimate. Sources: United Nations Energy Statistics (Actual)l World Bank, International Economics Department (projected). Table A12: Primary Electricity - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of 1Equivalent)------------------------------------------ ----------- (% p.a.)------ Industrial 13 29 43 44 45 45 46 47 47 48 51 56 8.3 6.9 1.5 North America 2 9 14 15 15 15 16 16 16 16 17 18 8.6 10.6 1.1 United States 2 8 13 14 14 14 15 15 16 16 16 19 9.6 13.2 1.9 EEC-10 7 15 20 21 21 22 22 22 23 23 25 28 7.7 6.7 1.8 Germany, Fed. Rep. 4 5 6 6 6 6 6 6 6 6 6 7 5.3 2.9 1.0 Italy 1 2 6 7 7 7 7 7 8 8 9 11 15.8 9.4 2.9 France 1 4 2 2 2 2 2 2 2 2 3 3 5.2 3.4 2.6 Belgium-Luxembourg 1 2 2 2 2 2 2 2 2 2 2 2 11.9 4.4 0.0 Other W. Europe 4 5 8 8 8 8 8 8 9 9 9 9 8.4 4.1 0.7 Eastern Europe & USSR 3 8 12 12 13 14 14 15 15 16 20 24 10.7 8.2 4.4 Eastern Europe 3 8 12 11 12 12 13 14 13 14 19 24 13.1 8.6 5.0 Developing 1 5 6 6 6 6 7 7 7 8 9 11 9.4 16.8 3.9 Asia 0 0 0 0 0 0 0 0 0 0 0 0 - - - Ln Africa 0 3 1 1 1 1 1 1 1 1 1 2 3.2 9.9 4.4 * America 0 0 1 1 1 1 1 1 1 1 2 2 15.6 18.7 4.4 Southern Europe 0 1 3 4 4 4 4 5 5 5 6 7 21.1 19.4 3.6 World 16 42 60 62 64 65 67 68 70 72 80 91 9.0 7.5 2.4 la Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)l World Bank, International Economics Department (projected). -53- PETROLEUM Summary The near-term development of international oil prices will be influenced by how and how quickly the Mid East crisis is resolved. Our baseline forecast assumes that there will be some kind of resolution of the crisis and a resumption of some supplies from Iraqi and Kuwaiti facilities within the next six months. Despite the fact that global crude oil supplies in a physical sense are already close to what they were before the embargo on Iraqi/Kuwaiti oil, due to replacement supplies, international oil prices averaged around $29/bbl for the fourth quarter of 1990 and are expected to remain around these levels in the first quarter of 1991. Concerns over the escalation of hostilities in the Mid East and further disruption of oil supplies from the Mid East are the main factors that will keep prices at such high levels. In the absence of war anxiety, we would be forecasting prices around $20/bbl in the short run on the basis of market fundamentals. Our forecast, therefore, includes a "war risk premium" of about $9/bbl. Until some form of resolution is reached, this risk premium is likely to fluctuate violently in response to changes in perceptions about the chances of hostilities in the area. Towards the middle of 1991, we expect prices to come under substantial downward pressure. This is based on the assumption that, by then, the Mid East crisis would be resolved, either without war, or with some fighting but with no damage, or limited damage, to oil-producing facilities in the Mid East. At the same time, there will be the impact on oil demand of the forecast slowdown in the economic growth rate of the OECD countries and of the high oil prices in the latter half of 1990 and early 1991. These factors are expected to lead to prices declining to around $20/bbl in the latter half of 1991 and averaging around that level in 1992. Over the medium and long run, the international price of oil will be determined by market fundamentals- -by the optimizing behavior of key market participants, namely oil consumers and non-OPEC and OPEC oil producers. Given the expectation that global oil demand will increase by about 158 mtoe (3.2 mb/d) between 1992 and 1995, while non-OPEC supplies will increase by about 61 mtoe (1.2 mb/d), the demand for OPEC oil will rise to 1,321 mtoe (26.4 mb/d). With this kind of pressure on oil production capacity, oil prices can be expected to increase around 1995 and could average around $21/bbl in that year (around $12.30/bbl in constant 1985 dollars). Over the 1995-2000 period, we expect non- OPEC supplies to plateau, while oil demand will be on the rise (albeit at a slower rate). By the year 2000, we expect demand for OPEC oil to increase to 1,551 mtoe (31 mb/d), with some increase in the utilization rate of OPEC capacity. As the supply-demand balance tightens, we expect sharp increases in oil prices in real terms--at a rate of 5% p.a.--reaching $15.30/bbl in constant 1985 dollars. With an expected average inflation rate of 3.5% p.a., crude oil prices in nominal terms would increase from $21/bbl in 1995 to $31/bbl by the year 2000. The higher oil prices expected during the period will likely provide incentives to increase oil output capacities in the Mid East, as well as inducing substitution for oil. Beyond the turn of the century, therefore, with declining oil demand and increasing supplies of oil--as well as the expected availability of alternative energy sources--a cyclical downturn in the real price of oil is anticipated. The price forecasts are based on our baseline assumptions with regard to economic growth, the potential for increases in non-OPEC supplies, and expected increases in output capacities and changes in utilization rates. However, different rates of change in any one of these factors can cause prices to deviate from our baseline trend forecast. As well, temporary shocks in any -54- of these variables can be the cause of substantial year-to-year variability in oil prices. Given the uncertainties surrounding the key assumptions, therefore, we recommend that the price forecasts be used with appropriate caution. In particular, because supplies will be increasingly concentrated in a few countries in the Mid East, the probability of supply-side shocks will remain high. Therefore, to cope with the inherent uncertainty in crude oil and petroleum product prices, decision makers should adopt appropriate risk management strategies. Price Outlook The key factors that are expected to influence world prices are the growth in the demand for oil (which, in turn, is influenced by macroeconomic factors--including, importantly, surprise developments), availability of supplies from non-OPEC sources, OPEC production behavior, and any shocks that disrupt crude oil or refinery supplies. The World Bank's oil market model has been used to study the interaction of various assumptions made about these key market factors and to determine the market-clearing price of oil under various scenarios. The oil model includes the behavior of three key sets of market participants, namely, oil/energy consumers, non-OPEC oil/energy producers, and OPEC oil producers. The key factors that influence oil price determination include the demand for oil, the availability of non-OPEC oil supplies, and OPEC's output capacity and capacity utilization rates. Oil demand is disaggregated into residual fuel oil and non-residual fuel oil and is influenced by economic growth and the opportunity for substitution between residual fuel oil and other energy sources. The magnitude of the price change depends upon the degree to which demand and supply are responsive to (past and current) prices (elasticities) and OPEC's capacity utilization rate. The demand side is disaggregated into the following sub-regions: United States, Japan, OECD Europe, other OECD, OPEC, high-growth newly- industrializing developing countries, and other developing countries. Non-OPEC supply is the sum of exports of former CPEs, and supplies from the United States, Canada, the United Kingdom, Norway, other OECD, and the developing countries. Net exports from former CPEs and non-OPEC supply are exogenous. OPEC is assumed to be the residual supplier to the market and its production capacity is specified exogenously. For expected changes in the world demand for oil (in response to changes in income and the lagged effects of past prices), the model solves iteratively for the market-clearing price at which the demand for OPEC oil equals the specified amount, given expected changes in non-OPEC supplies. For a given year, therefore, price is determined simultaneously by the interaction of OPEC's upwards sloping capacity utilization curve and the downwards-sloping demand for its oil. Petroleum prices increased sharply in early 1990 due to higher demand (as a result of the severe cold winter in the northern hemisphere) but declined just as sharply in the second quarter. Increases in OPEC production during a period when demand is seasonally weak, and the subsequent large stock buildup, were the key factors behind the price decline in the second quarter. Prices averaged $16.10/bbl in the first half of 1990. However, crude oil prices soared to over $30/bbl in August as a result of the Iraqi invasion of Kuwait and the subsequent international embargo of Iraq. The immediate impact of the embargo on Iraqi/Kuwaiti oil was a reduction of about 250 mtoe (4 mb/d) in crude oil production and the loss of access to Kuwait's refined products. Despite improved market fundamentals since then, in terms of increases in supplies of crude oil from other sources--on top of the large oil inventories (commercial as well as public)--oil prices have remained above $30/bbl because of the likelihood of escalation of the confrontation. Tight refinery capacity and the expected shortfall in refined product supplies have also contributed to the increase in price. -55- Short-term price projections (1990-92). The price projections are presented in Table 1. The near-term path of oil prices will be influenced by how, and how quickly, the crisis in the Middle East is resolved. Our baseline forecast assumes that the crisis is short-lived and supplies from Iraq will resume to some extent within the next six months. Resumption of supplies from Kuwait will likely take a little longer, given the technical problems due to the abrupt closure of Kuwaiti oil-producing and processing facilities. The move towards normalcy in supplies assumes that the threat of military conflict or expectation of further disruption in the Mid East region is sharply reduced. Despite the fact that global oil supplies in a physical sense are already close to what they were before Iraqi's invasion of Kuwait--as other OPEC producers have increased output and crude oil stocks were drawn down--prices averaged around $29/bbl for the fourth quarter of 1990 and are expected to remain around that level during the first quarter of 1991. Continuation of the embargo of Iraqi/Kuwaiti oil, fear of war, and anticipation of further disruptions of oil supplies from the Mid East are the main factors that will keep prices high. In the absence of the war anxiety, we would be forecasting prices around $20/bbl. Even with the shortage of refinery capacity, as well as the tightness in supplies of light-sweet crudes, we would not expect prices to be sustained above $25/bbl in the short run, given the replacement supplies. Therefore, the $29/bbl price for the fourth quarter of 1990 included a "war risk premium" of $9/bbl. It is the market's perception that the price increases are temporary. This is reflected in the large backwardation in the futures price. While the spot price of light-sweet crude oil (in early November 1990) was above $36/bbl, the futures prices for delivery in July and December 1991 were quoted at around $27/bbl and $24.80/bbl, respectively. During the fourth quarter of 1990, seasonal oil demand increased because of the northern hemisphere winter. With non-OPEC supplies expected to increase by only 0.2 mb/d, and assuming OPEC's short-run, sustainable capacity to be between 22 mb/d and 23 mb/d (1,100-1,150 mtoe), a drawdown of stocks of over 1 mb/d is expected over the northern hemisphere winter period. We, therefore, expect December prices to fluctuate between $25-30/bbl and the fourth quarter average should be $29/bbl. Thus, the price of OPEC crude (our indicator price) should average $21.60/bbl for 1990. Prices are expected to average $28.50/bbl in the first quarter of 1991 and $26.50/bbl in the second quarter, despite the expectation that OPEC output will increase to above 23 mb/d (offsetting the entire shortfall due to the embargo on Iraqi/Kuwaiti oil). While these price forecasts also include a risk premium, the northern hemisphere winter demand in the first quarter of 1991 and high refinery demand for crude oil (to process gasoline prior to the summer driving season) in the second quarter will support these prices. We believe that it is reasonable to expect some resolution of the Mid East crisis towards the middle of 1991, with resumption of some exports from Iraqi/Kuwaiti facilities. Thus (barring war with damage to oil-producing and refining facilities), we expect oil prices to come under downward pressure at this time. To add to the pressure, there will be the impact of the assumed slowdown in the OECD GDP growth rate, particularly in the United States. As well, countries that have recently increased production to fill the gap due to the embargo of Iraq will be reluctant to reduce their flow. Therefore, with oil demand growth slowing to around 1.6% p.a. in 1991 and 1992 (from 2.5% p.a. in 1985-89), on expectation that oil supplies will resume a close-to-normal flow in the latter half of 1991, and with the threat of supply disruption in the Mid East sharply reduced, we expect prices to decline to around $20/bbl in the second half of 1991 and fluctuate around this level in 1992. We therefore expect prices to average $23.80/bbl in 1991 and decline to an average of $20.50/bbl in 1992. Medium- and long-term price projections. Over the period 1993-95, we expect to see the lagged impact on global oil demand of the higher prices in the 1990-92 period. Oil demand in the industrial and residential sectors in the industrial countries is expected to decline by about 4% in this period; however, -56- these declines will be more than offset by increases in other sectors, especially in the transport sector,which will be stimulated under the macroeconomic assumption of OECD growth at around 2.9% p.a. In the industrial sector, a combination of factors- -including the use of advanced clear coal-utilization technologies (in the metal smelting industries) and improved efficiency of oil use--will likely reduce marginally the demand for oil. During this period, oil demand in the power-generation sector in the industrial countries is expected to increase slightly as environmental regulations restrict coal use--given that significant volumes of gas will not be available for peak load activity to relieve the burden on oil use. The high proportion of oil-using capacity for power generation in Europe will also support the increase in oil demand in this sector. In the developing countries, we expect oil demand to increase in all sectors (especially in the transport sector) under the assumption of growth in developing countries' GDP of 5% p.a.--although oil consumption growth in these countries will slow to around 3.6% p.a. (from over 4.8% p.a. during the period 1987-89) due to the lagged effect of the higher oil prices in the 1990-92 period. Given the expectation that global oil demand will increase by about 158 mtoe (3.2 mb/d) between 1992 and 1995, while non-OPEC supplies will increase only by 61 mtoe (1.2 mb/d), the demand for OPEC oil is expected to rise to 1,321 mtoe (26.4 mb/d). With this kind of pressure on oil production capacity, oil prices can be expected to increase around 1995 and could average around $21/bbl in that year (around $12.30/bbl in constant 1985 dollars). Global oil consumption should grow over the period 1995-2000- -albeit at slower rate than in the early 1990s. The impact on oil demand of changes in energy policies in the consuming countries (from increases in taxes on petroleum in the industrial countries and the alignment of domestic prices to international prices in the developing and East European countries), as well as further improvements in the efficiency of oil use and additional conservation measures, will likely reduce the rate of growth in oil demand. During this period, almost the entire increase in global oil consumption is expected to take place in the developing countries; demand in the industrial countries will increase only marginally, with increases in oil demand in the transport sector partially offset by the declines anticipated in other sectors. Non-OPEC oil production (excluding the USSR) is expected to increase by only 15 mtoe over the period 1995-2000 (compared with the 133 mtoe increase over the past decade), with increases in the oil-producing developing countries partially offset by declines anticipated in the industrial countries-- particularly in the United States. This period is also likely to be characterized by rapid declines in production and exports from the USSR. Given the forecast that global oil demand will increase by 1.3% p.a. over the 1995-2000 period, together with the expectation that non-OPEC supplies (including USSR production) will likely remain constant, we expect the demand on OPEC oil to be 1,550 (31 mb/d) mtoe by the year 2000. Based on expected increases in OPEC output capacity to around 1,700 mtoe (34 mb/d) by 2000, this production level translates into an OPEC capacity utilization rate of over 90% (compared with below 80% in 1989). Therefore, as the supply-demand balance tightens, we expect rices to increase sharply in real terms--at a rate of around 5% p.a.--to reach $15.30/bbl in constant 1985 dollars. With an expected average inflation rate of 3.5% p.a., crude oil prices in nominal terms would increase from $21/bbl in 1995 to $31/bbl by the year 2000. Beyond the year 2000, we expect prices to decline in real terms. During this period, oil demand in the industrial countries will likely decline, with sharp declines in the industrial, residential/commercial, and power- generation sectors due to increased levels of fuel substitution (by natural gas) and improvements in energy efficiency in oil use more than offsetting the increases in demand expected in transport fuels. The aging population in the -57- industrial countries will moderate the growth in the demand for residential power and for transport fuels considerably. In the industrial and power-generation sectors, the decline in oil demand will be reflected in reductions in fuel oil use. The high oil prices in the late 1990s will likely induce substitution of oil by other sources of energy in the industrial and power-generation sectors in the industrial countries. Other factors that will contribute to a downturn in prices are the expected development of new technologies and alternatives to oil, under the incentives of higher prices in the late 1990s. This period is likely to be characterized by increases in output capacities in the Mid East region. The tighter oil markets in the late 1990s and higher prices expected during the period are likely to support the view that the oil industry is at a point in the investment cycle where large investments are needed to sustain the long-term growth needs of the international oil industry. These investments are most likely to be in regions of the world where large, low-cost oil reserves are located--primarily the Mid East. The price projections are presented in Table 1. Historical prices are presented in Appendix Table AS. Price Forecast Sensitivity The price forecasts have been made using trend assumptions with regard to economic growth, increases in non-OPEC oil supplies, and increases in OPEC output capacity. However, different rates of growth in any one of these factors would cause the forecasts to deviate from our baseline forecasts. Table 1: OPEC Petroleum - Average Prices a/ 1989 (Actual) and 1990-2005 (Projected) Current --------1985 Constant $-------- MUV b/ US GNP c/ ----------------------($/bbl)----------------------- 1989 16.3 11.8 14.3 1990 21.6 14.7 19.6 1991 23.8 14.8 19.0 1992 20.5 12.6 16.0 1993 18.5 11.4 14.1 1994 19.6 11.9 14.5 1995 20.9 12.3 15.0 2000 31.2 15.2 19.3 2005 35.7 14.5 19.0 a/ Refers to the weighted average f.o.b. price of petroleum exports from OPEC countries. b/ Deflated by Manufacturing Unit Value (MUV) Index. c/ Deflated by US GNP Deflator. Source: Platt's Oil Price Report and World Bank, International Economics Department (actual); and World Bank, International Economics Department (projected). -58- Further, short-term changes in the underlying macroeconomic factors and supply shocks can lead to significant year-to-year deviations from the trend forecast. Prices of all primary commodities appear to have a highly non-linear relationship to spare capacity and stock levels. If spare capacity or the stock level is high, the run-up in prices as a result of a demand- or supply-side shock is not nearly as sharp as when the capacity utilization rate and stock level are low. Even technological developments can affect market expectations substantially-- witness the euphoria about the impact on energy consumption of the announcement about the so-called cold-fusion process. In this report, the impact of changes in the baseline assumptions on the trend of crude oil prices have been evaluated, as well as the impact of possible shocks on the volatility of prices. Impact of changes in macroeconomic assumptions. Under an assumption of a 10% slower world economic growth trend (from 2.9% p.a. down to 2.6% p.a.) roughly 64 mtoe (1.3 mb/d) less oil would be consumed in the short and medium term than in the baseline scenario. This decline translates into an 8% decline in the market-clearing price of oil (in nominal terms) over the same period. However, a 10% increase in the economic growth rate would result in a larger increase in oil prices in a tight market situation (given the low short-term supply elasticity). Given our assumptions about potential increases in output capacity over this period, an increase in demand of 64 mtoe would result in a capacity utilization rate of over 90%, thereby resulting in the market-clearing price being 15% higher than in the baseline forecast. The short-term impact on prices of an increase in demand would be considerably lower in a situation when large spare capacity existed. Over the long term, there would be feedback effects, and the higher oil prices would induce investments in capacity expansions, as well as responses from the demand side, thereby leading to a lower increase in the long-term price of oil. The key assumption here is the continuation of the GDP growth trend over the forecast period. While changes in the level of economic activity influence oil prices, changes in oil prices affect economic growth (via oil price GDP feedback effects). Supplies from non-OPEC sources. It is unlikely that any giant fields will be discovered in the future to alter significantly the configuration of petroleum reserves and potential production capacities in the non-OPEC region. Therefore, the chances of non-OPEC supplies being significantly above our forecast are low, given that our forecasts lie in the upper end of the range of supply forecasts and include responses to the recent increase in oil prices. However, there is a fair chance that, due to the recent run-up in oil prices, increased exploration and drilling activity in non-OPEC countries could lead to increases in oil production of around 100 mtoe (2 mb/d) above our forecast in the medium term. It is estimated that an additional 100 mtoe (2 mb/d) in supplies from non-OPEC sources above what we have forecast would result in an approximate 10% decline in the medium-run market-clearing price of oil. An assumed 100 mtoe lower production from non-OPEC sources would have a smaller impact on prices than an equivalent supply increase (because it could be made up by other producers with spare capacity); a larger decline in forecast supplies would result in progressively steeper increases in prices, since it would require investment to increase capacity from OPEC. Increasing potential for supply-side shocks. Since oil supplies will be increasingly concentrated in a few countries in the Middle East, the oil market will remain susceptible--perhaps increasingly so--to supply disruptions. The magnitude of the supply disruption effect, however, depends upon the extent of the disruption and whether it is perceived to be temporary or long term. A short-term disruption can be characterized as a decline in production, while a long-term disruption can be defined as a reduction in output capacity. Our -59- estimates are that a decline of 200 mtoe (4 mb/d) in oil supplies--a short-term disruption--would increase oil prices to around $32/bbl instantaneously (about $4/bbl per mb/d production decline). Available stocks provide a buffer against price increases during temporary disruptions. The scenario assumes reasonable stock levels. If stock levels were low, the price increase would be larger. Over the medium and long run, however, the price increase would be modified due to adjustments both in demand and supply. For a large, long-term 500 mtoe supply disruption (10 mb/d), prices would initially jump to roughly $65/bbl (slightly less than $5/bbl per mb/d decline); however, the magnitude of the price impact declines substantially over time due to the dynamic adjustment of world oil demand and supplies to the higher prices. In a situation of long-lasting supply disruption, consuming countries would react with strong policy adjustments designed to reduce oil consumption (including conservation measures, improvements in fuel efficiency, and increased levels of substitution between oil and non-oil energy sources), while investments in petroleum exploration and development activity would increase supplies of oil. As well, alternatives to oil would be brought on-stream. Therefore, as oil demand declined and supplies increased, the prices would decline to around $37/bbl in the medium term and could well trend below the baseline over the long term. These two disruption estimates give an idea of the possible effects of different scenarios playing out in the present Mid East confrontation from that which we have taken for our baseline projection. Changes in OPEC capacity and utilization rates. OPEC's output capacity and its capacity utilization rate are key sources of uncertainty in the oil market. Many of the frameworks that model OPEC behavior assume that OPEC chooses a pricing strategy that, in effect, if not by intent, aims towards some capacity utilization target. While this approach has the advantage of modeling the complex output behavior in a simple and intuitive way, it suffers from the drawback that the results are sensitive to the forecasts of output capacities. Our base-case forecasts assume increases in output capacity in line with the expected increase in the demand for oil--with Saudi Arabia, Iran, the UAE, Iraq, Kuwait, and Venezuela supplying the bulk of the increase, as output of the remaining OPEC producers enters the depletion phase towards the end of the century. However, if increases in capacity do not keep up with demand, there will be a tendency for the trend in prices to increase in the short run. We estimate that an increase in OPEC' s capacity utilization rate from 85% to 92% (either due to declines in capacities or increases in demand for oil) would increase prices by about $6/bbl in the short run (about 40% above the baseline price forecast); however, an increase in the utilization rate to 96% increases prices by $15/bbl in the short run. The price-reaction function is assumed to become steeper at a higher rate of capacity utilization. Over the long term, increased investment in capacity expansion would result in a flatter (more elastic) supply curve, leading to lower price increases. Energy policy changes. Different energy policies in consuming countries from those assumed here would also change the price forecasts. Our forecasts of oil prices assume increases in petroleum product taxes in the industrial countries and that product prices in developing and Eastern European countries will be aligned more closely to the world price of oil to reflect the scarcity value of products. However, given the macroeconomic disruption caused by the recent unexpected run-up in oil prices, it is possible that consuming countries will implement other policies designed to reduce oil imports--e.g. , to guard against balance-of-payment problems and for supply security reasons. These policies could take the form of import tariffs, regulations (that mandate reductions in oil use), conservation measures, subsidies on investments in alternate energy sources, or outright rationing of petroleum products. Such measures would reduce the demand for oil and result in a lower oil price than forecast here, ceteris paribus. However, the impact on prices of a change in policy will depend upon how rapidly the policy is implemented and the state of -60- the market at the time. Assuming no supply-side disruption, a policy that targets a quick reduction in demand will create a situation of excess supply in the market and lead to a decline in prices. We estimate roughly a $1/bbl decline in the price of oil in the short term for a 1 mb/d reduction in demand (over a one-year period). Reductions in demand between 2 mb/d and 3 mb/d (over a short period) would lead to a sharper decline in prices ($3-7/bbl), since this would increase the glut in the market. However, in a situation where demand reductions are allowed to occur over a longer period.of time, the decline in price may not be as sharp--especially if it is accompanied by supply-side adjustments as, say, mothballing of output capacities. Global initiatives on energy-related greenhouse gases are also likely to affect energy markets. These are likely to reduce coal use, due to its large contribution to global greenhouse gas emissions, while increasing the use of natural gas (since natural gas is a preferred fuel for its low carbon content). While our forecasts partially incorporate environmental factors (given the uncertainties surrounding the greenhouse gas issue), these concerns are reflected through the natural gas and coal demand forecasts and in assumptions about taxes on petroleum product prices. It is anticipated that the demand for natural gas will increase by over 3% p.a. over the forecast period and that its share in global energy consumption will increase to over 24% by 2005 (from 20% in 1988). Over the same period, the share of coal will likely decline from 29% to 28%. However, if emission control standards are mandated (and strictly enforced), coal's share would decline further, while the use of natural gas would be higher (compared with our forecast). The impact on oil use is ambiguous, as any decline in oil use (due to increases in carbon taxes) is offset by increases expected due to the non-availability of natural gas on a large scale (at least up to the turn of the century). Oil use as transport fuel is not likely to change dramatically over the forecast period, although stricter emission control standards would increase the prices of oil products. Development of substitutes. Alternatives to oil can put a ceiling on the price of oil. Given current technologies and production costs, alternatives to oil such as liquefied coal, synthetic oils, ethanol, and methanol would be economically feasible only if oil prices were sustained at around $40/bbl for several years. While it is generally accepted (by energy specialists) that the cost of back-stop technologies (large-scale alternatives to conventional oil) is now significantly lower than the over $70/bbl estimate made in the late-1970s, there remains a great deal of uncertainty with regard to the price of substitutes for oil. Current estimates range between $35/bbl and $60/bbl. The back-stop price of around $35/bbl is interpreted as the price of the least costly alternative to conventional oil, while the $60/bbl price reflects the price at which alternative sources become widely available. A $54/bbl back-stop price is presently used by modelers that participate in the Energy Modeling Forum. Our baseline price projections are well below these levels and, therefore, are not affected by the price of alternatives. Development of substitutes is also possible under environmental scenarios that mandate carbon reduction (through carbon taxes), since these could increase the prices of hydrocarbons to levels at which alternatives would be economically feasible. Given the highlighted uncertainties surrounding the key assumptions that form the basis for the price forecasts, we recommend that these forecasts be used with an appropriate degree of caution. In particular, because supplies will be increasingly concentrated in a few countries in the Middle East, the probability of supply-side shocks will remain high. Therefore, to cope with the inherent uncertainty in international petroleum and petroleum product prices, decision makers should adopt appropriate risk management strategies. Demand Outlook Under our long-term baseline GDP assumption of 2.9% p.a. growth in the industrial countries and 5% p.a. in the developing countries, global -61- petroleum consumption (crude oil and natural gas liquids) is expected to grow at an average rate of 1.2% p.a. to reach 3,758 mtoe by 2005--a 651 mtoe increase over 1989. Over the same period, global energy demand is expected to increase at an average rate of 2.2% p.a. Therefore, the share of oil in total primary energy demand will decline from 38.3% in 1989 to 32.6% in 2005. This is a trend projection. Due to various factors, most important, volatile prices and fluctuations in economic activity, the year-to-year path of consumption growth will likely vary considerably over time. Global petroleum consumption increased at a rate of 2.5% p.a. over the period 1985-89 to reach 3,107 mtoe in 1989--a 10-year high. Global petroleum consumption had declined from a peak of 3,178 mtoe in 1979 to 2,820 mtoe in 1985. Over the same period, the share of petroleum in primary energy demand declined from 46.8% to 39.3% (Table 2). The recent increase in oil consumption has been due mainly to the sharp decline in prices since 1985, as well as to the rapid growth in industrial production and income in both the industrial countries and some developing countries. In some of the industrializing developing countries, particularly in the Asia-Pacific region, increases in per capita incomes more generally, and expansion of motor vehicle use, in particular, have resulted in sharp increases in petroleum consumption. In 1989, petroleum consumption in the developing countries increased by around 5.6%, with increases in the range of 8- 14% in several countries including the Republic of Korea (14%), and Taiwan (China) (9%). The consumption increase in the Asia-Pacific region (including Japan) in 1989 is estimated to have been around 7%. Since 1985, there has been a rapid recovery in the demand for heavy fuel oil, reversing the trend of the early 1980s. The sharply lower prices improved fuel oil's competitiveness against coal and natural gas, especially in the industrial and power-generation sectors. Between 1985 and 1989, fuel oil consumption increased from 420 mtoe to roughly 444 mtoe. Over the near term, based upon our assumption of a slowdown in the OECD GDP growth rate and given the high prices in the latter half of 1990--which could continue well into 1991--we expect global petroleum demand growth to slow to around 1.6% p.a. in 1991 and 1992 (from 2.5% p.a. between 1985 and 1989). In the industrial countries, petroleum demand growth is expected to slow to under 1% p.a. over the 1991-92 period (from 2.3% p.a. between 1985 and 1989). Petroleum demand will be stimulated under the assumption of stronger OECD growth over the period 1993-95; however, offsetting factors, such as the lagged effect of the period of high prices, as well as the impact on consumption of expected increases in energy taxes and improved energy efficiencies, should keep the rate of growth in global petroleum demand at around 1.6% p.a. between 1993 and 1995 (Table 3). Oil demand growth in the developing countries is expected to slow to under 3.6% p.a. during this period (from 4.8% p.a. between 1985 and 1989) (see Table 3). The higher petroleum prices and the balance of payment problems resulting from the high cost of petroleum imports, as well as the financial constraints facing oil-importing developing countries, will likely restrict their ability to fund increasing levels of petroleum imports. It is anticipated that petroleum consumption will grow in all regions of the world up to the year 2000, with growth expected to be fastest in the developing countries. The developing countries are expected to account for about two-thirds of the total increase in global petroleum consumption up to the year 2000 and for almost the entire increase in the period 2000-2005 (Table 5). Beyond the turn of the century, industrial country demand is expected to decline somewhat. The higher real prices expected in the late 1990s, induced substitution and conservation effects, and slower-growing and aging populations are expected to contribute to this decline. The bulk of the reduction in petroleum use will be achieved through a shift from oil to natural gas, as well as through improvements in oil use efficiency. The share of the developing countries in global petroleum consumption is expected to increase to about 35% by 2005 (from 27% in 1989), while the share of the industrial countries will decline from 56% to 50% over the same period. Table 2: Recent Changes in World Petroleum Consumption, 1979-89 ------------ Petroleum Consumption -------------- ---Growth Rates--- ----1979---- ----1985---- ----1989---- 1979/85 1985/89 mtoe % mtoe % mtoe % (% p.a.) Industrial 1,966.3 62.8 1,585 56.2 1,735 55.8 -3.8 2.3 Eastern Europe & USSR 550.7 17.3 545 19.3 540 17.4 -0.2 -0.2 Developing countries 631.0 19.9 690 24.5 832 26.8 1.5 4.8 Total 3,178 100.0 2,820 100.0 3,107 100.0 -2.0 2.5 Share of oil in total Energy Consumption (%) 46.8 39.3 38.3 Note: Details may not add to totals because of rounding. Sources: United Nations, Energy Statistics; OPEC, Annual Statistical Bulletin; World Bank, International Economics Department. Table 3: Short and Medium Term Oil Demand Forecasts, by Economic Regions, 1990-95 ---------- Petroleum Demand Forecasts ----------- ---Growth Rates--- ----1990---- ----1992---- ----1995---- 1990/92 1992/95 Regions mtoe % mtoe % mtoe % (% p.a.) Industrial 1,749 55.6 1,780 54.8 1,828 53.7 0.9 0.9 Eastern Europe & USSR 536 17.0 539 16.6 544 16.0 0.3 0.3 Developing countries 863 27.4 928 28.6 1,033 30.3 3.7 3.6 Total 3,148 100.0 3,247 100.0 3,405 100.0 1.6 1.6 Share of oil 37.9 37.3 36.6 Note: Details may not add to totals because of rounding. Sources: United Nations, Energy Statistics; OPEC, Annual Statistical Bulletin; World Bank. -64- Industrial countries. The growth in petroleum demand in the industrial countries over the next decade is likely to be tied mainly to its use in the transport sector. Based upon the analysis of end-use markets, we expect OECD petroleum demand in the transport sector to increase at an average rate of 1.3% p.a. over the forecast period and the share of the transport sector to increase from 51.7% in 1989 to 59% by 2005 (Table 4). However, over the long run, oil demand is expected to decline in the power-generation sector (by 2.4% p.a.), the industrial sector (by 2.5% p.a), and residential/commercial sector (by 0.7% p.a.); these will be the main areas of competition from substitutes. The continuing introduction of more energy-efficient transport vehicles will reduce the rate of growth of demand for transport fuels. Since fuel-oil demand is fairly price elastic, the higher petroleum prices expected should depress fuel- oil consumption growth and, therefore, lead to a decline in fuel oil's share in total crude consumption. However, modest increases in fuel-oil consumption will be supported by its use as a refinery fuel, as well as for ship-bunker fuel. Higher gasoline prices resulting from compliance by refineries with environmental standards will further constrain the increase in oil consumption. The recent trend towards the consumption of lighter products is expected to continue. The shift in demand towards high octane fuel, as well as rising air-quality standards, will continue to exert pressures on refineries to invest in the conversion and upgrading of their refinery capacity. Increases in distillation capacity are expected to occur mainly in the developing countries. Developing countries. Increases in the demand for urban transport and freight carriage are the main factors that will contribute to the increase in petroleum consumption in the developing countries. Petroleum use will also increase rapidly in the household sector, as the transition from traditional fuels to crude oil products (kerosene, LPG) accelerates with urbanization. On the basis of the forecast, income growth for the developing countries, and the assumptions about the growth in the number of vehicles per thousand people (which is expected to nearly quadruple over the next 20 years), we expect petroleum demand in the transport sector to increase at an average rate of 4.5% p.a. over the period 1989 to 2005 and its share to increase from 40.5% to 45.4% (Table 5). (The implied income elasticity is close to unity). Supported by growth in income and population, long-term petroleum demand growth in the residential and commercial sectors is expected to average 3.8% p.a.--thus maintaining its share of total consumption. Petroleum product demand in the power-generation sector is likely to increase by about 4.8% p.a., as the need to expand electricity- generation capacity increases. From the analysis of end-use oil/energy demand and substitution, it is expected that demand for electricity will grow faster than GDP. The implied income elasticities of electricity demand for the developing countries range between 1.0 and 1.5. The need to expand generation capacity to supply increasing quantities of electricity will support increases in all energy sources, including oil. As the need for generation capacity grows, the availability of indigenous resources will have a larger influence on fuel choices. We expect coal and hydro to make up the bulk of the incremental capacity in the two giants, India and China. However, the international environmental initiatives on greenhouse gas emission are likely to adversely affect coal use for power generation. Environmental issues, to date, have not been a major issue in power plant construction in the developing countries (as they have in the industrial countries), but they are likely to be much more important in the future. Since natural gas is the preferred fuel (for its low carbon content), environmental concerns are likely to manifest themselves through incremental capacity largely based on gas or dual-fired, combined-cycle plants. However, given the heavy investment needed to develop indigenous gas, as well as to install gas transmission and transport networks, we do not expect significant availabilities of natural gas for another decade or so. -65- Table 4: OECD a/ Long-Run Petroleum Demand Forecasts, by Sectors, to 2005 ----1989---- ----2005---- ---Increment--- Growth Sectors mtoe % mtoe % mtoe % p.a. Transport 727.6 51.7 900.4 59.0 172.8 1.34 Industry 101.6 7.2 67.7 4.4 -33.9 -2.5 Residential 198.7 14.1 177.7 11.7 -21.0 -0.7 Electricity 91.9 6.5 62.1 4.1 -29.8 -2.4 Generation Others 286.9 20.4 317.3 20.8 30.6 0.6 Total 1,406.6 100.0 1,525.2 100.0 118.6 0.5 a/ Includes France, Germany, Japan, United Kingdom and United States. Note: Details may not add up to totals because of rounding. Sources: Petroleum Economics Limited and World Bank (1989); World Bank (Forecasts). Table 5: Major Developing Countries a/: Long-Term Petroleum Demand Forecasts, by Sectors, to 2005. ----1989---- ----2005--- ---Increment--- Growth Sectors mtoe % mtoe % mtoe % p.a. Transport 117.9 40.5 239.5 45.4 121.6 4.5 Industry 49.5 17.0 75.1 14.2 25.6 2.6 Residential 46.3 15.9 84.9 16.1 38.6 3.8 Electricity 34.7 11.9 73.5 13.9 38.8 4.8 Generation Others 42.6 14.6 55.2 10.5 12.6 1.6 Total 291.0 100.0 528.1 100.0 237.1 3.8 a/ Brazil, China, India, Indonesia, Malaysia, Pakistan, Philippines and Thailand. Source: M. Imran and P. Barnes, "Energy Deamnd in Developing Countries: Propsects for the Future." The World Bank; August 1990. -66- The possibilities for fuel substitution are presently limited in the developing countries. Although further reductions in petroleum use can be achieved through increased use of natural gas, large investments and higher natural gas prices (above $3/mcf compared with the 1989 average well-head price in the United States of about $1.7/mcf) will be needed to encourage its exploration and development. The geographic distribution of gas supplies relative to probable demand centers, implies substantial costs, particularly because transportation and storage are so costly. Eastern Europe and the USSR. The oil supply constraints faced by the USSR and the shift to market pricing in Eastern Europe and the USSR are expected to restrict growth in oil consumption in these countries. Despite the market reform movement, we do not expect significant growth in oil consumption in the Eastern European economies, as the impact on oil consumption of higher per capita income levels and transportation demands will be offset by higher petroleum prices (due to the elimination of subsidies on crude supplies from the USSR) and significant efficiency improvements in fuel use in industry and transport. As a result, oil consumption in the former CPEs is expected to grow only marginally (0.3% p.a.) over the forecast period, and their share in total oil consumption is expected to decline from 17.4% in 1989 to 15% by 2005 (see Tables 2 and 3). Impact of Higher Oil Prices If the crisis in the Middle East and the increase in crude oil prices are sustained for a longer period of time than assumed here, it will slow the rate of growth of oil demand from that projected. Using a price elasticity for fuel-oil demand of around -0.3 for the short run and -0.8 for the long run, we would expect a rapid erosion in the share of fuel oil over the longer term. Over the longer run, concerns over security of supplies would increase investment to allow consumers to change the fuel mix more quickly. Given limited possibilities for fuel substitution, particularly in the developing countries, we can at best see a displacement of around 20 mtoe in global oil consumption due to increases in oil prices (mostly in the industrial and power-generation sectors in the United States) in the short run. Although further improvements in automobile fuel efficiency are achievable, they are likely to come at the expense of smaller, perhaps less safe, cars. In OECD Europe, much of the available non-oil using facilities are being used to capacity. At present, coal-fired power plants are operating close to capacity. In some European countries, the share of nuclear power for electricity generation is very high (about 75% in France). Therefore, there is little spare capacity to relieve the burden of oil use. Given current technologies and production costs, alternatives such as liquefied coal, synthetic oil, ethanol, methanol, etc., are viable only if oil prices remain around $40/bbl (in real terms) for 3-4 years. The high construction costs involved in building coal liquidation plants, as well as the long lead time (4-5 years) before production comes on-stream, further dampen the prospects for alternative sources. The bulk of the reductions would come through improved efficiency and conservation measures. Environmental considerations are likely to continue to dampen the growth of coal and nuclear; thus, the bulk of the reductions in oil use would be achieved through substitution between fuel oil and natural gas; the rest would be substitution between natural gas, distillates, liquified petroleum gas, and other fuels, particularly coal in the developing countries. A Review of Demand Forecasts A review of the literature shows that the range of forecasts of global oil demand is very large. The source of the large differences can be attributed mainly to the differences in assumptions concerning key economic variables, such as GDP growth, income elasticities, efficiency improvements, the assumed price forecasts, and price elasticities, as well as the lagged effects of past prices on consumption. Models that generate high demand growth usually -67- assume one or a combination of the following assumptions: (a) rapid economic growth; (b) high income elasticities of demand; (c) lagged effect on consumption of lower oil prices in the mid-1980s; and (d) little or no energy efficiency improvements. Alternatively, assumptions behind slow demand growth forecasts include: (a) low economic growth and low income elasticities; (b) little or no effect of past prices; and (c) substantial efficiency improvements. Based on poll results received from more than 40 leading analysts and decision makers from governments, academia, industry, and other research organizations, the Energy Modeling Forum Group (EMF) 1 reports that global oil demand (excluding the USSR and Eastern Europe) will increase by between 15% (low GDP growth) and 36% (high GDP growth) by the year 2000 (above 1990 estimates) under the assumption that oil prices remain at $18/bbl in constant terms up to the year 2010.2 Global demand is forecast to range from remaining flat (low GDP assumption) to increasing by 8% (high GDP assumption) (above 1990 estimates) under the assumption that prices will rise to $36/bbl in real terms by 2000 (double the 1990 level). We forecast world oil demand (excluding the former CPEs) to increase by about 18% by 2000 (above 1990 estimates). Our forecast lies near the center of this range of forecasts. While the largest discrepancies are observed in demand forecasts for the developing countries, the poll consensus is that, under all scenarios, oil demand in the developing countries will continue to increase and its growth rate will be generally faster than the industrial countries due to faster economic growth and lower responsiveness to price increases. Global Oil Production Forecast Non-OPEC countries. Between 1980 and 1987, non-OPEC supplies increased by around 2.2% p.a. to reach 2,019 mtoe, with the North Sea region and Mexico accounting for most of the increase (Table 6). However, since then, non- OPEC growth has declined as increases in production in some developing countries, as well as Norway, has been more than offset by sharp declines in the United States, the United Kingdom, and the USSR. The adverse effect of the 1986 oil- price collapse on drilling activity (particularly in the United States) was one of the key factors leading to the slowdown. Based on the estimates of proven recoverable reserves (reserves-to- production ratios) (Table 7) and expected investment (to increase output capacities), the outlook for supplies from non-OPEC sources (excluding the USSR) is for an increase of around 0.5% p.a., to reach 1,458 mtoe by 2005. Including the USSR, however, non-OPEC supplies are expected to increase at an average rate of 0.1% p.a. to reach 2,022 mtoe in 2005 (from 1,978 mtoe in 1989). Almost all of the increase in non-OPEC supplies is expected before the turn of the century. Oil production in the industrial countries is expected to decline over the forecast period, although production in the North Sea should increase up to the mid-1990s, offsetting the decline in production anticipated in the United States. Supported by increases expected from several fields, including the Oseberg and Gullfak fields, Norway's output is expected to increase to 115 mtoe by 2000 (from around 80 mtoe in 1989). In the UK sector, increases in output up to the mid-1990s will be maintained as production gradually resumes from the damaged Piper Field and from the North Sea Brent System. Based on recent estimates of US oil reserves (about 26 billion barrels), amounting to 1990.1 "International Oil Supplies and Demands, Summary Report," EMF, 11 August 2 World GDP assumptions used in the EMF poll (1990-2010) are the following: 1.9% p.a. (low growth) 2.9% p.a. (medium growth) 3.9% p.a. (high growth) -68- Table 6: Non-OPEC Oil Production, 1980-89 1980 1987 1989 --Increment-- Growth Rates 1980-87 1987-89 1980-87 1987-89 (mtoe) (mtoe) (% p.a.) Total Non-OPEC 1,732 2,019 1,978 287 -32 2.2 -1.0 Mexico 107.1 144.4 143.7 37.3 -0.7 4.36 -0.24 Norway 24.5 49.7 79.8 25.2 30.1 10.6 +70.2 United Kingdom 80.6 123.7 92.2 43.2 -31.6 6.3 -14.7 United States 479.9 475.0 437.5 -4.8 -37.6 -0.14 -4.1 USSR 612.4 632.1 615.7 -19.7 -16.5 0.53 -1.3 Developing 397 579 597 182 18.0 5.5 1.54 countries Note: Details may not add to total due to rounding. Source: United Nations, Energy Statistics; World Bank. Table 7: Global Oil Reserves, by Region (1989) Countries/regions Reserves-to-production a/ (billion barrels) (%) (years) Industrial 52.6 5.3 10 Eastern Europe 60.1 6.0 13 & USSR Other countries 888.9 88.7 71 Total 1,001.6 100.0 45 Memo: Non-OPEC 234.5 23.4 16 OPEC 765.3 76.6 90 Saudi Arabia 255.0 25.7 128 Iraq 100.0 10.0 92 Iran 92.9 9.3 85 Kuwait 94.5 9.7 142 UAE 96.3 9.6 132 Venezuela 58.5 5.8 80 Other OPEC 65.5 6.5 29 Note: Estimates of reserves range considerably from source to source. Details may not add to totals due to rounding. af Based on estimates of reserves at the end of 1989 and production during the first half of 1990. Source: Oil and Gas Journal. -69- around nine years of sustained production at current levels, it is anticipated that oil production in the United States will decline to 401 mtoe by the year 2000. Oil production in the USSR declined from a peak of 632 mtoe in 1987 to around 615 mtoe in 1989. In the first half of 1990, USSR oil production declined to around 600 mtoe. USSR oil reserves are estimated at around 58 billion barrels and the production rate of 1989, these reserves will last for only 13 years. Therefore, it is expected that declines in production will continue over the forecast period. Our present estimate is for a decline to 566 mtoe by the year 2000. However, it is possible that an increase in foreign oil companies' participation in oil exploration and production activity in the USSR could slow the decline, or even reverse the declining trend. However, increases in USSR crude oil production due to increases in foreign investments are not likely to be realized until the latter half of the 1990s (due to the long lead time). In aggregate, an average rate of increase in petroleum production of around 1.3% p.a. is anticipated in the non-OPEC developing countries. The bulk of the increase is expected in only a few developing countries including Brazil, India, Papua New Guinea, Syria, and Yemen. These countries are expected to account for about 60% of the total increase forecast for this producing group. The increases are expected to be realized mainly through increased participation by international oil companies in cooperation with national companies in exploration and development activities. If petroleum prices remain around current levels of $30/bbl level for a year or two, some of the expected increases in production could be brought on-stream earlier. OPEC. The declining demand for petroleum in the early to mid-1980 pushed OPEC to the position of the residual producer. Between 1980 and 1985, OPEC production declined from 1,442 mtoe to 838 mtoe (a decline of almost 42%), and its share in total oil supplies declined from 45.4% to 29.8% over the same period. OPEC's policy of attempting to regain market share led to sharp increases in production in 1986. By 1989, OPEC production increased by 291 mtoe (above 1985 levels), and its market share increased to 36.3% (Table 8). It is anticipated that both OPEC and non-OPEC sources will contribute to the increases in oil supplies up to the mid-1990s; however, beyond the mid- 1990s, the world will become increasingly dependent upon supplies from Middle East sources, especially OPEC (Table 8). Due to the intense exploration activity in response to the previous period of high prices, most of the recoverable reserves have already been tapped. It is unlikely that future exploration activity will uncover any giant fields that will considerably alter the global oil supply picture and its geographic concentration. OPEC' s production is expected to increase at a trend rate of roughly 2.7% p.a. over the forecast period, to reach 1,321 mtoe by the year 2000. Thus, OPEC's share in the global oil market should increase to around 39% in 1995 and to 43% by 2000 (from 36% in 1989). It is estimated that around $60 billion will be needed for capacity expansion of this magnitude. Given the expectation that the output of several OPEC members will reach a production plateau in the mid- 1990s, the Middle East countries Saudi Arabia, Iran, the UAE, and Iraq/Kuwait, as well as Venezuela, will supply the major part of increases in requirements after that time. -70- Table 8: Petroleum Production Forecasts, by Economic Groupings, to 2005 -----1989---- 2000---- 2005---- ------------Change------------- Regions mtoe % mtoe % mtoe % 1989-2000 2000-2005 1989-2005 (% p.a.) Industriat 747 24.1 765 21.1 728 19.4 0.2 -0.9 -0.16 Eastern Europe 634 20.4 587 16.2 564 15.0 -0.7 -0.8 -0.73 & USSR Other countries 1,726 55.5 2,279 62.7 2,466 65.6 2.6 1.6 2.2 TotaL 3,107 100.0 3,631 100.0 3,758 100.0 1.4 0.7 1.2 Memo: Non-OPEC 1,978 63.7 2,080 57.3 2,022 53.8 0.46 -0.57 0.1 OPEC 1,129 36.3 1,551 42.7 1,736 46.2 2.9 2.3 2.7 Source: WorLd Bank, International Economics Department. -71- APPENDIX: CRUDE OIL SUPPLY FORECASTS A. Non-OPEC Supply Forecast Non-OPEC oil production is expected to increase over the forecast period and to supply roughly 17% of the increase in the global demand for oil. Based on the estimates of proven recoverable reserves (reserves-to-production ratios) and expected investments (to increase output capacities), the outlook for supplies from non-OPEC sources (excluding the USSR) is for an increase of around 0.5% p.a. to reach 1,458 mtoe by 2005 (up from 1,344 mtoe in 1989). Including the USSR, however, non-OPEC supplies are expected to increase at an average rate of 0.1% p.a. and reach 2,022 mtoe in 2005 (from 1978 mtoe in 1989). Almost all of the increase in non-OPEC supplies is expected before the turn of the century. The expected changes in production capacities of selected non-OPEC countries are presented in Table 9. North Sea Supply Prospects While North Sea producers will continue to play an important role, it appears that North Sea oil production will peak in the mid-1990s at almost 230 mtoe and begin to decline thereafter, as production in the UK sector declines. UK production is presently recovering from a series of accidents in 1989 that resulted in a sharp decline. Production in the UK sector peaked in 1985 and is expected to decline by more than 15% from the pre-Piper accident level of around 123 mtoe by the mid-1990s, as output declines from large fields, including the Brent, Forties, Ninian and Piper Fields. These projections are based upon estimates of reserves and the expected replacement of production by new fields. Proven reserves in the UK sector are estimated to be around 4.26 billion barrels. The Norwegian sector is the only sector in the North Sea region where production is expected to increase beyond the mid-1990s. Norwegian production increased sharply in 1989 to fill the gap created by the declines in the UK sector. Norway has recently scrapped its voluntary operating limit of 7½% below its notional capacity. This production limit had been in effect since 1987. While restricting oil production, Norwegian government policy has encouraged the development of the country's large gas reserves. Estimated Norwegian oil production for 1989 was around 80 mtoe, over one-half of which came from its giant Stratfjord field. At the end of 1989, proven reserves are estimated at 1.55 billion barrels. Given the reserve base, changes in policies, and the expectation that expansion plans will continue in Gullfak and Oseberg fields, Norway's oil production is expected to increase to 115 mtoe towards the turn of the century. Development of smaller fields will support the increases in production. United States Despite extensive drilling activity in the United States in the first half of the 1980s, oil discoveries have been very limited since 1981. Recent estimates of US oil reserves (end of 1989) are as low as 3.6 billion toe (25.8 billion barrels) (excluding Federal offshore waters), which amount to around 9 years of reserves--compared with between 9.64 billion toe and 16.2 billion toe reported by the US Geological Survey in 1981. In the absence of major new oil discoveries, which appear unlikely, crude oil production in the United States is expected to decline to 401 mtoe by the year 2000 (a 33 mtoe decline from 1989 levels). Despite the availability of information (on reserves and investment plans) and extensive exploration and development (E & D) over many years, there is a large variation in petroleum production forecasts for the United States. Most estimates are in a range between 300 mtoe (6 mb/d) and over 450 mtoe (9 mb/d) for the year 2000. Most of the discrepancies are due to differences in -72- Table 9: Potential Petroleum Capacity Changes in Major Non-OPEC Countries a/ 1989 Mid-1990s Increase --------------------(mb/d)-------------------- Developing countries Brazil 0.59 0.61 1.20 China 2.87 3.00 0.13 Colombia 0.41 0.50 0.09 India 0.69 1.00 0.31 Mexico 2.89 3.00 0.11 PNG 0.00 0.15 0.15 Syria 0.32 0.49 0.17 Yemen (Unified) 0.20 0.64 0.44 Industrial countries Norway 1.54 1.90 0.36 United Kingdom 1.99 2.45 0.46 Group total 11.52 14.33 2.81 Other non-OPEC 17.53 15.64 -1.89 Total non-OPEC (excl.USSR) 29.05 29.70 0.30 Total non-OPEC (inc. USSR) 41.70 41.27 -0.43 Total world 69.90 74.42 4.52 Memo: United States 10.10 8.30 -1.80 USSR 12.20 10.90 -1.30 OPEC 28.20 33.15 4.95 a/ Includes natural gas liquids. Source: Petroleum Politics, Energy Securities Analysis, Petroleum Economics Limited (July 1990); The World Bank. -73- international oil price forecast assumptions. Finding costs affect the profitability of drilling o erations and, therefore, affect production. From a review of various studies, the low production forecasts assume that prices remain around $18/bbl in real terms, while the high production forecasts are based on the assumption that prices rise to around $30/bbl (in constant 1989 dollar terms) by the year 2000. Other factors that explain the differences are environmental factors that influence E & D activity in several environmentally sensitive regions, including the coastal plains of the Arctic National Wildlife Refuge in Alaska. USSR Signs of declining USSR production were noticed first in 1984 and gained strength in 1985, when production declined by 18 mtoe to around 600 mtoe. At this time, production from Western Siberia (the largest producing region) seemed to have peaked. Despite the increases in USSR production since then (due largely to new investments and the use of new technology imported from Western countries), it appears that total USSR production may have peaked. Based upon the extremely difficult operating conditions facing oil extraction in the Kazakhistan region and in the huge Tengiz fields, as well as ethnic problems in Azerbaidzhan and transportation problems, it is unlikely that the five-year plan production target of 635 million tons for 1990 will be met. With proven oil reserves estimated at around 58.4 billion barrels (expected to last only another 13 years at current production levels) and a low probability of major discoveries given geological limitations, production is estimated to decline to about 566 million tons by the end of the 1990s. The increases anticipated from the Pre- Caspian region are likely to be more than offset by declines from Western Siberian fields. In recent years, the USSR's oil industry has been opened up considerably to foreign participation. The economic reforms are attracting foreign oil companies to participate in joint ventures in the area of exploration and production. The prospects for further foreign participation in the USSR oil industry are favorable; however, given the difficult operating conditions in remote areas and uncertainty with regard to the freedom and ease with which foreign oil companies can operate with local authorities, their impact on oil production is uncertain. If the political constraints facing technological imports and foreign participation in the USSR are further improved, our estimates of USSR oil production forecast would be revised upwards. Due to these uncertainties, the forecast range of the USSR's oil production is very large-- between 400 mtoe and 700 mtoe by the year 2000. Investment of the order of 65 billion rubles per year would be needed to meet the 700 mtoe target by the year 2000.s Expected depreciation of the ruble with respect to other currencies would increase costs substantially. Rates of future oil production could well be influenced by public policy. In a recent paper presented in the Energy Economist Seminar in London by Yuri Chernegou (Deputy Minister at the Kremlin' s Bureau of Fuel and Energy) , it was indicated that USSR production will be allowed to decline by 10% to 527 3 "International Energy Outlook 1990," DOE/EIA: International Energy Agency (1989); "The Outlook for Non-OPEC Oil Supplies to the Year 2000," Energy Economic Limited (June 1988); Energy Modeling Forum Group (Primary Report 1990). 4 Oil and Gas Journal 1990. 5 "The Outlook for Non-OPEC Oil Supplies to the Year 2000," Energy Economic Research Limited, June 1988. 6 Petroleum Intelligence Weekly, October 1, 1990. -74- mtoe by the year 2000. Other government officials are suggesting steeper declines. In order to diversify hard currency export earnings, it is expected that government investment will focus on increasing the economy's ability to export other commodities, as well as oil. Developing Countries In the developing countries, oil discoveries made recently in the Middle East, Latin America, and Western Africa have contributed to a significant increase in global oil reserves (Table 10). Colombia. One of the most significant discoveries in recent years was made in the Llanos Basin in the Cano Limo field in Colombia. As a result, the 1984 estimate of Colombian proven oil reserves jumped from 85.5 mtoe to 200- 280 mtoe. New finds, combined with the export pipeline from the Cano Limo field to Port Covenas, saw production double from 1985 to 1987. With reserves of around 2.05 billion barrels, Colombia is now in a size category larger than the smaller OPEC members such as Gabon and Ecuador. The rapid increase in output over the past few years (presently at 20 mtoe or 0.4 mb/d) without corresponding increases in reserves is likely to slow the recent high rate of growth. Despite aggressive drilling activity by Ecopetrol and foreign oil companies, fewer than 50 million barrels of new reserves were added in 1989, compared with around 180 million in previous years.7 With continued drilling of exploratory wells, it is expected that annual Colombian oil production will stabilize at around 23 mtoe in the mid-1990s. Brazil. Brazil is another area of intense exploration activity. Discoveries in the Campos Basin and the most recent finds at the mouth of the Amazon River have improved the outlook for Brazilian oil supplies considerably. However, substantial investment is needed to recover oil from the offshore Cosmos Basin and the Amazon Basin. We estimate that Brazil's oil production could reach 41 mtoe by the mid- to late-1990s. If the recent finds are as large as some statements assert, annual production could increase to between 50 mtoe and 60 mtoe by 2000 and could even permit Brazil to become an oil exporter. However, for this to materialize, restrictions on the participation of foreign oil companies in upstream activities will need to be loosened. Mexico. The situation in Mexico is somewhat similar to Brazil, where financial constraints have limited E & D programs. Despite Mexico's large proven reserve position- -estimated to be over 56 billion barrels- -it is anticipated that financial bottlenecks will prevent production from increasing much above current levels of around 145 mtoe unless restrictions on foreign investment are removed. However, given the estimates of Mexico's oil reserves and the current reserves-to-production ratio of about 50:1, we expect Mexico production to reach around 160 mtoe by 2000. However, under a scenario of higher prices that provides incentives for investments in the oil sector and government policies that encourage exploration activity, as well as allow foreign ventures, oil production could be at the higher end of the possible range of output of 145 mtoe to 170 mtoe at the turn of the century. The Yemens. The Yemen Arab Republic has become a significant producer since the first discovery of oil in 1984. In 1987, reserves were estimated to be around 137 mtoe, attributed largely to oil discoveries at Alif in the Mareb-Janof concessions. The outlook is also very promising in the Shebwa fields. Current estimates of proven reserves are 411 mtoe. The recent unification of the Yemen Arab Republic and People's Democratic Republic of Yemen has presented a new dimension to non-OPEC supplies. With combined reserves estimated at around 548 mtoe (4 billion barrels), it is expected that annual 7 Oil and Gas Journal, 1989. -75- Table 10: Global Oil Reserves (by Geographic Location) Region 1970 1975 1980 1985 1988 1989 ---------------(billions of barrels)-------------------- Asia-Pacific 14.41 21.23 19.63 18.85 21.37 22.545 Western Europe 3.71 25.49 23.08 36.41 18.57 18.822 Middle East 344.57 410.57 362.07 398.02 571.52 660.25 Africa 74.76 65.09 55.15 56.73 56.96 58.84 Western Hemisphere 73.95 75.47 102.30 118.74 155.24 157.02 Eastern Europe, USSR and China 100.00 103.00 86.30 81.37 83.80 84.10 Total 611.40 658.68 648.50 700.14 907.45 1,001.57 Source: Oil and Gas Journal (various issues). production will increase to over 27 mtoe by the turn of the century. This rate of production will be supported by increased participation of foreign companies. The importance of Yemen in the Mid East is also likely to increase. This is due to its increased supply potential, as well as its strategic location, which provides an outlet for Saudi and Iraqi crude--providing an alternative route to the Straits of Hormoz. India. Indian oil production has more than doubled since 1981 (to reach 34 mtoe in 1989), with two-thirds of production coming from a single field- -Bombay High off the west coast. Although production has already stabilized in this field (currently sustained by injecting water), with prospects for developing small-to-marginal fields in Bombay and other regions (namely, Heera, Ratna, and Panra), Indian production is likely to increase to around 42 mtoe by the mid-to late-1990s.8 Due to an active drilling program, India increased its oil reserves to 1,027 mtoe (7.5 billion barrels) in 1989. India has recently signed several new exploration and production contracts. If current and new exploration and production activity pays dividends, Indian production could reach 50 mtoe annually in the late-1990s--the high end of the Indian government's estimates of crude oil production in the year 2000.9 China. The rapid growth in China's oil production during the 1970s (over 7% p.a.) declined in the 1980s to less than 5% p.a. Three-fourths of China's oil production comes from Daqing, Shengli, Liaohe, and Bohai Sea. Despite the possibility that production from Daqing may have peaked, the recent discoveries of the Weizhou Field in the South Sea, the Xinjiang Field in the Pearl River Basin, and another in the Liaodong Bay northeast of Bohai, have 8 M. Imran and P. Barnes, "Energy Demand in the Developing Countries: Prospects for the Future." The World Bank; August 1990. 9 "Oil Coordination Committee Report 1". Government of India, 1988. -76- revived interest in offshore exploration. Several factors, including the decline in industry investment (by 25%) in 1989, and suspension of loans by the United States and Japan, as well as the poor outcome of offshore exploration activity, had added a pessimistic undertone to China's oil supply prospects. However, the recent discoveries, together with the trend towards more liberal policies, which allow increased foreign oil company participation in E & D, are likely to result in a continuing increase in production. While the setback to the market-oriented reforms and the restrictions on foreign participation have affected exploration efforts, the promising potential offered by several fields, including the huge Xinjiang Field, can provide increases in production beyond the turn of the century. It is expected that annual oil production in China will reach 168 mtoe by the year 2000. However, given the huge costs to develop the infrastructure, it would be necessary to attract foreign participation. China's oil production forecasts for the year 2000 range between 138 mtoe and 200 mtoe. The low figure assumed that cash-flow problems will prevent some new fields from developing. The 200 mtoe forecast has been released by the China National Petroleum Corporation (CNPC)10 and is believed to be an ambitious goal to achieve. It is reported that 98.6 billion barrels of new oil discoveries and $10 billion per year of investment (assuming finding costs of $5/bbl) will be needed to meet this target. These investment needs exceed CNPC's budget by $2 billion. Angola. Angola has been the center of exploration activity in West Africa. The decline in production from the fields discovered before the mid- 1970s (mainly the Malongo Tobias and Quenguela fields) has been offset by a number of new fields being brought on-stream. Production is expected to increase from the 1989 level of a little over 22 mtoe to around 35 mtoe by 2000 as existing fields are developed and new discoveries come on-stream to offset declines anticipated in older fields. Other developing countries. Since 1981, Egyptian production has increased by over 30%--reaching 44.5 mtoe in 1989. Proven oil reserves increased from 438 million toe in 1981 to 616 mtoe in 1989. Production is expected to rise only moderately up to the mid-1990s and then to stabilize, as declining oil supplies from the country's major producing area in the Gulf of Suez are offset by discoveries in the western desert area. In Oman, oil production has increased about 89% since 1981 to reach around 29 mtoe. The discovery of new fields at Dhulaima, Wafra, and Tayyadh has improved the reserves position. Oman' s proven oil reserves at the end of 1989 were estimated to be around 4.2 billion barrels. The discovery of large oil fields at Al-Thayyem in Syria in 1984 has removed the pessimism over its future oil supplies, which had arisen when production in the country's main oil-producing area, the northeast region, appeared to have peaked. By 2000, Syria's crude oil production is expected to increase by 50% over its 1989 level of around 15 mtoe. In addition to the supply prospects referred to in the previous paragraphs, small increases are expected in many countries, such as Pakistan, Thailand, and Malaysia. With current proven reserves at 397 mtoe (2.9 billion barrels) in Malaysia, production is expected to peak at around 33.5 mtoe in the early to mid-1990s (1993) and stabilize at around 30 mtoe over the forecast period. However, the output profile will depend on the implementation of government depletion policies. Current output is around 29 mtoe. In Sudan, output potential of 4-5 mtoe exists. 10 Bruce Vernon, "China's Sinking Surplus" in China Business Review, March- April 1990. -77- The supply forecasts are presented by major economic region and for major producers in Table 11. The outlook for supplies from the non-OPEC countries (excluding Eastern Europe and the USSR) is for an increase from 1,378 mtoe in 1988 to around 1,458 mtoe in 2005. Growth in production in the non-OPEC oil-exporting developing countries is expected to be around 1.6% p.a (Table 12). Even so, the share of non-OPEC supplies in the global total should decline from 57% in 1988 to 45.6% in 2005. The decline expected in the rate of production in the oil-exporting industrial countries around the mid-1990s would reduce the share of industrial countries from 25.4% in 1988 to around 19.4% in 2005. The USSR's share in global oil supplies is expected to decline from 21.3% to 15% over this period. Supply ResRonse to Price Changes It is difficult to ascertain the long-run supply response of the recent increase in oil prices. Under uncertainty with regards to the future prices of petroleum, a company chooses a contingency plan of investment that maximizes the present value of future profits. Since the expected price is the key variable that influences investment decisions (with long lead times), investments needed to boost production will come about if prices are not expected to decline in the future (even if oil projects are profitable at prevailing prices). High probabilities that prices will decline increases the riskiness of the project and, therefore, will induce risk-averse companies to seek opportunities where the rate of return is higher in relationship to the risks. If, indeed, prices remain high for an extended period of time, and the Gulf crisis is resolved in such a way that leads to higher risks to investments in the Middle East, development activity in the non-OPEC region is likely to receive a boost. However, due to the long lead time, crisis-induced exploration activity is not likely to bear fruit for another two to three years. Oil producers are already offering favorable terms to oil companies for E & D programs. It is generally assumed that non-OPEC supply responses to price changes are low. Supply elasticity estimates range between 0.02 and 0.1 for the short term and between 0.2 and 0.8 for the long term (the median long-term price elasticity of supply is 0.4).11 The low short-term price response is mainly due to slow adjustments in the stock of capital, while the long-run elasticities reflect the dynamic response of oil-using and oil-producing capital stock (via increased levels of investments) to price changes. A review of literature shows that forecasts of non-OPEC oil production range between 1,150 mtoe and over 1,500 mtoe by the year 2000. Under various oil price scenarios, the US Department of Energy forecasts non-OPEC oil supplies at 1,300-1,400 mtoe (26-28 mb/d) in the year 2000. The EMF's median poll response indicates that non-OPEC supplies will remain around 1,400 mtoe under a flat price assumption (at $18/bbl) and increase to around 1,500 mtoe by the year 2000, if real prices are assumed to double ($36/bbl in 2000). Other forecasts are presented in Table 13. The base year is 1989, during which non- OPEC supply is estimated at around 1,335 mtoe (26.7 mb/d) and the price of oil was $17.70/bbl. Our forecasts lie in the upper end of this range and take account of the impact of higher prices. We do not expect, therefore, any significant increase in non-OPEC output (above our forecasts) although some of the expected increases in production will be brought on-stream earlier as a result of the recent run-up in prices. Due to higher exploration activity over the past few years, most of the recoverable reserves have already been tapped. It is unlikely that increased exploration activity will uncover any giant fields that will alter the non-OPEC supply position significantly. 1 Based on the most recent results of ten models that participated in the Energy Modeling Forum Group (EMF). Table 11: Petroleum Production by Country Groups, 1961-88 (ActuaL), 1995 and 2005 (Projected) ---1961--- ---1970--- ---1988--- ---1990--- ---2005--- Countries/Economies mtoe % mtoe % mtoe % mtoe % mtoe % Industrial 439.1 37.7 604.2 25.8 788.7 25.4 791.4 23.2 728.5 19.4 Eastern Europe & USSR 184.5 15.8 377.9 16.1 654.3 21.3 605.6 17.8 564.3 15.0 Developing 542.2 46.5 1,358.8 58.1 1,634.5 53.3 2,008.4 59.0 2,466.4 65.6 World 1,165.7 100.0 2,340.9 100.0 3,077.4 100.0 3,405.3 100.0 3,759.2 100.0 Memo: World (excluding former CPEs) 981.3 100.0 1,963.0 100.0 2,423.2 100.0 2,799.8 100.0 3,194.0 100.0 Non-OPEC 509.1 51.9 790.2 40.3 1,378.5 56.9 1,478.2 52.8 1,458.0 45.6 OPEC 472.2 48.1 1,172.8 59.7 1,044.7 43.1 1,321.6 47.2 1,736.0 54.4 OPEC share (including former CPEs) 40.5 50.1 34.0 38.8 46.2 Note: Details may not add to total due to rounding. Sources: United Nations, Energy Statistics (actual); World Bank, International Economics Department (projected). Table 12: Petroleum Production by Country Groups, 1961-88 (Actual), and 2005 (Projected) Growth Growth Growth Region 1961 1973 1961/73 1988 1973/88 2005 1988/2005 mtoe mtoe (%) mtoe (%) mtoe (%) Uorld (excluding former CPEs) 981.3 2,426.8 7.8 2,423.2 -.01 3,194.0 1.6 OPEC 472.2 1,554.6 10.4 1,044.7 -2.6 1,736.0 3.0 Non-OPEC 509.1 872.2 4.6 1,378.5 3.1 1,458.0 0.3 Oil-exporting Developing 41.1 153.7 11.6 328.1 5.2 375.6 0.8 Oi L- importing Developing 28.9 65.8 7.1 261.8 5.4 353.9 1.4 oi -exporting industrial 30.9 101.7 10.5 269.4 6.7 291.2 0.5 Oil-importing Industrial 408.2 551.0 2.5 519.3 -0.4 437.3 -1.0 Note: Details may not add to totals because of rounding. Sources: United Nations, Energy Statistics (actual); World Bank, International Economics Department (projected). -80- B. OPEC Oil Production Forecasts OPEC crude oil production increased by 180 mtoe (3.6 mb/d) between 1986 and 1989. This increase in OPEC production is in sharp contrast to the period between 1979 and 1986 during which it declined from 1,573 mtoe to 950 mtoe. At the same time as crude oil production in the OPEC countries fell, non- OPEC oil production rose from 1,679 mtoe to 1,944 mtoe. Consequently, OPEC's share in global production of petroleum declined from 48.4% in 1979 to 32% in 1986. In the short and medium term, OPEC and non-OPEC exporters are expected to share in the supply of additional quantities. Despite the anticipated declines in production in the United States and in exports from the USSR, it is expected that non-OPEC sources will contribute about 135 mtoe to global oil supplies up to 1995 (i.e., 41% of the increase). However, beyond the mid-1990s, the world will depend increasingly on OPEC for additional supplies, as many producing areas will reach maturity and begin to deplete. It is anticipated that, by 2005, production in OPEC countries will increase to 1,736 mtoe, with OPEC' s share of total petroleum production climbing to around 46% (see Table 11). Given the existing recoverable reserves base, a few of the OPEC members will be reaching their production plateau by the early 1990s and several others will be entering the depletion phase towards the end of the century. A smaller group of producers, including Saudi Arabia, Iran, the UAE, Iraq, Kuwait, Table 13: Non-OPEC Supply Forecasts, 1990 and 2000 Year International a/ Year International a/ Forecasters 1990 Oil Price 2000 Oil Price (mb/d) $/bbl (mb/d) $/bbl EIA 27.3 16.8 26.7 27.8 Ashland 25.5 14.1 23,0 16.9 Conoco 30.5 b/ 16.2 30.0 b/ 25.0 DRI 26.3 16.9 25.4 23.9 PIRA 27.9 18.8 27.8 22.8 E-W Center 29.6 n/a 27.8 n/a a/ Prices in 1989 constant dollars. b/ Includes net CPE exports. Source: International Energy Outlook 1990. DOE/EIA-084(90); Ashland Oil: World Energy Outlook Through (July 1989); Conoco: World Energy Outlook Through 2000 (1989). Data Resources, Inc.: International Oil Bulletin (Autumn 1989). Petroleum Industry Research Associates: World Energy orecast (November 1989). East-West Center: World Oil and Demand Outlook to 2000 (October 1989). and possibly Venezuela, will therefore attain a more dominant position in the world oil market. This is largely due to the availability of enormous low-cost oil reserves in these countries vis-a-vis other producers (Table 14). Proven oil reserves in producing countries, such as Saudi Arabia, the UAE, and Iran, are around 255 billion barrels, 96 billion barrels, and 93 billion barrels, respectively. The combined reserves of Iraq and Kuwait are around 195 billion (about 25% of total OPEC reserves). Of the proven recoverable world oil reserves, only 236 billion barrels (25%) are located in the non-OPEC countries while around 75% lie in OPEC countries. The reserves-to-production ratio of the non-OPEC suppliers is around 17 compared to about 90 for OPEC. -81- Table 14: OPEC Crude Oil Reserves, Capacity and Production in 1990 Proven Production Recoverable Capacity Production Surplus Reserve-to Reserves 1989 1990 a/ Capacity Production Ratio (Years) (Billion bb1s) --------------------------- mb/d ------------------------ Algeria 9.2 0.8 0.75 0.05 34 Ecuador 1.5 0.3 0.28 0.02 15 Gabon 0.7 0.3 0.27 0.03 7 Indonesia 8.2 1.3 1.15 0.15 20 Iran 92.9 3.2 2.98 0.22 85 Libya 22.8 1.3 1.27 0.03 49 Nigeria 16.0 1.8 1.71 0.09 26 Neutral Zone 5.2 0.37 0.13 38 Qatar 4.5 0.4 0.39 0.01 32 Saudi Arabia 255.0 7.8 5.46 2.04-2.84 128 UAE 96.3 2.1 1.99 0.11 132 Venezuela 58.5 2.5 2.00 0.5 80 Iraq 100.0 4.0 2.98 1.02 92 Kuwait 94.5 2.4 1.82 0.38 142 Total 765.3 28.2 23.40 4.78-5.58 90 a/ First semester, 1990. Source: Oil and Gas Journal; Cambridge Energy Associates; Middle East Economic Survey; Petroleum Economics Ltd.; Petroleum Politics (July 1990). The expectation of a steady increase in global demand for oil and declines in supplies from the non-OPEC sources points to the need to boost OPEC output capacity. OPEC's output capacity declined sharply from around 39 mb/d in the late 1970s to around 25-26 mb/d in the mid-1980s, as surplus capacity was gradually mothballed due to declines in the demand for oil and declines in investments required to maintain capacity (several producing facilities were shut down). The bulk of the reduction in capacity (about 80%) took place as a result of declines in the capacities of Mid East members of OPEC. At the top of the list were Iran (where capacity declined from 7 mb/d to under 3 mb/d) and Saudi Arabia (from 10.8 mb/d to 6.5 mb/d). Some of the mothballed Saudi Arabian capacity can be brought back on stream fairly quickly (to increase capacity up to 8 mb/d within 30-45 days); however, Iran's capacity has suffered lasting damage due to poor maintenance and a decline in investment during the Iran/Iraq war. Saudi Arabia is leading the efforts to increase output capacity. With the assistance of ARAMCO, plans include expanding the offshore Safaniya field and the Uthmeniya field (part of the onshore Chawar field). There are also plans for the development of three new fields--believed to be part of a giant field. Due to the strategic location of these new fields (in the Eastern Province near the Petroleum East-West pipeline in Yanbu, which is used to transport Saudi and Iraqi crude from the Gulf to the Red Sea) and its higher grade (light-sweet crude with low sulphur content and over 400 API), it is likely that these fields will be developed quickly. These and other programs that include upgrading and expansion of existing fields, as well as efforts to revitalize oil fields shut down in the early 1980s, are likely to increase output capacity to over 10 mb/d in the late 1990s (up from around 7.5 mb/d at present). The proposed upgrading of the export refinery at Ras Tannure (by ARMCO) will result in increased supplies of premium (higher) grade products. Iran plans to develop new oil and gas reserves, as well as to reconstruct its Kharg island terminal--a major oil export outlet damaged during -82- the eight-year war with Iraq. These plans envisage increases in sustainable output capacity to 5 mb/d by the late 1990s. As a result of rapid increases in output capacity in recent years, Iraq has emerged as the second largest producer and exporter of crude in the region. Capacity expansion has been achieved by restoring facilities, such as the Suba fields, damaged during the war with Iran. Through the development of two pipelines through Turkey that connect to terminals at Iskenderun on the Mediterranean Sea and in Saudi Arabia to the storage facilities at Muajjiz on the Red Sea, Iraq has increased its export capacity to over 4 mb/d. Future plans to achieve capacity increases include development of reserves already proved, as well as restoration of damaged export facilities, including the Mina Al-Bakr terminal, to full capacity (at 1.6 mb/d compared with 0.8 mb/d at present). Capacity expansion plans are under way in other countries with the help of foreign oil and engineering companies. Oil-producing countries are now urging governments of oil-importing countries, multinational companies, banks, etc., to invest in the producing regions and provide the increase in capacity which is necessary to prevent a flare-up in prices in the late 1990s. Based on investment plans, OPEC's production capacity is forecast to increase to between 33-34 mb/d by the year 2000 (from 28-29 mb/d in 1989). Production capacity of over 40 mb/d is forecast for the mid-late 2010s, as higher prices in the late- 1990s create incentives for capacity expansion. The US Department of Energy's forecast range for OPEC output capacity is 33.8-35.8 mb/d and 40.6-44.6 mb/d for the years 2000 and 2010, respectively.12 The recent hostilities in the Middle East are likely to influence companies' decision about investing in that relatively unstable region. Before the crisis, international oil companies were considering undertaking E & D in Iraq. It is likely that foreign companies will advance prudently with regard to their participation in Iraq (at least for the near term). Companies are likely to look for regions that offer a stable political environment, as well as ensure favorable returns on investment. The prospects for foreign companies are encouraging in other parts of the world, including the USSR. Many other countries with potential oil reserves but faced with financial and technological constraints are expected to attract foreign participants. These include Papua New Guinea, Viet Nam, inland China, Syria, Sudan, Kenya, Tanzania, Cameroon, Colombia, and Argentina--to name a few. The assessment for oil supply prospects of some of these countries is presented in the section on non-OPEC supply prospects. Due to the large, low-cost oil reserve base in Saudi Arabia and the special relationship rapidly developing between Saudi Arabia and the Western world--particularly the United States--a scenario can be envisaged under which Western companies focus on expanding Saudi output capacity to satisfy the bulk of the incremental demand in oil. In 1979, Saudi Arabian output capacity was around 11 mb/d, compared with its current capacity of around 7.5 mb/d. Given Saudi output at around 5.5 mb/d (before the crisis), it can conceivably supply a substantial projected increase in global oil consumption of around 10 mb/d by the turn of the century by achieving increases in output capacity to the level of the late-1970s. World Refinery Outlook Since 1979 (following the second oil price shock), world refinery capacity (excluding USSR and Eastern Europe) has declined sharply from around 3,180 million tons p.a. (64 mb/d) to around 2,871 million tons (57 mb/d) ( see Table 15). Almost the entire decline in refinery capacity occurred in the 1979- 85 period. However, since then, refinery capacity has remained fairly stable at 12 International Energy Outlook 1990, DOE/IEA. -83- around 57-58 mb/d as increases in refinery capacity in the developing countries have offset the declines in the industrial countries. The decline was the result of massive retrenchment of refinery capacity and marketing outlets in the industrial countries in response to reduced profitability of refining operations in a shrinking market--due to the decline in product demand in the early-1980s and the resulting glut in refinery capacity. In 1982, refinery capacity exceeded demand by 800 mtoe (16 mb/d). However, due to the mothballing of refineries and rising product demand (since 1985), the refined product market has moved towards a more balanced position. In 1989, the capacity surplus had declined to about one-third of the levels in the early 1980s. It is anticipated that world refinery capacity will increase between 3 mb/d (based on "firm" industry investment plans) and 6 mb/d (based on all plans) by the mid-1990s (up from 57 mb/d refinery capacity in 1989). 13 The increases are most likely to take place in the developing countries; declines are expected in the industrial countries. Estimates (based on firm plans) indicate that refinery capacity will likely decline in the United States, due to the closure of one refinery, which will offset increases from smaller units, as well as in Western Europe. In Japan, the scrappage of about 0.4 mb/d of capacity is expected by the mid-1990s. In the developing countries, increases are expected in almost all regions. In Latin America, capacity expansion is expected mainly in Mexico (0.15 mb/d), Brazil (0.21 mb/d), and Netherlands Antilles (0.15 mb/d). Table 15: Refinery Capacity and Utilization Rate by Economic Regions, 1979 and 1989. -----------1979------------ ------------1989------------- Capacity Utilization Capacity Utilization Regions Rate Rate (million tons p.a.) % (million tons p.a.) % Industrial 235 78.8 1,84 80 North America 1,010 83.7 876 86.0 Western Europe 1,015 69.0 717 75 Pacific 320 80.0 255 80 Developing Countries 845 73.3 1 95.0 OPEC 260 84.5 324 93 Other 585 69.2 699 102 a/ Refinery capacity relates to distillation capacity and not to other refinery processes. Source: Petroleum Economics Ltd., World Bank, International Economics Department. 1990.13 "Outlook for the World Refinery Industry", Petroleum Economic Limited, -84- In Africa, increases are likely mainly in Egypt (0.1 mb/d), Libya (0.038 mb/d), and Tunisia (0.03 mb/d). In the Asia-Pacific region capacity expansions are anticipated in several countries including, India (0.25 mb/d), Pakistan (0.031 mb/d), Republic of Korea (0.316 mb/d), Indonesia (0.125 mb/d), Malaysia (0.1 mb/d) and Thailand (0.125 mb/d). Additional capacity is also likely in India, Indonesia, Thailand, Malaysia, Egypt, and Venezuela- -as well as in Australia, Papua New Guinea, the Philippines and Taiwan (China) if all plans are implemented. In recent years, major Mid East oil producers have increased their interest in export refineries--a move to diversify their sources of revenues to include the product market as well as achieve self sufficiency in product requirements. Significant capacity expansion is anticipated in the Mid East region. The key Mid East countries where capacity expansion is expected include Iran (0.38 mb/d), the UAE (0.195 mb/d), Iraq (0.14 mb/d), and North Yemen (0.05 mb/d). In Saudi Arabia, the expected expansion is partly reflected in its new Rabigh refinery (with a capacity of 0.325 mb/d) which came on-stream in early 1990, but was operating at only around 60% capacity. Significant upgrading of refinery capacity is envisaged in Saudi Arabia. Plans include installing fluid catalytic crackers (that allow conversion of heavy fuel oil into lighter products), adding reformers to local refineries, and raising octane levels of gasoline while reducing lead content. In recent years Kuwait has increased its refinery capacity considerably. At present, the combined capacity of the three Kuwaiti refineries is roughly 0.8 mb/d (mainly jet kerosene). These refineries possess most of the modern conversion equipment. Despite the expected increases in world refinery capacities, the existing surplus in refining operations will likely decline. Based on our projected increase in global oil demand of around 6 mb/d over the 1989-95 period, it is expected that even under optimistic assumptions for increases in world refinery capacity of about 6 mb/d (if all plans are implemented), world refinery capacity will barely meet the expected increases in the world demand for refined products. However, if only firm plans are implemented and a 3 mb/d increase in world refining is achieved, the refined product market is likely to become considerably tighter by the mid-1990s. This will likely increase the price of petroleum products. Also, compliance by refineries with environmental regulations that mandate stricter product specifications will increase production costs and add further to product price increases. Table Al: Liquid Fuels - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons of OilEquivalent)------------------------------------------ -----------(% p.a.)------ Industrial 603 700 779 747 756 763 770 777 784 791 766 729 2.2 1.4 -0.2 North America 577 559 560 524 516 515 513 511 510 508 497 482 1.0 -0.2 -0.5 United States 508 478 467 434 426 424 422 420 418 416 401 386 0.7 -0.5 -0.7 Canada 68 81 93 90 90 91 91 92 92 93 96 96 4.2 1.6 0.4 EEC-10 14 95 139 115 125 130 135 140 146 151 130 113 11.9 19.2 -0.1 Germany, Fed. Rep. 8 5 4 4 4 4 4 4 4 4 3 3 -1.6 -3.6 -2.4 United Kingdom 0 83 116 93 102 106 110 114 118 122 98 80 43.8 44.1 -0.9 Other W. Europe 3 24 63 82 90 93 97 100 103 107 117 117 14.9 19.3 2.2 Industrial Asia 1 1 1 1 1 1 1 1 1 1 1 1 -1.8 -1.5 0.0 Industrial Oceania 9 22 26 25 24 24 24 24 24 25 21 16 14.6 3.7 -2.8 Eastern Europe & USSR 378 628 654 634 619 616 614 611 608 606 586 564 4.8 3.7 -0.7 USSR 359 608 631 615 600 597 594 592 589 586 568 546 5.0 3.2 -0.7 Developing 1,345 1,766 1,634 1,726 1,773 1,818 1,864 1,911 1,959 2,008 2,279 2,466 4.2 0.6 2.3 CD Asia 793 1,166 1,010 1,048 1,082 1,117 1,153 1,191 1,230 1,269 1,478 1,645 3.9 -0.9 2.9 Saudi Arabia 197 501 265 268 329 345 336 327 320 313 401 480 5.1 1.8 3.7 Iran 196 102 114 136 156 161 166 172 177 183 217 235 2.5 -2.9 3.5 Iraq 78 115 129 139 99 121 132 147 164 183 217 235 3.7 2.9 3.3 United Arab Emirates 40 83 82 86 95 80 82 85 86 87 103 117 0.0 4.3 2.0 Africa 272 292 280 314 320 323 327 330 333 337 357 367 6.4 -0.6 1.0 Libya 148 84 54 56 67 68 69 70 71 72 85 95 16.5 -6.0 3.4 Nigeria 53 96 72 85 85 86 87 87 87 94 101 95 13.6 1.6 0.7 America 269 301 338 357 364 370 376 382 388 394 436 445 1.6 2.1 1.4 Mexico 24 105 143 144 146 147 149 151 153 155 163 168 8.5 10.5 1.0 Venezuela 191 119 94 109 109 110 111 112 113 114 134 151 -1.8 -4.0 2.0 Southern Europe 11 7 7 7 8 8 8 8 8 8 9 10 3.5 -2.8 1.7 World 2,326 3,094 3,067 3,107 3,149 3,198 3,248 3,299 3,351 3,405 3,631 3,759 3.7 1.5 1.2 /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual); World Bank, International Economics Department (projected). Table A2: Liquid Fuels - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Million Tons ofOlEquivalent)------------------------------------------ ----------- ( p.a.)------ Industrial 1,570 1,792 1,719 1,735 1,749 1,765 1,780 1,796 1,812 1,828 1,888 1,880 2.7 0.5 0.5 North America 757 893 882 890 889 896 904 911 919 926 960 948 1.9 0.9 0.4 United States 673 792 796 800 797 803 810 817 824 831 866 853 1.8 1.0 0.5 Canada 71 88 75 79 80 81 81 82 82 82 81 81 2.1 0.1 0.2 EEC-10 527 559 499 500 506 510 513 517 520 524 539 536 2.7 -1.1 0.4 Germany, Fed. Rep. 122 132 117 110 112 113 114 115 115 116 122 121 4.2 -0.4 0.5 France 96 111 87 89 90 91 92 93 94 95 97 97 3.7 -0.1 0.5 United Kingdom 101 84 80 82 83 83 83 84 84 85 87 86 1.5 -1.5 0.3 Italy 92 99 91 94 95 95 96 96 97 97 99 99 4.2 -0.2 0.3 Other W. Europe 69 70 79 77 78 78 79 80 80 81 83 84 2.3 -1.2 0.6 Industrial Asia 188 236 225 233 241 245 249 253 257 261 267 271 6.4 0.9 0.9 Industrial OceanLia 28 34 33 34 35 35 36 36 36 37 38 40 3.5 0.7 1.0 Eastern Europe & USSR 323 549 545 540 536 538 539 541 542 544 556 563 4.9 2.9 0.3 USSR 269 447 447 443 438 439 439 440 440 441 448 452 4.6 2.8 0.1 . Developing 380 681 804 833 863 895 928 962 997 1,033 1,187 1,316 5.5 4.3 2.9 Asia 167 324 419 438 453 473 492 513 535 557 650 730 7.0 4.8 3.3 China, People's Rep. 31 88 109 112 114 120 126 132 139 146 177 191 10.5 7.3 3.4 India 19 33 50 53 56 60 63 67 71 76 90 117 7.1 5.5 5.1 Korea, Rep. of 9 26 36 41 42 44 45 47 49 50 58 64 15.4 7.7 2.9 Africa 41 73 98 97 101 104 106 108 111 113 126 138 5.8 5.0 2.2 America 139 222 243 251 260 268 277 286 295 305 345 378 3.9 2.5 2.6 Mexico 25 61 75 78 79 81 83 85 87 89 97 104 6.1 6.5 1.9 Brazil 27 53 58 60 63 66 69 72 75 78 89 96 5.4 4.4 2.9 Southern Europe 32 60 45 46 49 50 52 54 56 58 65 69 6.8 3.2 2.3 World 2,272 3,022 3,067 3,107 3,149 3,197 3,247 3,299 3,351 3,405 3,631 3,759 3.7 1.6 1.2 /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). lb Estimate. Sources: United Nations Energy Statistics (Actual)i World Bank, International Economics Department (projected). Table A3t Liquid Fuels - Gross Emports by Main Countries and Economic Regions Actual Projected Growth Rates/s Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ---------------------------------((Ml1on Tons of 1Equivalent)------------------------------------------ ----------- ( p.a.)------ Industrial 168 270 395 395 396 396 396 396 396 396 415 436 7.0 4.5 0.6 North America 59 77 100 102 104 104 104 104 104 103 106 108 7.0 2.6 0.4 EEC-10 102 160 222 217 216 224 231 239 247 256 229 206 6.1 4.8 -0.3 United Kingdom 17 58 92 68 77 80 84 88 92 96 72 56 10.0 9.4 -1.2 Other U. Europe 4 29 70 89 98 101 104 108 112 116 127 127 16.8 16.8 2.2 Industrial Asia 1 1 1 1 1 1 1 1 1 1 1 1 0.9 0.0 0.7 Industrial Oceania 2 4 6 4 4 4 4 4 4 4 3 2 4.1 7.6 ~3.5 Eastern Europe & USSR 105 184 225 208 197 192 188 184 181 177 148 120 5.8 4.4 -3.4 USSR 95 167 202 188 177 175 172 169 166 164 140 116 6.1 4.4 -3.0 Developing 1,250 1,491 1,212 1,278 1,305 1,333 1,362 1,392 1,423 1,455 1,604 1,692 3.4 0.1 1.8 Asia 731 1,009 793 827 845 869 894 919 946 973 1,092 1,205 2.8 -2.0 2.4 Saudi Arabia 180 472 234 235 285 298 289 278 269 263 343 412 4.6 1.7 3.6 00 Iran 179 73 82 103 121 125 130 134 138 143 172 180 1.8 -4.2 3.5 Kuwait 145 87 73 83 46 44 57 64 72 81 96 127 -0.4 -3.8 2.7 Iraq 75 107 116 126 85 107 117 121 142 167 201 214 3.4 2.6 3.3 United Arab Emirates 40 81 75 78 88 73 75 77 79 79 95 107 0.0 3.9 2.0 Africa 265 261 221 245 256 259 261 263 266 269 280 279 5.4 -1.7 0.8 Libya 147 80 47 50 60 61 62 62 63 64 76 85 16.9 -6.8 3.4 Nigeria 50 90 62 77 77 82 82 83 83 84 89 83 12.8 1.0 0.4 America 252 208 186 193 189 189 190 191 191 192 203 177 -0.5 -0.9 -0.6 Mexico 3 44 71 68 69 69 69 69 69 69 68 67 13.9 18.4 -0.2 Venesuela 178 100 73 89 87 87 86 85 85 84 97 106 -2.5 -5.1 1.1 Southern Europe 2 12 12 14 15 16 18 19 20 22 29 31 10.0 9.5 5.3 World 1,522 1,945 1,831 1,881 1,897 1,921 1,947 1,973 2,000 2,028 2,167 2,247 4.2 1.1 1.1 /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)o World Bank, International Economics Department (projected). Table A4: Liquid Fuels - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(Mllon Tons ofOlEquivalent)------------------------------------------ ----------- (% p.a.)------ Industrial 1,148 1,387 1,338 1,383 1,389 1,392 1,394 1,397 1,400 1,433 1,538 1,587 4.2 -1.5 0.9 North America 240 422 422 468 477 486 494 503 512 521 569 575 4.7 3.2 1.3 United States 173 350 369 407 414 422 431 440 450 459 505 509 5.2 4.4 1.4 EEC-10 623 632 593 613 609 585 563 542 521 501 652 644 2.3 -1.6 0.3 Germany, Fed. Rep. 123 138 120 114 116 117 120 119 120 121 127 127 15.1 14.3 0.7 France 105 126 96 91 101 101 101 102 102 102 104 103 3.6 -0.6 0.8 Italy 114 114 100 104 104 105 105 105 106 106 111 114 3.9 -0.8 0.6 Netherland 65 78 83 84 8s 85 86 86 87 88 91 93 4.4 1.0 0.6 Other W. Europe 72 78 72 71 71 72 72 73 74 74 77 78 2.6 -1.0 0.6 Industrial Asia 191 239 226 234 242 246 249 253 257 261 268 272 6.4 0.8 0.9 Industrial Oceania 22 17 12 13 15 15 15 16 16 16 21 26 -0.8 -3.2 4.3 Eastern Europe & USSR 51 106 115 114 114 114 114 115 115 115 118 119 7.9 4.7 0.3 Eastern Europe 46 100 100 102 103 104 106 108 109 111 119 127 8.1 3.8 1.4 1 Germany, Democratic R 10 22 24 24 26 26 26 26 26 26 28 28 8.5 4.6 0.9 00 Czechoslovakia 11 20 19 18 19 19 19 19 20 20 21 22 6.6 3.1 1.1 Developing 288 418 379 385 395 416 438 461 485 480 511 541 3.9 2.0 2.3 Asia 107 172 199 204 212 227 242 258 274 261 264 291 5.2 3.7 2.2 Korea, Rep. of 10 27 39 44 46 47 49 51 52 54 62 68 15.8 8.2 2.8 Singapore 20 39 51 53 54 54 55 55 56 56 60 63 7.6 5.2 1.1 Africa 36 46 39 40 41 42 43 43 44 45 49 50 3.2 1.1 1.4 America 121 132 91 88 85 89 92 95 99 103 112 109 0.4 -1.9 1.4 Brazil 19 47 40 42 42 43 44 46 47 49 52 64 5.1 4.1 2.6 Southern Europe 24 67 50 53 56 59 62 65 68 72 85 91 7.8 5.0 3.5 World 1,486 1,912 1,831 1,881 1,898 1,922 1,947 1,973 2,000 2,028 2,167 2,248 4.2 1.1 1.1 /a Least squares trend for historical periods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. -89- Table A5: OPEC Petroleum--Average Prices a/ 1960-89 (Actual) and 1990-2005 (Projected) ------1985 Constant $------ Year Current $ MUV b/ US GNP c/ Actual 1960 1.5 5.0 5.4 1961 1.5 4.9 5.3 1962 1.4 4.5 4.9 1963 1.4 4.6 4.8 1964 1.3 4.2 4.4 1965 1.3 4.1 4.3 1966 1.3 4.0 4.1 1967 1.3 3.9 4.0 1968 1.3 4.0 3.8 1969 1.3 3.8 3.6 1970 1.3 3.6 3.4 1971 1.7 4.4 4.3 1972 1.9 4.5 4.5 1973 2.7 5.5 6.0 1974 11.2 18.9 23.0 1975 10.9 16.5 20.4 1976 11.7 17.5 20.6 1977 12.8 17.4 21.1 1978 12.9 15.3 19.8 1979 18.6 19.4 26.3 1980 30.5 29.1 39.5 1981 34.3 32.6 40.5 1982 31.0 29.9 34.4 1983 28.1 27.7 30.0 1984 27.5 27.7 28.3 1985 26.7 26.7 26.7 1986 13.6 11.5 13.2 1987 17.2 13.3 16.2 1988 13.6 9.8 12.5 1989 16.3 11.8 14.3 Projected 1990 21.6 14.7 18.2 1991 23.8 14.8 19.0 1992 20.5 12.6 16.0 1993 18.5 11.4 14.1 1994 19.6 11.9 14.5 1995 20.9 12.3 15.0 2000 31.1 15.2 19.3 2005 35.7 14.5 19.0 a/ For the period 1960-73, this price refers to Saudi Arabian light, 34 - 34.9 API, f.o.b., RAS Tanura; for the years following this period, it refers to the weighted average f.o.b. price of petroleum exports from OPEC countries. b/ Deflated by Manufacturing Unit Value (MUV) Index. c/ Deflated by US GNP Deflator. Sources: International Crude Oil and Product Prices, Energy Economic Research Ltd., Lebanon; Oil industry Developments, Petroleum Economics Ltd., (actual); World Bank (projected). -90- Petroleum Prices ($/bbl, 1985 constant) 45 40- ,^ I. * S 35- 30 * 25- 15- 10 5- 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index - - - - Deflated by US GNP deflator Source: World Bank, Interiational Economics Department. -91- COAL Summary Thermal coal prices have shown little change since the embargo of Iraq began and crude oil prices rose to more than $30/bbl. Higher oil prices undoubtedly will have an impact on thermal coal prices, probably by the time of contract renegotiations for 1991 deliveries. The impact is likely to be smaller than in the two previous oil price shocks, however. Over the short term, coal prices are expected to rise by $2-3/ton if petroleum prices remain in the $25- 30/bbl range. This increase will not be sustainable under lower petroleum prices. Thus, thermal coal prices are projected to decline from 1992 in real terms under the assumption that the Gulf confrontation will be resolved by then. For the long term, thermal coal prices are forecast to increase in real terms only slightly, to reflect slow increases in the cost of production. Despite wide fluctuations in petroleum prices, world coal consumption has been increasing steadily over the past three years. Coal's share in world primary energy consumption increased throughout the 1980s, but the rate of increase slowed down appreciably after the 1986 collapse of petroleum prices. The share is expected to remain more or less constant over the 1990-2005 period. World total coal consumption (thermal coal plus coking coal) is projected to increase at 2% p.a. over the 1989-2005 period, while world thermal coal consumption is forecast to grow at 2.8% p.a. over the same period. World hard coal production increased at 2.2% p.a. during the 1986-89 period, down from 3% p.a. during 1973-86. Most of the net increase in production in recent years came from the traditional coal-producing countries, such as Australia, China, India, South Africa, and United States. New projects, under implementation or planned, indicate that these same countries will account for most of the net increase in production capacity in the 1990s. In addition, Colombia, Indonesia, and Venezuela will become important coal exporters in the 1990s. Demand Outlook Despite wide fluctuations in petroleum prices, world coal consumption has been increasing steadily in the past three years. Total OECD coal consumption increased 1.7% in 1987, 2.4% in 1988, and an estimated 1% in 1989. Developing countries' coal consumption grew at much faster rates, by 6.1% in 1987 and 5.5% in 1988.1 Fastest increases were recorded in the Far East, particularly by Hong Kong, Taiwan (China), and the Republic of Korea. Consumption in the former non- market economies of Eastern Europe and the USSR increased 2.1% in 1987 and 3.2% in 1988. Coal's share in world primary energy consumption increased throughout the 1980s, but the rate of increase slowed appreciably after the 1986 collapse of petroleum prices. In both the OECD and developing countries, coal' s share has stabilized since 1986 at about 21% and 39%, respectively (see Table 1). Natural gas increased its share slightly in both groups, largely at the expense of petroleum. In Eastern Europe and USSR, both coal and petroleum have been losing ground to natural gas. Developing countries here exclude the Asian non-market economies. -92- Table 1: Trends in Fuel Shares, 1980-89 1980 1985 1986 1987 1988 1989 ---------------------(%)--------------------- OECD Coal 19.8 21.9 21.1 21.2 21.0 20.9 Oil 48.3 42.3 43.3 42.6 42.7 42.5 Gas 19.5 18.8 18.1 18.5 18.5 18.9 Others 12.4 17.0 17.6 17.7 17.8 17.7 Developing countries Coal 35.2 40.0 39.5 39.7 38.8 39.0 Oil 47.6 40.8 40.3 40.2 40.0 39.8 Gas 8.3 9.4 10.5 10.1 11.3 11.4 Others 9.0 9.7 9.6 9.9 9.9 9.8 Eastern Europe & USSR Coal 36.2 32.7 32.8 32.4 32.0 31.0 Oil 34.8 30.4 29.7 29.2 28.5 28.5 Gas 24.3 30.6 31.3 32.0 32.6 33.6 Others 4.6 6.3 6.2 6.5 6.9 6.9 Source: International Energy Agency (IEA), Coal Information 1990, and World Energy Statistics and Balances, 1985-1988, 1990, Paris, OECD. About 47% of the world's hard coal output is used as boiler fuel for electricity generation. Between 1986 and 1988, world hard coal consumption for electricity generation increased at 4.5% p.a., after growing at 3.4% p.a. during 1980-86. In the OECD countries, coal consumption for power generation increased steadily at 3.2% p.a. during 1986-89, after increasing at 2.3% p.a. during 1980- 86. In the developing countries, thermal coal consumption for power generation increased at 10.6% p.a. during 1980-86 and at 8% p.a. during 1986-88. The most rapid increases took place in Asia; in terms of volume, India and South Africa accounted for the bulk of the net increase. In the non-market economies (including China), the growth rates were 4.3% p.a. for 1986-88 and 3% p.a. for 1980-86. The post-1986 acceleration of thermal coal consumption for power generation in the OECD is explained mostly by increased demand for electricity. The OECD's total electricity production grew at 2.2% p.a. during 1980-86 and at 3.6% p.a. during 1986-89. Viewed together with the growth rates of coal consumption, the figures imply an increase in the share of coal in the OECD's power sector over the 1980-86 period and a decline during 1986-89 (see Table 2). In the developing countries, coal' s share has continued to increase through 1988, while in Eastern Europe and the USSR, an abundance of natural gas in the USSR has allowed steady increases in its share to the detriment of oil and coal. It does not seem from Table 2 that lower petroleum prices since 1986 have had any noticeable impact on the share of coal in thermal power generation. In the OECD, an indication of switching back to fuel oil can be found only in 1989, when international thermal coal prices increased by about 9%. As of 1988, 14.3% of the OECD's thermal power capacity was capable of readily switching from coal to fuel oil or natural gas, or vice versa. Thus, even in the short term, there is a small but not insignificant scope for fuel substitution. Actual changes in fuel shares in the OECD were short of this potential, if most of the dual-fuel units were using coal in 1985 when oil was expensive. -93- Table 2: Fuel Shares in Thermal Power Generation, by Country Group, 1980-89 1980 1985 1986 1987 1988 1989 ---------------------(%)---------------------- OECD Coal 57.5 69.1 69.5 69.9 69.9 68.5 Oil 25.9 14.4 15.0 14.2 15.0 15.9 Gas 16.6 16.5 15.5 15.9 15.1 15.6 Developing countries Coal 55.8 62.3 64.0 64.1 64.3 n.a. Oil 35.9 27.2 25.6 24.5 24.4 n.a. Gas 8.3 10.5 10.5 11.5 11.3 n.a. Eastern Europe & USSR Coal 49.8 47.9 47.7 48.0 47.1 n.a. Oil 22.1 19.8 18.1 17.1 16.2 n.a. Gas 28.1 32.3 34.2 34.9 36.7 n.a. Source: See Table 1. Table 3: Fuel Prices Delivered to Electric Utilities in Major Industrial Countries, 1980-89 (in $/ton of oil equivalent) 1980 1985 1986 1987 1988 1989 United States Thermal coal 57.1 68.5 66.1 63.2 60.9 61.3 Heavy fuel oil 178.2 177.3 100.3 124.3 102.5 111.9 Natural gas 97.0 151.3 103.4 98.5 102.6 103.8 Japan Thermal coal 120.8 105.2 130.5 145.9 160.0 162.4 Heavy fuel oil 260.7 233.1 188.1 179.1 185.7 176.9 Natural gas 217.4 214.6 171.5 151.4 155.3 160.2 Germany, F.R. Thermal coal 148.3 122.1 156.8 180.6 184.8 179.1 Heavy fuel oil 203.6 186.4 106.3 132.9 103.1 131.3 Natural gas 140.8 164.0 180.2 165.7 139.2 n.a. Source: IEA/OECD, Energy Prices and Taxes, various issues. Part of the reason for the lack of short-term fuel switching can be seen in Table 3, which shows fuel prices delivered to electric utilities in three major industrial countries. At the relative fuel prices in the United States in 1989, coal still held the cost advantage over fuel oil and natural gas, after allowing for higher capital and operating costs of coal-fired power generation. However, the situation was quite different in Japan and Germany, largely because of subsidies to domestic coal producers in those countries. In Japan, coal has lost its cost advantage to oil since 1986, while in Germany, coal never enjoyed -94- a clear cost advantage. Japan, however, made the conscious decision in the mid- 1980s to close down most of its domestic coal mines and meet new thermal power needs through imported coal. The costs of imported coal in 1989, delivered to Japanese or German utilities, were only about one-half of the average delivered prices quoted in Table 3. According to recent submissions to the International Energy Agency (IEA) by OECD member governments, coal use for power generation is expected to increase at 1.9% p.a. between 1988 and the year 2000, while total electricity production is expected to increase at 2.4% p.a. Coal's share in thermal power generation is expected to decline slightly, mainly because of major planned increases in the use of natural gas for power generation in North America, United Kingdom, the Federal Republic of Germany, and Italy. Japan has opted for coal and nuclear sources, while France relies heavily on nuclear power. Although the emphasis varies across countries, coal will continue to play an important role in most industrial countries. In this report, we project that OECD electricity demand is likely to increase at a somewhat faster rate than the 2.4% annual rate anticipated by OECD members. The reasons for this are twofold: first, our economic growth forecast is slightly higher than that of the OECD, and second, recent experience has shown that robust industrial production growth and the gradual exhaustion of conservation opportunities call for more rapid demand growth than during 1973-88, when electricity demand grew at 3% p.a. Thus, it appears reasonable to assume that electricity demand will grow at a faster rate than 2.4%, probably in the neighborhood of 3%. Thus, the OECD's thermal coal demand for power generation will also grow at a faster rate than that anticipated by the OECD, probably at around 2.3% p.a. instead of 1.9% p.a. Furthermore, important changes have taken place since the above-mentioned submissions were made to the OECD. First, is the changed outlook for fuel oil and natural gas prices in the wake of the Middle East crisis. Although the incident probably will be resolved without seriously altering the long-term picture, it may nevertheless heighten the perception of supply insecurity for oil and gas. Second, the process of European economic integration is increasingly putting pressure on subsidies on coal production. For example, in devising an integrated power supply system for unified Germany, an accelerated removal of coal subsidies has become inevitable. The most economical fuel for power generation in Germany is imported coal rather than natural gas. Thus, Germany is emerging as the main growth market for thermal coal in Europe, perhaps doubling or tripling coal imports in the next ten years. With free movement of goods within the EEC, other European countries subsidizing coal will be forced to follow Germany in removing coal subsidies. Demand for hard coal by final end-use sectors (industrial and residential uses) has not been increasing nearly as fast as for the power sector. In the OECD region, final consumption of coal declined slightly (by 1.1%) between 1980 and 1988, mostly because of declines in coking coal consumption by the iron and steel industry and in residential consumption. Coal consumption by other industrial sectors has never caught on; in volume terms, the increases in demand by industries, such as cement, paper and pulp, and non-ferrous metals, have been minuscule, although the growth rates have been high. Among the developing countries, there have been significant increases, but only in certain regions. In Latin America, coking coal consumption increased by 28% between 1980 and 1988; consumption by other industrial sectors also increased sharply, although not significantly by volume. Among Asian developing countries, coking coal consumption by the iron and steel industry has not shown significant increases, except for Republic of Korea.2 2 Data for China and India, which are the dominant Asian coal-consuming countries, show sharp declines in coking coal consumption for recent years. The reliability of the data, however, is not clear. -95- As before, the demand for coking coal will be determined by steel production. Over the 1973-89 period, the OECD's coking coal consumption per unit of steel production declined by 11% as a result of improvements in steel-making technology and the increasing use of the electric arc process. Since these input- reducing trends are expected to continue, coking coal consumption is projected to grow at 1.1% p.a. worldwide, while steel production is forecast to grow at 1.6% p.a. during the 1989-2005 period. Supply Outlook World hard coal production increased at 2.2% p.a. during the 1986-89 period, down from 3% p.a. growth during 1973-86. Most of the net increase in production in recent years has come from the traditional coal-producing countries, such as Australia, China, India, South Africa, and the United States. Large coal producers in both Western and Eastern Europe have experienced a decline or stagnation. Coal production in Germany and United Kingdom have continued to decline, as high-cost operations are phased out. Both Poland and the USSR have experienced labor problems. Among the developing countries, Colombia has established itself as an important coal exporter, while Venezuela and Indonesia have emerged as new exporters. A survey of new projects, under implementation or planned, indicates that, as far as incremental supplies to export markets are concerned, Australia alone will account for more than one-half of the net increase in export capacity over the next ten years. Australia is the world' s largest exporter of coal, with almost 100 million tons exported in 1989. Gross capacity additions being implemented or planned for the 1990s in Australia amount to 120 million tons. Other important sources of exportable coal are Colombia, Indonesia, and Venezuela, for a combined total of almost 70 million tons of capacity additions in the 1990s. Capacity expansions in the United States are largely geared to domestic markets; the only large project considered explicitly for the export market is in Alaska. If the political situation settles down, South Africa also could add substantial new capacities in the 1990s. World coal resources are ample to meet all perceived needs. The relative position of the major coal producers in meeting the projected demand increases will largely depend on their cost competitiveness in supplying the various regional markets. The planned capacity increases summarized above closely reflect the current relative cost conditions of the major coal-producing countries. Table 4 summarizes the results of a recent study of coal costs for the main coal exporters. These are intended to show the typical cost configuration; it should be kept in mind that a large proportion of mines have costs below the levels shown. It is clear that South Africa is the lowest-cost exporter to both the European and Asian markets. The United States holds a considerable advantage in Europe over Australia and Colombia, but not in Asia. Despite the long distances, Australia has become competitive even in Europe. Given the relative cost structure, it is not difficult to see that South Africa will play a greater role as a coal exporter in the long term than is apparent from current investment plans. Through continued productivity improvements and US dollar depreciation, the US competitive position, and hence its exports, have improved significantly in recent years. In the wake of the 1986 collapse in oil prices and the resulting declines in coal prices, the coal industries in major coal-exporting countries have been under pressure to restructure inefficient mines and enhance the productivity of operating mines. Table 5 illustrates the changes, since 1980, in coal export prices in real terms in local currencies. It is clear that the pressure to improve productive efficiency has been greater for Australia and -96- Table 4: Representative Costs of Thermal Coal Production (1989 $/ton) United Austra- South Colom- States lia Africa bia under- under- ground surface ground surface surface surface Mining cost 21.2 27.4 25.4 11.3 8.0 24.1 Capital charge a/ 1.0 1.1 5.8 6.1 2.6 12.3 Inland trans- portation 19.4 12.2 6.2 9.5 8.8 4.0 Loading cost 2.3 1.3 4.1 3.2 2.6 3.0 Total f.o.b. cost 43.9 42.0 41.5 30.1 22.0 43.4 Ocean freight to Japan 13.7 13.7 6.0 6.0 8.0 n.a. to Europe 5.7 5.7 10.0 10.0 6.5 6.0 Total c.i.f. cost c.i.f. Japan 57.6 55.7 47.5 36.1 30.0 n.a. c.i.f. Europe 49.6 47.7 51.5 40.1 28.5 49.4 a/ Assuming a 10% rate of return on investment. Source: IEA, Coal Information 1990, OECD, Paris, 1990. Table 5: Thermal Coal Export Prices (in constant 1985 local currencies per ton)* United States Australia South Africa US$ A$ rand 1980 49.5 51.6 42.9 1985 46.6 48.2 73.4 1986 45.2 42.6 50.8 1987 36.3 33.2 35.7 1988 35.8 35.0 40.5 1989 37.2 35.2 44.9 * Deflated by the wholesale price indices of the respective countries. Source: World Bank, International Economics Department. South Africa than for the United States, in large part, because of exchange rate adjustments. As a result, Australia adopted cost-cutting measures to maintain its competitive edge by closing down inefficient mines, expanding the use of longwall mining, and improving work practices. It is reported that Australia's new labor practices are yielding significant increases in production. In the first 30 weeks of 1989, coal production increased 19.3% in Queensland and 10.8% in New South Wales. For the 1989-90 year, New South Wales production is expected to increase -97- by 18% over the year before, according to a recent industry forecast. The long- term effect of the changes in labor practices, however, is not clear, because it will be contingent upon such factors as job restructuring and investments in new equipment. South Africa responded to the European embargo of its coal by offering price discounts and by shifting exports to Asia. Political uncertainties cloud South Africa's coal industry; these uncertainties have hampered investments in mining capacity. Its apparent cost advantage may be eroded by increases in labor costs, which have already increased by up to 23% in 1987 and by an estimated 13-16% in 1988. The world's largest coal producer, China, only joined the ranks of significant coal exporters in 1987, with the opening of the Antaibao mine--a foreign-financed facility dedicated to exports. It is believed that China is the least-cost supplier to Asian markets. However, the mine's export performance, to date, has been far short of expectations because of inadequate infrastructure and rapidly increasing domestic needs. China's role as a coal exporter will largely depend on how domestic demand growth is managed in the future. With large subsidies to domestic coal consumers, China has become a highly inefficient coal user, with attendant massive pollution problems. The upheavals in Eastern Europe promise to bring significant long- term changes to the international coal trade and consumption in the region. Economic restructuring in these countries will inevitably include serious reassessment of their energy options. Poland has restructured its coal industry, allowing state mines more operational and financial independence. Subsidies will be maintained to some degree to even out cost differences between the mines. As the preferential trading regime within the Eastern Bloc weakens or collapses, the costs of coal and other fuels are likely to rise and the efficiency of their use improve. In the long term, this may imply a slightly diminished role for coal if the transportation disadvantages of coal eventually assert themselves in relatively higher prices than otherwise. The USSR is seeking to increase significantly its thermal coal exports to the West, partly by diverting exports from the Eastern Bloc countries. It is planned to double coal exports to 30-35 million tons per year from the current level of 12 million tons. The USSR recently concluded an agreement to export 350,000 tons of thermal coal to Japan. USSR exports of coal to Western Europe in 1990 probably increased by 250,000 tons over 1989. Price Outlook After declining sharply in the wake of the 1985-86 crash in petroleum prices, export prices of thermal coal rebounded in 1988 and 1989. Between 1987 and 1989, export prices of Australian thermal coal in nominal US dollars increased 38.2%, South African prices by 27.6%, and US prices by 11.9%. However, as shown in Table 5, the price increases were much smaller in terms of constant local currencies, particularly for Australia, where appreciation of the Australian dollar vis-a-vis the US dollar during the period played a large part in the relative price movement. Thermal coal prices have shown little change since the Middle East crisis erupted and crude oil prices rose to more than $30/bbl. There have been no reports of coal buyers attempting to secure additional tonnages in anticipation of price increases. However, beneath the calm, buyers and sellers have been feeling each other out on the appropriate pricing stance to take in the contract renegotiations for 1991 deliveries. The higher oil prices undoubtedly will have an impact on thermal coal prices by the time of contract renegotiations, if not earlier. The impact is likely to be smaller than in the two previous oil price shocks. The substitution of coal for fuel oil has progressed close to the limit in many countries and end-use sectors. In the OECD region, the share of fuel oil -98- in thermal electric power generation has declined from 35.2% in 1973 to 15.9% in 1989, while that of coal has increased from 48.4% to 68.6%. Since fuel oil is used mostly for peak-load power generation, the scope for further substitution in industrial countries is limited. Some of the power plants that had switched from coal to oil or natural gas in 1989 could immediately return to coal. The orders of magnitude involved, however, are believed to be small. In some developing countries, fuel oil still accounts for a large part of electricity supplies and thus presents room for substitution to coal. Previous experience has led to more realistic expectations about likely coal demand; earlier forecasts of vast increases in coal demand as a result of oil price increases were proven wrong. It is highly unlikely, therefore, that coal importers will indulge in panic buying. Over the short term, coal prices are expected to rise by $2-3/ton if petroleum prices remain in the $25-30/bbl range. Small demand increases for coal that may result from higher petroleum prices come at a time of relatively tight market balance, although the industry has the capacity to meet the increased demand. The price increase, however, will not be sustainable under lower petroleum prices, particularly if the industrial economies soften. Thus, thermal coal prices are projected to decline in 1992, in nominal as well as in real terms, under the assumption that the Middle East crisis will be resolved by then and petroleum prices will be rolled back to pre-crisis levels. The supply response to the higher prices of the early 1990s and the resulting accumulation of stocks are likely to be large enough to keep thermal coal prices from rising in real terms (deflated by the US GDP deflator) in 1993 and 1994, despite steady increases in demand. A real price increase will be possible when demand catches up sufficiently to work down stocks. Such an eventuality could be expected by 1995. Over the long term, thermal coal prices are forecast at about the f.o.b. costs of the major coal exporters (see Table 4). For example, the price for the US benchmark thermal coal is forecast at $30-31/ton for the years 2000 and 2005 in 1985 constant dollars, which closely reflects the US costs in Table 4. Compared with the forecast made two years ago, the current update represents a slight upward revision, to reflect the improved outlook for economic growth and hence improved demand prospects for thermal coal. Environmental Implications Coal has long been considered a dirty fuel; natural combustion of coal is indeed highly polluting as was seen in England not so long ago and nowadays in some developing countries and in Eastern Europe. With heightened awareness of the environmental impact of fossil fuel combustion, focus has again been directed at the environmental consequences of increased coal burning. The environmental problems associated with coal burning have been chiefly concerned with discharges of sulfur dioxide, nitrogen oxide, and various particulates. These substances not only pose health hazards in high concentrations but can also damage soil and water in the form of acid rain. There are effective abatement technologies available to cope with this set of pollutants; the issues involved here are more economic and political than technological. Recently, attention has been focused on the possible greenhouse effect from carbon dioxide emissions. This aspect of coal combustion, however, is much more difficult to deal with; not only is the quantitative dimensions of the effect of carbon dioxide emission on the environment not clearly known but also reducing its discharge into the atmosphere could prove to be highly costly. Most industrial countries have adopted stringent emission standards for sulfur dioxide, nitrogen oxide, and particulates. In general, the smaller the country, the more stringent the standards. Japan has probably achieved the most in terms of reducing air pollution over the past 15 years. Japan' s current limit -99- on sulfur dioxide emissions from large, new coal-fired power stations is one- sixth that of the United States and one-half that of Germany. Thus, there is a question of defining the appropriate level of pollution abatement in the context of each country and locality and determining who should pay the cost of abatement. This problem is difficult, since pollutants migrate across national boundaries. Another major issue is the fact that large polluters in Eastern Europe and some developing countries lack the financial resources to make the necessary investments to upgrade their power plants for both fuel efficiency and pollution abatement. In recent years, growing environmental pressures have forced the scaling down of coal-fired power programs in some industrial and developing countries (e.g., the United States, Italy, and Taiwan (China). These are countries where the increasing availability of natural gas at a reasonable cost has made the switch more attractive than in the past. However, at the relative fuel prices expected to prevail in the 1990s, coal will remain the most economical fuel--even after taking into account the cost of pollution abatement using the best available technology. Table Al: Solid Fuels - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(millin tons of oilequivalent)------------------------------------------ --------( p.a.)--------- Industrial 666 717 825 845 858 874 890 906 922 939 1,016 1,074 1.0 1.0 1.5 North America 371 455 553 568 577 588 599 610 621 632 688 723 2.7 2.0 1.5 United States 363 431 509 523 532 541 551 561 571 582 634 665 2.5 1.6 1.5 EEC-10 235 191 165 161 164 165 166 167 167 168 171 173 -2.3 -1.9 0.4 Germany, Fed. Rep. 99 87 73 72 73 73 74 74 74 75 76 77 -1.8 -1.6 0.4 United Kingdom 89 73 58 56 57 57 58 58 58 58 59 60 -2.5 -2.2 0.4 Other W. Europe 2 1 3 3 3 3 3 3 3 3 3 3 0.1 2.5 0.2 Industrial Asia 24 11 7 6 6 7 7 7 7 8 9 10 -6.0 -6.9 2.8 Industrial Oceania 33 59 97 107 108 112 116 120 124 128 146 166 6.1 5.3 2.8 Australia 32 58 96 105 107 110 114 118 122 127 144 161 6.7 5.9 2.7 Eastern Europe & USSR 517 588 691 660 667 671 676 681 686 691 726 761 1.8 1.6 0.6 USSR 309 348 414 396 401 403 406 409 412 416 436 458 1.7 1.6 0.9 I Eastern Europe 208 240 276 280 266 268 270 272 274 276 290 304 1.9 1.5 0.5 Poland 85 111 128 119 120 121 122 123 124 125 131 138 2.8 2.3 0.9 Developing 290 518 778 824 855 883 911 940 970 1,001 1,173 1,379 5.7 5.4 3.3 Asia 232 416 631 672 698 720 743 767 791 817 958 1,228 6.0 5.5 3.8 China, People's Rep. 166 306 465 503 522 539 556 574 592 610 712 831 6.4 5.6 3.2 India 36 65 110 114 118 122 126 130 134 138 161 188 5.3 6.3 3.2 Africa 37 70 98 99 103 107 110 114 119 120 140 164 4.9 5.7 3.2 South Africa 34 66 94 95 99 102 105 108 112 115 135 157 5.2 5.9 3.2 America 6 11 19 22 23 23 24 25 26 26 31 37 5.2 6.9 3.4 Southern Europe 16 23 29 31 32 33 35 36 37 38 44 52 3.2 3.5 3.2 World 1,473 1,823 2,294 2,329 2,380 2,428 2,477 2,527 2,578 2,631 2,915 3,214 2.1 2.4 2.0 Note: Details may not add to totals due to rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual)l World Bank, International Economics Department (projected). Table A2: Solid Fuels - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Ratesaa Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(million tons of oilequivalent)------------------------------------------ --------(% p.a.)--------- Industrial 692 727 856 869 885 899 913 928 943 958 1,038 1,095 1.0 1.4 1.5 North America 341 394 495 508 517 526 535 544 554 563 612 642 2.5 2.0 1.5 United States 325 371 461 476 484 492 501 509 518 527 572 601 2.4 1.8 1.5 EEC-10 262 233 234 235 239 242 245 248 251 254 271 285 -1.5 -0.2 1.2 United Kingdom 91 72 67 62 63 64 65 66 66 67 72 75 -2.0 -0.2 1.2 Germany, Fed. Rep. 91 81 80 80 81 82 83 84 85 87 92 97 -1.0 -0.8 1.2 Other W. Europe 10 10 14 13 14 14 14 14 14 15 16 17 0.9 2.1 1.3 Industrial Asia 57 58 77 76 78 79 80 82 83 85 94 109 2.3 1.4 2.3 Industrial Oceania 22 31 36 37 38 38 39 40 40 41 45 50 3.0 2.5 2.0 Eastern Europe & USSR 501 570 656 623 629 633 638 643 648 652 682 710 1.7 1.5 0.8 USSR 297 334 393 361 365 367 369 372 374 377 392 406 1.6 1.6 0.7 Eastern Europe 203 236 263 262 264 266 269 271 273 276 290 305 1.8 3.0 1.0 0 Poland 67 92 100 100 101 101 102 103 104 105 110 116 2.6 2.1 1.0 Developing 293 513 780 836 867 896 926 956 988 1,021 1,196 1,409 6.1 5.4 3.3 Asia 230 420 651 701 727 750 775 800 826 854 998 1,173 6.4 5.7 3.2 China, People's Rep. 165 304 468 513 532 549 566 584 603 622 723 840 6.7 5.5 3.1 India 36 65 106 109 113 117 121 125 129 133 154 179 5.2 6.6 3.1 Africa 37 53 70 73 75 78 81 85 88 91 108 130 3.7 4.0 3.7 South Africa 33 48 64 66 69 71 73 75 78 80 93 108 3.9 4.2 3.1 America 9 15 22 22 23 24 25 25 26 27 33 40 4.9 5.8 3.8 Southern Europe 18 25 38 40 42 43 44 46 47 49 57 66 4.3 5.8 3.1 World 1,486 1,810 2,292 2,328 2,381 2,428 2,477 2,527 2,579 2,631 2,916 3,214 2.1 2.4 2.0 Note: Details may not add to totals due to rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: United Nations Energy Statistics (Actual); World Bank, International Economics Department (projected). Table A3: Solid Puels - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(millin tons ofolequivalent)------------------------------------------ -------- ( p-a)--------- Industrial 76 112 157 159 161 166 171 175 180 185 208 219 3.9 4.3 2.0 North America 40 60 69 71 72 73 75 77 79 81 90 94 4.2 2.3 1.8 United States 37 50 50 49 50 51 52 54 55 57 64 67 3.0 0.8 1.9 Canada 3 11 19 21 21 22 22 23 23 24 26 27 13.2 11.2 1.5 EEC-10 25 23 17 16 17 17 18 18 19 19 22 25 -1.9 -2.1 2.7 Other W. Europe 0 0 0 0 0 0 0 0 0 0 0 0 3.7 5.3 0.0 Industrial Asia 0 1 2 1 1 1 2 2 2 2 2 2 14.5 19.2 2.9 Industrial Oceania 11 27 61 70 71 74 77 80 83 87 100 116 14.3 9.8 3.2 Australia 11 27 61 70 70 73 77 80 83 87 100 114 14.4 9.7 3.1 Eastern Europe & USSR 40 41 64 67 69 69 70 70 71 71 77 86 3.0 2.6 1.5 USSR 17 18 29 42 43 44 44 45 45 46 52 60 3.8 3.1 2.2 Eastern Europe 24 23 35 25 26 26 26 26 25 25 25 26 2.5 2.2 0.2 0 Poland 18 18 29 20 21 21 21 21 21 21 21 22 3.3 2.6 0.6 Developing 4 23 44 47 51 53 55 57 59 61 71 83 9.1 14.4 3.6 4 23 46 49 54 56 58 60 63 66 77 90 Asia 2 4 7 7 8 8 9 10 10 11 13 15 3.8 7.1 3.8 Africa 2 19 33 34 36 37 38 39 40 43 49 58 11.2 16.9 1.6 South Africa 1 18 30 29 31 33 34 35 36 36 41 49 15.3 19.6 3.3 America 0 0 6 8 9 10 10 11 12 12 15 16 34.3 38.6 3.4 Colombia 0 0 6 8 9 10 10 10 11 12 15 16 0.0 0.0 3.2 Southern Europe 0 0 0 0 0 0 0 0 0 0 0 0 0.0 -2.0 2.6 World 120 176 265 273 281 288 296 302 310 317 356 388 4.2 4.1 2.2 Note: Details may not add to totals due to rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). lb Estimate. Sources: United Nations Energy Statistics (Actual)s World Bank, International Economics Department (projected). Table Ms Solid Fuels - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ----------------------------------(milliontonsooilequivalent)------------------------------------------ -------- (I p.a.)--------- Industrial 97 138 188 184 186 191 194 198 201 205 229 240 4.0 3.4 1.7 North America 12 12 11 11 11 11 11 12 12 12 13 14 1.1 -0.7 1.3 Canada 12 10 9 9 9 9 9 9 10 10 11 11 0.5 -1.6 1.4 EEC-10 44 67 86 90 92 94 97 100 102 105 122 137 2.8 3.9 2.7 France 11 20 9 10 11 11 11 11 11 12 13 14 -0.7 -1.4 1.8 Italy 8 11 13 13 13 13 13 13 13 14 14 15 2.5 2.5 1.2 Germany, Fed. Rep. 7 8 17 17 18 19 19 20 21 21 27 31 3.5 4.1 3.7 Belgium-Luxembours 8 9 9 9 10 10 10 10 10 10 11 12 1.6 0.1 1.5 Other W. Europe 8 10 13 13 13 13 14 14 14 14 16 17 1.1 2.8 1.7 Industrial Asia 33 49 70 70 71 72 73 75 76 77 85 91 8.3 3.7 1.7 Industrial Oceania 0 0 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 Eastern Europe & USSR 24 26 29 31 31 31 31 32 32 32 34 35 1.9 1.1 0.8 USSR 5 4 8 7 7 7 7 7 7 7 8 8 3.6 3.2 0.7 0 Eastern Europe 19 22 22 24 24 24 24 24 25 25 26 27 1.5 0.6 0.8 Developing 7 18 47 59 63 66 69 73 77 81 93 113 7.5 10.7 4.1 Asia 1 8 27 38 40 41 41 42 43 50 56 69 9.8 15.7 3.0 Africa 2 2 3 3 4 4 4 5 3 6 7 8 -3.2 -2.9 5.4 America 3 5 9 9 10 11 12 13 14 15 16 20 6.2 6.6 4.8 Southern Europe 2 3 8 9 9 10 11 12 13 14 14 15 6.1 8.3 -0.4 World 128 182 264 274 282 288 294 303 310 318 356 388 4.1 3.8 2.2 Note: Details may not add to totals due to rounding. /a Least squares trend for historical periods (1961-88)l end-point for projected periods (1989-2005). lb Estimate. Sourcess United Nations Energy Statistics (Actual)s World Bank, International Economics Department (projected). -104- Table A5: Thermal Coal - Prices, 1977-89 (Actual) and 1990-2005 (Projected) -------------------------------------------- ($/ton) -------------------------------------------- -------United States /a------- -------South Africa /b-------- -----------Australia /c------ Current $ 1985 Constant $ Current $ 1985 Constant $ Current $ 1985 Constant $ MUV /d US GNP /e MUV /d US GNP /e MUV /d US GNP /e 1977 /f 33 46 55 20 27 32 29 40 49 1978 40 47 61 20 24 31 29 34 44 1979 35 37 50 21 22 30 30 31 42 1980 43 41 56 31 29 40 39 38 51 1981 57 54 67 41 39 48 53 50 62 1982 52 50 58 43 41 47 55 53 61 1983 45 44 48 32 31 34 38 38 41 1984 49 49 50 32 32 33 31 31 32 1985 47 47 47 34 34 34 34 34 34 1986 44 37 43 27 23 26 31 26 30 1987 36 28 34 24 19 23 28 21 26 1988 37 27 34 28 20 25 35 25 32 1989 41 29 35 31 22 27 38 27 33 1423 4td 1990 42 29 35 32 22 27 40 27 33 1991 44 27 35 34 21 27 43 27 34 1992 43 27 34 33 20 26 42 26 33 1993 44 27 34 34 21 26 43 27 33 1994 44 27 33 34 21 25 43 26 32 1995 47 28 34 36 21 26 46 27 33 2000 61 30 38 48 23 30 58 28 36 2005 75 31 40 58 24 31 71 29 38 /a 12,000 btu/1b, <1% sulfur, 12% ash, f.o.b. piers, Hampton Roads, Norfolk, United States. /b 11,300 btu/1b, <1% sulfur, 15% ash, f.o.b. piers, Richards Bay, South Africa. /c 12,000 btu/1b, <1% sulfur, 14% ash, f.o.b. piers, Newcastle/Port Kembla, Australia. /d Deflated by Manufacturing Unit Value (MUV) Index. /e Deflated by US GNP deflator. /f May-December 1977. Sources: Coal Week, and Coal Week International, various issues (actual); World Bank, International Economics Department (projected). -105- Coal Prices ($/ton, 1985 constant) 70- 65- 60- 55-* 50- 45- 40- 35-~ ........ 30- 1975 1980 1985 1990 1995 2000 2005 Note: 12,000 btu/1b, 1% sulfur, 12% ash, f.o.b. piers Hampton Roads, Norfolk, United States - Deflated by Manufacturing Unit Value (MUV) Index ---- Deflated by US GNP deflator Source: World Bank, International Economics Department. METALS AND MINERALS -106- COPPER Summary The international copper market has been enjoying a long period of high prices; the price boom that began in 1987 is continuing, and the extremely low stock level and tight market balance will probably sustain the high prices into early 1991. However, large volumes of new supplies that are expected to come on-stream in the early 1990s should create excess supplies despite respectable demand increases; with stocks steadily increasing, the trend in copper prices should be downwards during the first half of the 1990s, sometimes sharply, to USQ85/lb by 1995. Prices are likely to trend upwards in the second half of the 1990s as demand catches up with production capacity, and probably decline again over the 2000-2005 period as the process is reversed. The price forecast for the 1995-2005 period averages US85/lb (in constant 1989 dollars), roughly at par with the estimated average total cost of new projects expected to come on-stream in the 1990s. World consumption of refined copper is projected to grow at a slightly faster rate than expected previously--at 1.8% p.a. over the 1989-2000 period. The major industrial countries are expected to achieve slightly faster industrial production growth in the 1990s than in the 1980s; moreover, the rapid expansion of the capital-goods sector which has boosted metals consumption in recent years, is likely to continue. Political and economic change in Europe and in some major developing countries to an environment more conducive to investment and economic growth provides a potential source of sustained increases in metals consumption, including copper. Recent increases in copper consumption per unit of output suggest that easy substitution possibilities (i.e., other materials such as aluminum and plastics for copper) may have been exhausted. Over the short term, however, the likelihood of a significant downturn in copper consumption cannot be discounted. Over the 1990-94 period, world mine and refined copper capacity could increase by as much as 1 million tons (or by more than 11%). The bulk of these increases will take place in Latin America, with North America and Asia contributing the remainder. For the long term, only a few large projects are in prospect; however, the fact that copper resources- -identified and potential--are plentiful, assures adequate supplies for the foreseeable future. The growing importance of the solvent extraction and electrowinning (SxEw) process (in developing, as well as in industrial countries) will significantly contribute to reducing the average production cost. Demand Outlook The main driving force behind the 1987-89 copper price boom has been strong demand increases. For the market economies1 as a whole, refined copper consumption in 1989 was 907,000 tons higher than in 1986--giving an average annual growth rate of 3.8% over the three-year period (sharply higher than the 1.8% growth achieved over the 1970-86 period). In the OECD countries, consumption of refined copper increased at an average annual rate of 3.2% during 1986-89. In the developing countries, consumption growth over the same period averaged 6.5% annually. The most spectacular growth in copper consumption took 1 Market economies are defined as the world excluding Eastern Europe, the USSR, China, the Democratic People's Republic of Korea, and Mongolia. It does not include what used to be non-market Eastern Europe currently in transition to more market-oriented system. -107- place in the industrializing developing countries in Asia. Only Eastern Europe and the USSR have shown stagnation in copper consumption. An important factor behind the recent increases in copper consumption was that the metals-intensive manufacturing sector has been growing more rapidly than the overall economy. For the OECD, for example, GDP growth over the 1986-89 period averaged 3.8% p.a., while industrial production grew at 4.3% p.a. In the low- and middle-income developing countries, GDP growth accelerated from 2.4% p.a. during 1980-86 to 3.3% p.a. during 1986-89. However, there has been a wide regional dichotomy in growth rates, with the Asian developing economies outperforming the rest by a wide margin. For the developing countries as a whole, investments grew at about the same rate as GDP; however, in the exporters of manufactures, value-added in industry expanded at a much faster rate than GDP. It was this group of developing countries that experienced the most rapid increases in copper consumption. At the more detailed sectoral level, there have been numerous reports of increased copper consumption for industrial end-uses such as machinery and consumer durables, and for construction. Low energy prices and the large pent-up demand for investment were the important reasons for robust investment activity during the late 1980s. The US manufacturing sector further benefited from US dollar depreciation through increased exports of manufactured goods. Increases in consumption took place in most copper products- -particularly electrical cables, building and magnet wires, tubes and rods, and various brass mill products. Copper is a relatively minor input in manufactured output, and its demand may be affected by the fluctuations of other inputs that claim a larger share of the total production cost. In particular, energy price increases in the 1970s and early 1980s seem to have had a significant impact on copper consumption through energy-metals complementarity. In many cases, energy saving also meant metals saving. For example, high electricity prices reduced electricity demand, which, in turn, reduced the demand for power cables and building wires. The drive for more energy-efficient automobiles resulted in substitution of lighter synthetic materials and aluminum for copper. Of late, however, the pace of substitution to replace copper has slowed, and has even been reversed in some cases. In automobiles, for example, copper consumption per car has been increasing recently, as more equipment has been added. The slowdown in substitution, despite the higher copper prices, suggests that changes in other factor prices (particularly lower energy prices) have stimulated copper use; maybe also, the possibilities for relatively easy replacement of copper have already been exploited. Table 1 shows the decomposition of the increase in copper consumption during the 1986-89 period into its main causes using an extended copper demand model. For the major industrial and developing countries, the demand model slightly overestimates copper consumption over the 1987-89 period; the average forecast error is about 3.5% of the actual. According to these estimates, the main cause of the demand increase is the increase in industrial production, which explains about 90% of the total increase. The decline in energy prices also appears to have been a significant factor, explaining about 20% of the increase. If the level of petroleum prices relative to copper prices had not declined from its average 1985-86 level, copper consumption in 1989 would have been 3.5% lower. The relative price of aluminum to that of copper increased slightly in 1987 and 1988, but declined in 1989. This latter relative price change had only a small positive impact on copper consumption, i.e., substitution of copper for aluminum was not an important reason for copper consumption growth. However, the increase in copper prices relative to wage rates, or to general inflation, was a significant negative factor, offsetting much of the gains that resulted from lower petroleum prices. -108- Based on the demand model and the base-case assumptions about industrial production growth, exchange rates, and inflation in the major copper- consuming countries, world demand for refined copper is projected to increase at 1.8% p.a. over the 1989-2005 period. The demand outlook for copper in the 1990s Table 1: Accounting for the 1987-89 Copper Consumption Increase 1987 1988 1989 Average 1987-89 ----------------------(%)--------------------- Industrial Production 91.1 90.5 89.5 90.9 Aluminum/Copper Price 4.4 3.5 0.6 1.8 Oil/Copper Price 26.7 20.7 20.4 20.9 Wage/Copper Price -22.2 -14.6 -10.5 -13.6 Total 100.0 100.0 100.0 100.0 Source: World Bank, International Economics Department. and beyond is somewhat more optimistic than was anticipated previously for two main reasons. First, the outlook for economic growth and investment is brighter than before. After a period of sluggish growth in the 1970s and 1980s, the competition for economic prominence is likely to intensify in the 1990s among a larger number of countries, including the East European countries and China. Enhancing productive capacity and efficiency requires greater output of metals- intensive manufactured goods. Thus, the base case assumes 3.3% p.a. and 4.5% p.a. growth in industrial production in the industrial and developing countries, respectively, over the 1989-2005 period. Over the next few years, the East European countries should experience slow growth as they go through structural adjustments, but that could set the stage for strong growth over the 1995-2005 period. A second factor arguing for stronger industrial activity is that energy prices are likely to remain relatively low for most of the next 15 years. In this report, petroleum prices are projected to return to pre-Iraqi invasion levels by 1992 and remain at relatively low levels in real terms for much of the 1990s, gradually increasing to only $21/bbl by the year 2000 in constant 1989 dollars. This provides a more stable economic environment for growth than in the 1970s and early 1980s. The forecasts of refined copper consumption imply steady declines in the copper intensity of industrial production (copper consumption per unit of industrial output) for the industrial countries and increases in copper intensity for the developing countries. These trends represent a continuation of the past experience, at about the same pace. Figure 1 provides a plot of the past and projected copper intensities for the two country groups. Copper intensities are affected by the changing mix of industrial production, substitution of other materials for copper, and technological innovations. With the available time-series data, it is not possible to estimate separately the impact on copper intensity of the different causes. Nevertheless, it is well known that the main cause of the continued decline in copper intensity in the industrial countries has been the shift in industrial production towards high-tech products that are generally less materials-intensive, while the opposite drives up the intensity in the developing countries. The focus of these -109- FIGURE 1: COPPER INTENSITY TRENDS, 19 005 140 I to : too 0 0 1064 1731 1074 1076 100 1986 1600 105 2000 2905 O INDUST. COUNTRIES + DEVELOP. COUNTRIES materials-intensive activities probably will shift somewhat in the years ahead, from the East Asian developing countries to Eastern Europe, China, Southeast Asia, and parts of Latin America. The demand forecasts assume that the totality of the different causes will continue to exert the same net effect on copper intensity as in the past, with some allowance for the possible shift in the output mix between regions. Pressures for substitution between copper and other materials (notably, aluminum and plastics) and technological innovations (such as fiber optics) work more or less equally on both industrial and developing countries, with some time lag. Areas where copper already faces serious competitive pressure include automobile radiators, plumbing tubes, and electrical transmission cables. Sustained high prices of copper relative to aluminum and plastics will result in further erosion of copper's share in these markets. The demand forecasts assume that technological innovations will continue as in the past towards saving copper. However, possible innovations of major proportions, such as discovery of room-temperature superconductors, are not taken into account in the demand projections. Supply Outlook The market economies' copper mine capacity (in terms of copper in concentrates) increased by about 800,000 tons over the 1986-89 period. This increase followed the restructuring during the first half of the 1980s that -110- resulted in a net decline of about 380,000 tons. The gross additions to capacity over the 1986-89 period were about equally divided between new capacities and expansions of existing ones. There were only a few cases of reactivation of closed capacities, the largest of which was the Bingham Canyon mine that had been shut down temporarily for renovation. The large new projects that have come on- stream recently include Ok Tedi (Papua New Guinea), Neves Corvo (Portugal), Olympic Dam (Australia), and several SxEw (solvent extraction/electrowinning) facilities in the United States and Chile. Expansions of existing mines took place in Canada, Chile, and Mexico, among others. Mine production of copper in the market economies increased by about 600,000 tons over the 1986-89 period (equivalent to only 75% of the net increase in mine capacity). The shortfall was caused by an unusually large number of supply disruptions. The large Bougainville mine in Papua New Guinea (175,000 tons capacity) has been closed since mid-1989 because of civil unrest. Peruvian mines have been suffering intermittent strikes and guerilla attacks. Canada's Highland Valley mine was strike-bound for an extended period in 1989. Various technical or labor problems disrupted production in Chile, Mexico, Zaire, and Zambia, among others. Between 1986 and 1989, the market economies' refined copper production increased by almost 1 million tons, slightly exceeding the increase in refined copper consumption over the same period. Refined copper production increased more than the increase in mine production of copper concentrates due to the increase in production of secondary copper (recovery of copper from scrap) by almost 200,000 tons and the drawing down of stocks of copper concentrates and blisters by at least 100,000 tons. Over the medium term, copper mining capacity will be primarily determined by investment projects that are already implemented. Thus, over this time span, capacity can be forecast with reasonable accuracy. A tally of known copper mine projects indicates that the market economies' effective mine capacity will continue to rise throughout the first half of the 1990s--potentially by as much as 18% between 1989 and 1995. Table 2 shows the mine capacity forecasts. About two-thirds of the gross additions will be new projects, and the remaining one-third will be extensions of existing mines. Large new projects and expansions of existing facilities are expected to take place in Australia, Brazil, Canada, Chile, Indonesia, Mexico, Papua New Guinea, and the United States. There are a number of other smaller new mines and expansion projects with capacities ranging from 30,000 to 60,000 tons. If copper prices decline to the low levels forecast here, a substantial number of the projects in the pipeline could be delayed to the second half of the 1990s, thus easing the likelihood of excess supplies during the first half of the decade and improving the market balance for the second half. We assume that this indeed is a likely outcome. Capacities for the year 2000 and beyond will be determined by investment decisions yet to be made. Although the recent high copper prices have apparently enhanced interest in new copper mining projects, it is not yet clear to what extent these interests will translate into investments. The lower copper prices expected to prevail in the first half of the 1990s would mean that the projects currently identified will be developed in the second half of the 1990s when copper prices are expected to rebound. The forecasts of long-term copper mine capacities are based on the assumption that mine capacities will be expanded sufficiently to meet demand and given each country's potential resource base. The average cost of producing refined copper in the market economies is estimated to have increased by about 10% since 1985, the year in which the cost is estimated to have been lowest over the past decade. At present, the average cash cost is estimated at USQ49/lb, while the total cost (including -111- Table 2: Copper Mine Capacities, 1989-2005 1989 1990 1992 1995 2000 2005 ---('000 tons cu in concentrates and leach output)--- Australia 350 400 400 450 470 520 Brazil 40 40 50 90 120 200 Canada 850 860 830 860 700 600 Chile 1,700 1,750 2,300 2,450 2,500 2,700 Indonesia 150 170 200 250 280 300 Mexico 310 340 370 370 390 420 Other Europe 140 130 120 110 100 90 Other Asia 250 250 270 320 370 400 Other Latin America 5 10 15 20 50 100 Other Africa 290 290 280 260 250 220 Papua New Guinea 300 180 270 330 330 270 Peru 380 400 450 450 520 600 Philippines 210 200 200 190 180 170 Portugal 110 140 145 145 120 80 United States 1,600 1,750 1,900 1,950 1,750 1,600 Yugoslavia 125 125 125 130 130 130 Zaire 480 460 475 475 470 500 Zambia 450 440 373 330 290 240 Total 7,740 7,935 8,773 9,180 9,020 9,140 Source: World Bank, International Economics Department (projected). depreciation, and indirect and interest costs) is estimated at USq70/1b. The main reason for the cost increase is the depreciation of the US dollar during the 1985-88 period. US dollar depreciation raises the dollar cost of non-US producers, and hence the world average cost. Appreciation of the US dollar from the third quarter of 1988 has reversed some of the increases, but the average cost still remains well above the 1985 levels. On a cash cost basis, exchange rate changes alone would have increased average costs by almost 19% between 1985 and 1989 had they not been offset by productivity gains. Over the medium term, other things being equal, further reductions in the average cost may be expected to result from retirement of high-cost mines and addition of new low-cost sources of supplies. At today's prices and exchange rates, new sulphide projects and expansions of existing mines expected to come on-stream in the early 1990s have an average cash cost of USOQ46-50/lb. New SxEw projects, totaling 400,000 tons to 1994, have a much lower cash cost of USQ36/lb. By comparison, the average cash cost of currently operating SxEw plants is $32/lb. It is estimated that these additions will reduce the industry-wide average cash cost by USP,4/lb. More than 90% of existing capacity has a cash cost of less than USC75/lb. That is, almost all copper producers will operate as long as copper prices are higher than USr75/lb. At the higher end of the cost ladder are Sweden, Namibia, Finland, Zimbabwe, and India, in ascending order. The low-cost producers on a cash cost basis include Chile, Indonesia, South Africa, Mexico, and Portugal. On a total cost basis, the United States, Australia, and Canada also belong to the low-cost group, while Mexico, Philippines, Zaire, and Zambia are -112- relatively high-cost producers because of their large indirect costs and high debt service. There has been a sharp contrast in the cost trend between the United States and the rest of the world. Throughout the 1980s, US producers achieved the most cost savings among the major producers by financial restructuring, retirement of inefficient mines, expansion of low-cost SxEw production, and rehabilitation of existing mines. For the rest of the world, however, exchange rate changes have been the dominant response; thus, declines in costs through 1985 were followed by increases to 1988 and declines again in 1989. These contrasts highlight the hard choices that most developing-country producers have yet to make to improve productive efficiency and maintain competitiveness in world markets on a sustained basis. The market economies' smelter and refining capacities are expected to achieve a net increase of 1 million tons of copper between 1989 and 2000, approximately in line with the increase in mine capacity. At 90% capacity utilization, the projected net increases are sufficient to process the net increase in mine output, as well as meet the demand for refined copper. Smelter and refinery capacities need not increase as much as increases in mine capacity or refined copper consumption because of increases in SxEw production and production from scrap recovery. We assume that there will be adequate investment in smelter and refinery capacities over the longer term (to the year 2005) on the grounds that mining, smelting, and refining are normally a part of the same investment decisions. Copper concentrates will be smelted and refined mostly in countries where concentrates are produced. The industrial countries' share in the market economies' smelter and refinery capacities will decline slightly in the long term because Japan's capacities, which rely almost entirely on imported concentrates, will at best not increase. SxEw production and scrap recovery are expected to contribute 800,000 and 300,000 tons of net increases, respectively, in refined copper capacity between 1989 and 2000. The share of SxEw in total refined copper production will increase steadily from 9.8% in 1989 to 13.9% by 2000. Current and anticipated SxEw production is almost entirely limited to the United States and Chile, although there is no reason why most other copper producers could not join their ranks. The low cost of SxEw technology provides a strong incentive for other copper producers to invest in SxEw production, either on the basis of leach dump accumulated from past production or directly from ores. Scrap recovery also should increase in line with the increase in accumulated production, though depending on price movements. The current situation and prospects for the major copper-producing countries are summarized below. Australia: Expansions at the Mt. Isa and Olympic Dam mines will provide the bulk of future increases in Australia's production. The large and rich resource base of the Olympic Dam site should easily allow for expansion by at least 100,000 tons. The economic viability of the mine depends on marketing and pricing of the by-product uranium, in addition to gold and silver by- products. Poor market prospects for uranium could adversely affect expansions at Olympic Dam. Recently, a number of smaller mines have emerged in Australia (partly in response to the higher prices), and these have either started production or will come on-stream in the near future. These typically have gold, silver, lead, and zinc as by-products. United States: Relatively trouble-free operation, restart of the Bingham Canyon mine, and expansion of SxEw capacities have seen the United States accounting for 55% of the net increase in the market economies' mine production of copper during 1986-89. US mine capacity is expected to increase by about -113- 300,000 tons by the mid-1990s, through expansions of existing mines (Bingham Canyon, Mission, and Ray), several SxEw expansions and additions (Morenci and Bingham), additions of a few new small-to-medium mines, and temporary reopening of a previously closed mine. Over the longer term, however, US production could suffer from lack of investment in new large-scale mines. Moreover, opportunities for new SxEw capacities will soon become scarce. Chile: In 1988, Chile's state copper entity, CODELCO, embarked on a five-year, $1.25 billion investment project to maintain its production level in the face of declining ore grade. As a result, CODELCO's mine capacity is expected to increase slightly in the next few years and maintain its capacity at about 1.3-1.4 million tons to the year 2000. It is interesting to note that the private sector will provide most of the net increase in mine capacity in Chile, estimated at about 800,000 tons during 1989-2000. In addition to the Escondida project with more than 300,000 ton capacity, there are two large projects with a high probability of being implemented, with a total mine capacity of 200,000 tons. A number of small- to medium-sized projects, privately financed, make up the rest. Some of these projects were considered uneconomic because of marginal ore grade, but are now being reconsidered because of the possibility of bacterial leaching of the ore or in-situ SxEw. Peru: During 1986-89, Peru probably suffered the most from production disruptions. Peru's political and economic problems are seriously affecting not only production in the immediate future but also investments in new mine capacities. If the current investment projects proceed as planned, Peru's mine capacity will increase only marginally over the medium term. Expansions at the two largest mines (Cuajone and Toquepala) and a new SxEw project account for most of the increase. Peru's potential, however, is not being realized because of problems not directly related to mining. Philippines: Higher copper prices have turned the Philippine copper companies from near bankruptcy in the mid-1980s to profitability since 1988. This is likely to allow Atlas Consolidated, the Philippine's largest producer, to develop new mining capacity and thus maintain its production level. Marcopper and Lepanto are also likely to develop new deposits. Zaire: Zaire's economic and political problems are clouding the future for the country's copper production. Production has been interrupted because of shortages of electric power, mining problems, and transportation difficulties. However, Gecamines, the state mining company, has able to maintain production for some time at a fairly constant level. This was achieved at the cost of deeper problems that will have long-term implications. First, open-pit mines have accumulated a large stripping backlog that began to limit output of older mines. Second, the development work of underground mines has fallen behind because of lack of equipment. The company is in the midst of a rehabilitation program; until it is completed and economic and political conditions stabilize, production is likely to remain low. Zaire has large copper reserves that can support significant increases in output. Exploitation of this potential is also contingent on improvements in political and economic conditions. Zambia: Zambia's long-term prospects for copper production remain poor. The main reasons are declining ore grades, limited reserves, and worsening mining conditions, further complicated by an adverse domestic economic environment resulting from a major rehabilitation program. However, production is likely to decline over the medium and long term. Other Countries: Brazil's Salobo deposit is being studied for open- pit mining, to produce 85,000 tons copper in concentrates. Because of extensive infrastructure requirements, the mine development probably will not come on- stream before 1994. Canada's large Windy Craggy project, with planned output of 500,000 tons of concentrate per year by 1994, could be delayed because of its environmentally-sensitive location near the Yukon-Alaska border and possible -114- acidic discharge to a salmon-spawning river. China is planning to expand the capacity of the Dexing mine to 100,000 tons of copper, and is evaluating two other medium-sized mines. The discovery of the Grasberg deposit in Indonesia is likely to allow Indonesia's production to almost double by the second half of the 1990s. Price Outlook An econometric analysis of the 1986-89 copper price boom suggests that the price boom resulted mostly from market fundamentals, such as higher industrial 3roduction, supply disruptions, low stocks, and exchange rate adjustments. Over the three-year period, copper prices increased by 20.6% p.a. The most important positive factor contributing to this increase was the growth in industrial production, which boosted prices by an average 15.6% p.a. Much of this increase was offset by anticipated supply increases (-13.1%). Other significant positive factors included unanticipated supply disruptions (+1.7%), low stocks (+6.4%), and exchange rate changes (+5.8%). It is clear that higher industrial production growth during the last three years was the single most important positive factor contributing to the price increase. However, the net positive effect of higher industrial production after subtracting that of anticipated production increases was relatively small. Thus, on the margin, low stocks, unanticipated supply disruptions, and US dollar depreciation have been the pivotal contributing factors to the price increase. Forecasts of copper prices have been made on the basis of our econometric model, given assumptions about industrial production growth, exchange rates, and interest rates. Unanticipated supply disruptions have been ruled out. The supply and demand forecasts over the short to medium term indicate the strong likelihood of sizable excess supplies over demand and buildup of stocks. Despite respectable growth in demand, there are excess supplies due to the large capacities coming on-stream in the near term. Clearly, the effect of this imbalance on copper prices will be occasional sharp declines in prices to 1995. Since the stock buildup will start from an extremely low level and anticipated excess supplies for next year are not large, copper prices are likely to remain at relatively high levels through 1991. By 1992, stocks are likely to have grown to more or less the normal level (roughly equivalent to 7-8 weeks' consumption by common industry standards). The large excess supplies expected to be added to the stocks by that time will put strong downward pressure on prices. Since the market balance is expected to continue to remain in surplus through 1995, it is likely that the 1993-95 period will be one of low copper prices. In the second half of the 1990s, the market balance is likely to improve and turn into a deficit of supplies. With stocks declining again, copper prices are expected to increase in real terms. The main reason for the deficit should be the lack of sufficient capacity expansions to come on-stream during a time of steady demand increases. Although there is no lack of copper resources to be exploited, the relatively low prices expected to prevail during the first half of the 1990s will discourage new investments in large-scale mining projects. Only a few projects have been identified as large-scale for the 1995-2000 period. Beyond the year 2000, a repeat of the downward cycle in copper prices is expected, again driven by investments stimulated by higher prices in the preceding years. It is interesting to note that the copper price cycle is forecast to be driven by the investment cycle in copper production, while in the past, the business cycle has been the more dominant factor. Thus, if the forecast 2 Boum-Jong Choe, "The Metals Price Boom of 1986-89: The Role of Supply Disruptions and Stock Changes," PRE Working Paper 542, International Economics Department, November 1990. -115- of industrial production assumed here had a cyclical pattern, the forecast of the copper price cycle would have been much different. For the long term, however, the average price level is of greater concern to investors than the cyclical pattern. Over the long term, copper prices in real terms may be expected to fluctuate around the long-run marginal cost. The average forecast price for the 2000-2005 period is USQ85/lb (in constant 1989 dollars). In terms of estimated 1989 total costs, all major copper-producing countries are intra-marginal at this price, under the assumption that Mexico and the Philippines will restructure their financing. Escondida, considered a highly attractive new large-scale mining project, will come on-stream in December 1990. Its cash cost is estimated at US,37/lb, and the total cost peaks at USQ76/lb because of the huge capital investment. As mentioned before, the cash cost of new sulphide projects and extensions of existing mines expected to come on-stream in the 1990s are in the range USQ46-50/lb; and, on a total cost basis, the range is USQ0-85/lb. Thus, the long-term price forecast is just enough to allow the new projects to maintain economic viability in the 1990s. The long-term price forecasts here represent an 11% increase from those made in January 1990. This upward revision is attributed to the view that the year 2000 is likely to be close to a period of peak copper prices, rather than a period of a downturn as previously expected. The price forecasts for the years 2000 and 2005 average at close to the level forecast for the year 2000 two years ago, despite a somewhat more optimistic demand outlook. Demand increases of the magnitude considered here are not expected to have a significant impact on the cost of production. Table Al: Copper Ore - Production by Main Countries and Economic Regions Actual Projected Growth Rates/& Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 2,435 2,528 2,527 2,659 3,080 3,110 3,120 3,109 3,212 3,198 3,184 3.117 1.1 -0.8 1.0 North America 2,042 2,069 2,141 2,220 2,549 2,598 2,620 2,588 2,659 2,667 2,583 2,440 0.9 -1.0 0.6 United States 1,447 1,388 1,420 1,498 1,709 1,787 1,824 1,801 1,826 1,851 1,845 1,775 0.3 -1.5 1.1 Canada 595 681 722 722 840 811 797 787 833 816 738 665 2.1 0.0 -0.5 Industrial Oceania 155 237 238 295 391 386 384 408 445 427 496 577 4.2 1.7 4.3 Australia 155 237 238 295 391 386 384 408 445 427 496 577 4.2 1.7 4.3 Eastern Europe & USSR 1,095 1,486 1,574 1,457 1,494 1,507 1,521 1,528 1,575 1,636 1,945 2,227 3.6 1.6 2.7 USSR 930 1,037 990 950 938 937 941 938 965 1,006 1,265 1,497 1.9 -0.1 2.9 Eastern Europe 165 450 584 507 557 570 580 590 610 630 680 730 10.2 6.5 2.3 Developing 2,709 3,915 4,650 5,000 5,198 5,477 5,806 5,953 6,017 6,076 6,955 7,786 3.4 2.9 2.8 Asia 296 641 1,008 1,032 1,113 1,125 1,152 1,171 1,216 1,281 1,550 1,764 8.1 6.4 3.4 China, People's Rep. 107 165 370 380 381 377 384 389 407 437 538 654 5.0 5.4 3.5 Philippines 163 302 218 190 195 193 192 199 184 180 190 189 6.4 1.0 -0.0 Africa 1,281 1,348 1,230 1,232 1,162 1,115 1,083 1,051 1,028 1,011 1,033 1,020 1.1 -0.4 -1.2 Zambia 685 591 476 510 430 377 358 340 324 313 274 222 -0.8 -2.1 -5.1 Zaire 386 455 465 441 449 459 456 450 449 451 496 555 2.4 0.9 1.4 America 984 1,619 2,071 2,265 2,481 2,801 3,048 3,213 3,226 3,208 3,775 4,459 4.1 4.8 4.3 Chile 694 1,071 1,451 1,609 1,709 1,980 2,208 2,370 2,365 2,325 2,636 2,995 3.9 4.5 4.0 Mexico 63 171 274 243 332 357 355 351 350 351 411 466 6.9 8.8 4.2 Peru 204 364 298 364 391 415 432 427 426 427 548 665 3.5 4.0 3.8 Oceania 0 161 214 204 176 174 259 256 284 313 348 299 0.0 0.0 2.4 Papua New Guinea 0 161 214 204 176 174 259 256 284 313 348 299 0.0 0.0 2.4 Southern Europe 150 147 145 268 266 263 265 263 262 263 249 244 0.7 -0.7 -0.6 World 6,240 7,930 8,751 9,116 9,772 10,094 10,446 10,591 10,804 10,910 12,085 13,130 2.7 1.4 2.3 Note: Details may not add to totals because of rounding. fa Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b E3timate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A2: Copper Ore - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 --------------------------------------------(000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 240 550 630 777 804 848 834 835 857 860 842 805 7.8 4.1 0.2 North America 191 394 534 687 713 753 735 735 757 757 719 671 8.0 4.2 -0.1 Canada 170 294 338 326 386 370 365 360 381 373 338 305 6.8 2.2 -0.4 United States 21 101 197 361 327 383 370 375 376 383 381 367 17.4 17.1 0.1 EEC-10 20 81 13 1 1 1 1 1 1 1 1 1 1.0 0.9 -2.1 Eastern Europe &USSR 5 0 28 5 5 5 5 5 5 5 5 5 0.0 0.0 0.0 Developing 311 858 877 853 866 919 1,053 1,085 1,122 1,156 1,323 1,410 8.2 4.7 3.2 Asia 149 379 224 200 232 227 236 238 248 261 316 359 7.1 0.8 3.7 Philippines 149 296 120 100 105 103 103 106 99 96 102 101 4.0 -3.5 0.1 Africa 22 82 77 60 60 62 62 63 63 63 67 75 8.0 7.1 1.5 Zambia 13 0 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 Zaire 0 33 29 16 17 16 16 15 15 15 15 15 0.0 0.0 -0.5 America 108 225 346 402 400 463 503 536 535 528 602 685 8.0 8.2 3.4 Chile 52 112 225 315 302 368 401 435 432 426 482 548 9.8 7.9 3.5 Peru 39 25 34 22 33 30 34 33 33 33 42 51 1.8 0.8 5.4 O2 Oceania 0 161 222 190 173 166 252 247 275 303 337 290 0.0 0.0 2.7 Papua New Guinea 0 161 222 190 173 166 252 247 275 303 337 290 0.0 0.0 2.7 J World 556 1,408 1,535 1,635 1,675 1,773 1,892 1,925 1,984 2,021 2,170 2,220 8.0 4.4 1.9 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A3: Copper Ore - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 517 1,131 1,225 1,250 1,452 1,448 1,434 1,372 1,364 1,363 1,465 1,490 7.6 2.9 1.1 North America 34 51 51 104 102 103 103 107 109 110 125 140 3.0 2.6 1.9 United States 31 39 10 48 45 45 45 48 50 50 60 70 -3.4 -7.9 2.5 EEC-10 81 187 234 248 250 255 253 240 240 238 265 270 7.5 3.0 0.5 Other W. Europe 16 48 82 64 90 90 88 85 85 85 95 100 9.1 12.0 2.8 Industrial Asia 387 843 859 834 1,010 1,000 990 940 930 930 980 980 8.2 2.3 1.0 Eastern Europe & USSR 17 37 5 3 3 3 3 4 4 5 8 10 2.8 -7.5 7.8 Eastern Europe 17 7 5 3 3 3 3 4 4 5 8 10 -0.6 -8.4 7.8 Developing 9 106 258 227 203 209 214 215 216 223 247 282 19.9 20.7 1.4 Asia 4 94 158 198 134 140 145 145 146 152 171 198 0.0 27.9 0.0 Korea, Rep. of 3 72 87 116 95 100 105 105 105 110 122 140 0.0 26.4 1.2 America 0 1 95 0 40 40 40 40 40 40 40 40 0.0 0.0 0.0 Southern Europe 2 9 10 10 10 10 10 11 11 12 17 25 0.0 0.0 5.9 H World 542 1,274 1,489 1,480 1,658 1,660 1,651 1,591 1,584 1,591 1,720 1,782 8.3 4.0 1.2 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A4: Copper Blister - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000tons)----------------------------------------------------- -----------( )p.a.)----- Industrial 3,076 3,339 3,818 3,952 4,279 4,296 4,432 4,264 4,280 4,319 4,742 5,016 1.9 0.3 1.5 North America 1,935 1,705 1,906 1,976 2,133 2,140 2,290 2,185 2,170 2,204 2,438 2,611 0.1 -1.2 1.8 United States 1,497 1,261 1,363 1,480 1,586 1,591 1,747 1,667 1,655 1,693 1,888 2,060 -0.2 -1.7 2.1 Canada 439 445 543 496 547 549 543 518 515 511 550 551 1.1 0.2 0.7 EEC-10 290 371 469 487 509 511 505 482 479 475 530 540 3.8 2.1 0.7 Other W. Europe 130 161 261 273 278 279 276 263 261 264 299 310 3.4 3.9 0.8 Industrial Asia 589 930 994 1,006 1,084 1,088 1,077 1,027 1,020 1,012 1,069 1,062 5.3 1.8 0.3 Industrial Oceania 112 173 188 210 276 279 284 306 349 364 406 492 3.7 1.3 5.5 Australia 132 173 188 210 276 279 284 306 349 364 406 492 3.7 1.3 5.5 Eastern Europe & USSR 1,085 1,625 1,636 1,606 1,560 1,620 1,655 1,680 1,700 1,740 2,000 2,261 3.8 1.8 2.2 USSR 930 1,157 1,120 1,075 1,050 1,100 1,130 1,150 1,160 1,200 1,350 1,531 2.5 0.6 2.2 Eastern Europe 155 468 516 531 510 520 525 530 540 540 650 730 9.4 5.9 2.0 Developing 2,387 3,060 3,912 4,233 4,255 4,358 4,486 4,636 4,651 4,649 5,130 5,633 2.9 2.9 1.8 Asia 127 299 856 980 998 1,002 1,001 957 968 987 1,206 1,432 9.1 11.4 2.4 China, People's Rep. 98 178 425 430 419 420 425 406 421 444 545 621 5.8 7.1 2.3 Philippines 0 0 159 156 131 164 162 155 154 153 175 202 0.0 0.0 1.6 Korea, Rep. of 5 74 124 160 124 129 132 135 134 142 158 179 21.3 21.3 0.7 Africa 1,270 1,269 1,151 1,158 1,058 1,047 1,015 980 966 970 983 947 0.9 -0.5 -1.2 Zambia 677 592 467 485 399 382 349 324 313 302 248 200 -0.7 -2.0 -5.4 Zaire 385 421 436 429 419 420 416 406 403 408 455 490 2.0 0.7 0.8 America 878 1,363 1,716 1,898 1,997 2,084 2,210 2,334 2,354 2,331 2,540 2,864 3.5 4.4 2.6 Chile 640 952 1,189 1,267 1,256 1,311 1,351 1,406 1,432 1,416 1,520 1,672 3.3 4.0 1.8 Peru 171 333 244 309 352 353 349 333 331 329 366 374 3.5 4.2 1.2 Southern Europe 111 129 189 198 201 225 260 365 363 360 401 430 3.7 2.3 5.0 World 6,548 8,024 9,365 9,791 10,094 10,274 10,573 10,580 10,631 10,708 11,872 12,910 2.6 1.6 1.7 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual)a World Bank, International Economics Department (projected). Table A5: Copper Blister - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 --------------------------------------------(000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 44 90 177 51 76 76 76 81 81 86 96 106 7.6 3.5 4.8 North America 12 7 125 6 30 30 30 35 35 40 50 60 0.0 7.7 16.1 United States 12 7 125 6 30 30 30 33 35 40 50 60 0.0 7.3 16.1 EEC-10 15 34 12 19 20 20 20 20 20 20 20 20 3.5 -2.8 0.4 Eastern Europe &USSR 1 1 5 2 3 3 3 3 3 3 3 3 0.0 0.0 2.6 Developing 734 662 561 589 594 603 608 604 610 607 665 707 -1.0 -1.0 1.1 Asia 0 0 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 Africa 409 371 324 312 314 312 314 306 309 309 343 362 -0.2 -1.0 0.9 Zambia 103 8 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 Zaire 193 272 233 225 224 221 222 213 215 214 243 257 2.8 1.1 0.8 America 320 291 236 277 280 292 294 298 301 298 322 344 -1.7 -0.9 1.4 Chile 183 163 162 169 169 175 181 188 192 190 204 224 -1.8 0.0 1.8 Peru 130 123 55 90 92 97 94 91 89 89 99 101 -1.6 -2.4 0.7 World 778 753 743 642 673 683 688 688 694 697 765 816 -0.4 -0.5 1.5 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A6: Copper Blister - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 -------------------------------------------- (000 tons) ----------------------------------------------------- ----------- (% p.a.) ------ Industrial 735 531 381 497 487 477 482 488 493 509 536 563 -1.9 -2.7 0.8 North America 187 65 129 128 103 93 93 93 93 103 103 103 -7.6 -5.5 -1.4 United States 187 64 128 115 90 80 80 80 80 90 90 90 -7.7 -5.6 -1.5 EEC-10 401 376 325 345 350 350 355 355 360 360 380 400 -0.3 -1.5 0.9 Other W. Europe 11 9 4 3 4 4 4 5 5 6 8 10 -0.5 -3.0 8.3 Industrial Asia 136 80 23 22 30 30 30 35 35 40 45 50 0.0 -6.5 5.3 Eastern Europe & USSR 2 3 2 8 2 3 3 3 3 3 5 7 5.1 3.3 -0.8 Eastern Europe 2 3 2 8 2 3 3 3 3 3 5 7 5.8 4.0 -0.8 Developing 26 91 92 41 81 82 89 90 96 100 120 145 13.5 5.7 8.2 Asia 10 47 53 19 55 55 60 60 65 65 75 90 18.6 7.1 10.2 America 1 4 18 17 16 17 17 18 19 20 25 30 0.0 0.0 3.6 Southern Europe 15 41 13 5 10 10 12 12 12 15 20 25 13.1 3.6 10.6 World 764 625 475 546 570 562 574 581 592 612 661 715 -1.0 -1.7 1.7 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). lb Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A7: Copper Refined - Production by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000tons)----------------------------------------------------- -----------(% p.a.)------ Industrial 4,398 4,840 5,040 5,298 5,368 5,499 5,480 5,390 5,492 5,502 6,105 6,524 1.2 0.1 1.3 North America 2,401 2,356 2,386 2,465 2,567 2,633 2,639 2,581 2,640 2,650 2,884 3,057 -0.1 -1.1 1.4 United States 1,941 1,896 1,857 1,954 1,997 2,057 2,069 2,024 2,083 2,094 2,257 2,400 -0.4 -1.3 1.3 Canada 459 460 529 511 570 576 570 557 557 556 627 658 1.0 -0.3 1.6 EEC-10 1,036 1,123 1,262 1,359 1,298 1,331 1,315 1,285 1,285 1,285 1,452 1,535 1.3 0.9 0.8 Other W. Europe 130 162 214 232 222 224 222 217 217 217 245 257 2.6 2.7 0.7 Industrial Asia 683 1,016 955 990 1,018 1,030 1,018 995 995 995 1,123 1,180 5.0 1.4 1.1 Industrial Oceania 149 182 223 253 264 282 286 313 355 355 401 495 3.3 1.2 4.3 Australia 149 182 223 253 264 282 286 313 355 355 401 495 3.3 1.2 4.3 Eastern Europe & USSR 1,293 1,941 2,040 1,987 1,970 2,010 2,050 2,100 2,150 2,190 2,420 2,683 4.0 2.1 1.9 USSR 1,082 1,367 1,380 1,355 1,330 1,350 1,370 1,400 1,430 1,450 1,600 1,755 2.8 0.9 1.6 Eastern Europe 211 574 660 632 640 660 680 700 720 740 820 928 8.3 6.0 2.4 Developing 1,712 2,622 3,491 3,653 3,712 3,802 4,149 4,262 4,324 4,429 4,957 5,780 4.7 4.1 2.9 Asia 166 460 934 961 987 1,015 1,050 1,058 1,088 1,193 1,397 1,662 9.1 9.8 3.5 China, People's Rep. 130 324 460 470 500 520 550 570 600 620 750 919 6.9 6.6 4.3 t Philippines 0 0 132 132 120 141 151 147 147 147 166 195 0.0 0.0 2.5 Korea, Rep. of 6 89 170 179 187 172 170 166 166 166 187 187 0.0 23.2 0.3 Africa 871 872 822 825 807 780 840 804 788 773 800 796 1.4 -0.4 -0.2 Zambia 573 578 448 470 400 365 343 319 303 287 252 199 0.4 -1.4 -5.2 Zaire 194 133 203 182 239 242 326 319 319 319 360 442 0.9 0.7 5.7 America 569 1,131 1,515 1,647 1,665 1,753 2,007 2,154 2,202 2,217 2,482 3,029 6.5 6.2 3.9 Chile 462 789 1,013 1,071 1,094 1,114 1,214 1,293 1,339 1,354 1,522 1,795 5.7 5.0 3.3 Peru 34 218 180 224 218 229 245 240 239 239 255 276 9.8 12.7 1.3 Southern Europe 105 159 219 219 252 255 252 247 247 247 278 292 5.1 3.1 1.8 Yugoslavia 88 134 145 151 144 145 144 140 140 140 158 166 4.8 1.1 0.6 World 7,402 9,403 10,571 10,938 11,050 11,312 11,679 11,752 11,966 12,121 13,481 14,987 2.6 1.6 2.0 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A8: Copper Refined - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('00tons)----------------------------------------------------- -----------(%P.A.)------ Industrial 5,319 6,235 6,589 6,862 6,915 7,043 7,183 7,336 7,462 7,547 8,102 8,685 1.7 0.9 1.5 North America 2,105 2,252 2,449 2,420 2,375 2,390 2,430 2,470 2,490 2,490 2,620 2,745 0.9 0.5 0.8 United States 1,881 2,021 2,211 2,205 2,195 2,200 2,230 2,265 2,280 2,280 2,390 2,510 0.9 0.6 0.8 EEC-10 2,089 2,396 2,453 2,636 2,650 2,720 2,810 2,900 2,960 2,980 3,130 3,350 1.4 0.5 1.5 Industrial Asia 811 1,248 1,331 1,447 1,550 1,585 1,590 1,610 1,650 1,710 1,960 2,170 5.3 2.6 2.6 Industrial Oceania 107 134 131 132 125 128 130 131 132 134 142 150 1.9 1.0 0.8 Eastern Europe & USSR 1,278 1,906 1,881 1,771 1,730 1,713 1,730 1,756 1,791 1,827 2,067 2,302 3.1 1.9 1.7 USSR 949 1,327 1,250 1,140 1,112 1,100 1,111 1,128 1,151 1,174 1,328 1,466 2.6 1.4 1.6 Eastern Europe 328 579 631 631 618 612 618 628 640 653 739 836 4.5 3.2 1.8 Developing 634 1,446 2,126 2,293 2,315 2,381 2,430 2,475 2,555 2,622 3,031 3,521 6.9 6.5 2.7 Asia 274 670 1,284 1,456 1,474 1,513 1,538 1,566 1,628 1,670 1,933 2,228 7.9 8.4 2.7 China, People's Rep. 188 449 465 528 530 540 545 550 570 580 660 750 7.3 6.4 2.2 India 54 73 130 135 138 142 145 149 153 158 190 225 2.6 5.1 3.2 1 Africa 51 110 105 99 101 103 105 107 108 109 122 138 4.5 2.9 2.1 America 196 463 497 464 465 489 509 523 538 560 679 842 6.5 4.7 3.8 Brazil 75 215 232 208 205 220 230 235 240 250 300 370 8.8 5.2 3.7 Mexico 60 123 120 134 137 140 145 150 156 162 200 250 6.1 3.9 4.0 World 7,231 9,587 10,596 10,925 10,960 11,136 11,342 11,567 11,808 11,995 13,200 14,508 2.6 1.8 1.8 Note; Details may not add to totals because of rounding. /a Least squares trend for historical perlods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A9: Copper Refined - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries / 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 1,022 1,004 938 880 876 853 758 721 737 733 874 934 -0.2 -1.0 0.4 North America 435 313 322 465 434 406 374 354 350 351 379 394 -2.0 -2.3 -1.0 Canada 246 263 262 319 334 326 304 294 290 291 329 344 1.4 0.0 0.5 United States 189 50 61 146 100 80 70 60 60 60 50 50 -9.7 -11.3 -6.5 EEC-10 457 473 386 147 217 211 149 105 87 83 165 144 -0.3 -1.0 -0.1 Industrial Asia 24 97 28 33 30 30 30 30 30 30 30 30 16.0 2.8 -0.6 Industrial Oceania 41 52 93 122 113 124 123 149 187 186 216 286 6.5 2.2 5.5 Australia 38 51 93 122 113 124 123 149 187 186 216 286 7.1 2.5 5.5 Eastern Europe & USSR 174 392 195 218 240 297 320 344 359 363 353 381 4.8 -1.1 3.6 Developing 1,324 1,785 2,045 2,138 2,182 2,193 2,352 2,399 2,428 2,431 2,639 2,943 3.6 2.7 2.0 Asia 2 3 188 142 136 156 165 163 164 165 189 226 0.0 0.0 2.9 Philippines 0 0 125 115 108 127 135 132 132 132 149 176 0.0 0.0 2.7 Africa 826 789 686 715 723 693 754 720 704 689 705 718 0.8 -0.8 0.0 Zambia 578 599 424 456 400 365 342 318 302 287 251 199 0.3 -1.5 -5.0 Zaire 187 125 198 180 239 242 326 318 318 318 360 441 0.8 0.7 5.8 South Africa 62 65 64 79 84 86 85 83 83 83 94 77 6.2 1.1 -0.1 i. America 465 960 1,126 1,231 1,193 1,213 1,303 1,388 1,432 1,450 1,601 1,848 6.5 6.1 2.6 Chile 434 756 975 1,064 987 998 1,073 1,158 1,202 1,219 1,356 1,581 6.1 5.4 2.5 Peru 30 205 147 168 197 205 217 215 214 215 228 243 9.3 13.0 2.4 World 2,520 3,180 3,189 3,237 3,298 3,344 3,430 3,464 3,524 3,528 3,866 4,258 2.2 1.1 1.7 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual)t World Bank, International Economics Department (projected). Table A10; Copper Refined - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 2,070 2,513 2,488 2,628 2,653 2,705 2,773 2,845 2,900 2,935 3,132 3,360 1.6 0.8 1.5 North America 146 366 389 343 363 355 366 369 374 374 395 419 6.4 6.6 1.3 United States 129 343 382 339 358 349 359 362 366 365 383 402 6.4 7.0 1.1 EEC-10 1,612 1,784 1,571 1,684 1,695 1,739 1,797 1,854 1,893 1,905 2,001 2,142 0.7 -0.5 1.5 Other W. Europe 142 102 104 115 116 119 123 127 129 130 137 146 -1.7 -2.6 1.5 Industrial Asia 171 258 421 483 504 522 520 529 541 561 643 712 6.0 4.4 2.5 Eastern Europe & USSR 177 217 202 204 202 200 202 205 209 213 241 272 0.5 -0.5 1.8 Eastern Europe 174 212 201 203 199 197 199 202 206 210 238 269 1.7 -0.4 1.8 Developing 253 560 751 704 771 761 790 797 828 847 978 1,129 7.1 7.0 3.0 Asia 116 265 560 484 562 540 567 568 595 608 706 813 10.1 11.2 3.3 America 90 231 81 130 102 122 120 127 128 135 163 202 4.6 0.7 2.8 Southern Europe 41 60 105 85 102 94 98 97 99 99 104 109 6.6 4.0 1.6 World 2,500 3,290 3,440 3,536 3,625 3,666 3,765 3,847 3,937 3,995 4,350 4,761 2.3 1.7 1.9 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources: World Bureau of Metal Statistics, Metal Statistics (Actual)i World Bank, International Economics Department (projected). -126- Table All: Copper - Prices, /a 1950-89 (Actual) and 1990-2005 (Projected) --------------------($/ton)---------------------- Current $ ----1985 Constant $---- MUV /b US GNP /c 1950 493 2,071 2,283 1951 607 2,211 2,682 1952 715 2,486 3,113 1953 664 2,375 2,845 1954 686 2,509 2,893 1955 968 3,475 3,954 1956 906 3,138 3,581 1957 605 2,053 2,308 1958 545 1,818 2,037 1959 655 2,217 2,388 1960 677 2,243 2,427 1961 633 2,063 2,248 1962 644 2,057 2,237 1963 646 2,104 2,212 1964 968 3,098 3,261 1965 1,290 4,099 4,238 1966 1,530 4,696 4,856 1967 1,138 3,454 3,512 1968 1,241 3,802 3,649 1969 1,466 4,262 4,088 1970 1,413 3,865 3,730 1971 1,080 2,803 2,700 1972 1,071 2,551 2,555 1973 1,786 3,671 4,000 1974 2,059 3,474 4,233 1975 1,237 1,877 2,314 1976 1,401 2,097 2,464 1977 1,310 1,785 2,160 1978 1,367 1,619 2,100 1979 1,985 2,075 2,803 1980 2,182 2,080 2,824 1981 1,742 1,654 2,057 1982 1,480 1,427 1,642 1983 1,592 1,571 1,700 1984 1,379 1,391 1,420 1985 1,417 1,417 1,417 1986 1,374 1,165 1,338 1987 1,783 1,377 1,681 1988 2,602 1,873 2,371 1989 2,848 2,056 2,493 1990 2,650 1,800 2,236 1991 2,315 1,442 1,851 1992 2,095 1,291 1,636 1993 1,940 1,200 1,477 1994 1,896 1,154 1,402 1995 1,874 1,099 1,346 2000 2,875 1,403 1,776 2005 3,182 1,292 1,691 /a London Metal Exchange, cash, wirebars up to the end of August 1981; from September 1981 to June 1986, high-grade cathods replaced wirebars; from July 1986 onward, "Grade A" (which includes high-grade cathodes and high- grade wirebars) replaced "high-grade cathodes". /b Deflated by Manufacturing Unit Value (MUV) Index. /c Deflated by US GNP Deflator. Sources: Engineering and Mining Journal and Metals Week (actual); World Bank, International Economics Department (projected). -127- Copper Prices ($/ton, 1985 constant) 5000 4500- 4000- . 3500- 3000- ! 2500- . .* 2000- 1500- ' ,' 10 0 1 . . . . . . . . . . .r I -T 1950 1955 1960 1965 1970 1975 198 19519 995 20025 - Deflated by Manufacturing Unit Value (MUV) Index - - -- Deflated by US GNP deflator Source: World Bank, Intemnational Economics Department. -128- TIN Summary After reaching a peak of over $10/kg in April 1989, tin prices turned sharply downward in subsequent months to $6.10/kg by June 1990. This decline resulted mainly from large production increases and consequent stock buildup. Tin prices are expected to remain within the range of $6-7/kg during the first half of the 1990s. The long-term outlook for increases in tin prices is not promising because of the potential for large production increases at low cost, particularly from Brazil. World consumption of refined tin has shown remarkable increases over the 1986-89 period. Although this increase coincides with large increases in other base metals, there are reasons to believe that some of the factors that had caused the earlier long-term decline or stagnation in tin consumption may no longer have the same kind of impact. Substitution of other materials for tin may have already progressed close to its limit, and tin's remaining market share may be considered relatively secure. Secondly, tin prices lower than in the days of the International Tin Agreement have made tin competitive in some end-uses; for example, tin cans have made some inroads into the beverage can market that had been lost to aluminum. Thirdly, health concerns over drinking water have led to increases in the tin content of lead/tin solder. Tin demand, therefore, is expected to increase, albeit slowly, in both industrial and developing countries. The size of the production increases in the past few years has shown that the price elasticity of tin supplies can be substantial, even in the short term. As prices remain near present levels in the near term, marginal producers in Southeast Asia and elsewhere are expected to cease operation. However, this decline in production will be largely offset by increased production of low-cost tin in Brazil, China, and Portugal. The market balance hangs on how fast Brazil exploits its tin resources. Brazil's share in world production of tin-in- concentrate is expected to increase from 22% in 1989 to 33% in 2005. Demand Outlook Over the 1986-89 period, tin consumption increased at an average annual rate of 3.7%, which is unprecedented for a metal deemed to have been following a path of long-term decline. Although the three-year experience is too short to draw any firm conclusions about its long-term implications, the increases have been unmistakable in that they took place in almost all tin- consuming countries and end-use sectors. Thus, in planning for the future, one has to confront the recent consumption growth and the question of whether tin should still be considered a declining metal or not. Between 1961 and 1986, the industrial economies' tin consumption had been declining at 0.9% p.a. Consumption increases in the non-market economies1 and developing countries, at 2.5% and 1.4% p.a., respectively, over the same period were not sufficient to offset the decline in the industrial economies. During 1986-89, the industrial economies' consumption increased at 4.9% p.a., while the non-market economies and the developing countries achieved 4.9% p.a. and 8% p.a. growth, respectively. Among the end-use sectors, tinplate production accounted for about 31% of the market economies' tin consumption in 1987, followed by 30% for solders, 15% for chemicals, and 24% for others (brass/bronze, babbitt, white metal and other alloys, pewter, and miscellaneous others). 1 The non-market economies here refer to the group of centrally planned economies prior to the recent political and economic restructuring in Eastern Europe, namely, the USSR, Eastern Europe, China, and other Asian non-market economies. -129- According to International Tin Council (ITC) statistics for the major industrial economies (G-5 countries), consumption by the tinplate sector suffered the biggest loss over the 1970-85 period with a 4.4% p.a. decline, followed by a 3.7% p.a. decline for brass/bronze, while solder and chemical uses scored small increases. Because of the ITC's dissolution, updates of the data to 1989 are not available. However, estimates by industry sources indicate that tinplate and solder uses gained significantly, while chemicals and others at least held steady. The main factor that distinguishes the periods before and after 1986 is the collapse of the ITC in late 1985 and the consequent sharp decline of international tin prices. There have also been indications that tin cans have made a comeback in the beverage can market that had been almost completely lost to aluminum. However, the contribution of lower tin prices to the increase in tin consumption probably was relatively small, because it takes time to adjust inputs to a change in input prices.2 If one accepts this premise, then the 1987-89 tin demand increases should be attributed mostly to other factors. This observation is supported by two additional facts. First, other metals, for which prices increased even more sharply during this period, also experienced impressive demand increases. Second, tin prices staged moderate recoveries in 1988 and 1989, but tin consumption continued to increase in both years, at 6% and 1.8%, respectively. Over the long term, however, it is likely that tin demand will be stimulated by lower tin prices, through substitution of tin for other materials and by technological changes induced by the lower prices. For most of the past 25 years, tin consumption per unit of industrial output has declined in two major ways, namely, substitution of aluminum and plastics for tin cans in the packaging market, and technological innovations that progressively introduced thinner coating of tin-in-tinplate making. Since tin prices had been maintained at high levels for a long time, tin-saving activities seemed like a permanent feature of the industry. However, one would be hard pressed to deny that they were stimulated by high tin prices. The question now is whether lower tin prices will reverse this process or at least slow it down. Given the highly competitive nature of the packaging market and other tin-using industries, we believe that lower tin prices will have a significant positive impact on long-term tin consumption. Below, these possibilities are examined in detail by sector. About 30% of the market economies' tin consumption goes to tinplate making. Until recently, tinplate had been steadily losing market share in the packaging market, to aluminum in beverage cans and to plastics and paper in other packaging markets. This trend was reversed during 1987-88; the market economies' tinplate production increased at 4.9% p.a. during the period, led by Japan, the EEC, and the United States. Much of the increase in tinplate use was in food packaging, which is the main remaining market for tinplate, and in general packaging of liquids such as paints, motor oils, and aerosol sprays. The increased demand for tinplate for these purposes mostly reflects increased industrial production and income. The return of tin cans in the beverage can market reflects the renewed competitiveness of tin cans; tin cans have become economic vis-a-vis aluminum cans because of lower tin prices and reductions in the cost of manufacturing tin cans. The increase in tinplate production led to a 4.7% p.a. increase in tin consumption for tinplate between 1986 and 1988. In sharp contrast to the 2 Any attempt to estimate the role the change in tin prices played using historical data is frustrated by often insignificant and low estimates of the coefficient on tin prices in tin demand equations. This has led to the common belief that the short-term price elasticity of tin demand is low, to the extent that some earlier work on modeling tin markets entirely ignored tin prices in tin demand equations. -130- long-term decline in the tin intensity of tinplate due to the thinner coating of tinplate, the intensity has remained more or less constant in recent years (see Table 1). Specifically, the tin intensity of tinplate in the United States has increased slightly in the last three years, while, in the rest of the world, the intensity declined slightly or held constant. The demand outlook for tin in the tinplate sector appears to be brighter than before because both tinplate demand and tin intensity of tinplate are likely to follow a pattern different from the past. Tinplate's share in the packaging market has stabilized at a low level after years of substitution away from tin cans, and there appears to be little down-side potential. Tinplate's enhanced cost competitiveness due to lower tin prices may help it to regain some of the markets lost to other materials. At the minimum, it may be safe to assume that tinplate will not continue to lose its market share at the same high rate as in the past. Developing countries hold the greatest potential for increased Table 1: Tin Intensity of Tinplate, 1971-88 1971-73 1977 1982 1984 1985 1986 1987 1988 -------(kg of tin per ton of tinplate)------- United States 5.2 4.4 4.0 3.5 4.2 4.2 4.5 4.6 EEC 6.6 5.7 4.8 4.8 4.3 4.4 4.4 4.3 Japan 8.4 7.0 6.4 6.2 6.0 5.8 5.7 5.7 Rest of world* 5.9 5.5 5.5 5.4 5.4 5.2 5.3 n.a World* 5.5 4.9 4.9 4.8 4.9 4.8 4.9 n.a n.a = not available. * Excluding the USSR, German Democratic Republic, China, Korea P. R., Mongolia, and Viet Nam. Source: ITC, Tin Statistics, various issues; World Bureau of Metal Statistics, Metal Statistics, various issues. demand for food cans, as food preservation and distribution will rely on canning before more expensive frozen foods are used. Tin intensity of tinplate is likely to decline further, but the speed of decline will be slowed down. US tin intensity of tinplate already has shown signs of leveling off, and the economic incentive to save on tin has diminished because of lower tin prices. Tin intensity of tinplate in Japan and in the developing countries is substantially higher (by 15-30%) than in the United States and the EEC, suggesting a potential for further "thinning." In the major industrial countries, tin in solder is the largest single end-use of tin, accounting for about one-third of total tin consumption. Its long-term demand growth has allowed it to overtake tin-in-tinplate as the largest end-use sector. The main user of tin solder is the electronics industry, which has experienced rapid production increases, particularly in East Asia. However, consumption of tin solder has increased at a rate far slower than that of electronics production because of technological innovations replacing soldered electronic components with surface-mounted units. This process of substitution is expected to continue and, therefore, the demand outlook for tin solder in this sector is not as bright as in the past. Another important end-use for tin solder is in plumbing, where substantial demand increases are expected as the tin -131- content of tin/lead solder increases because of concerns over lead poisoning in water supplies. The most rapid increases in tin consumption have taken place in the chemical uses of tin--for example, in the manufacture of PVC as stabilizers, pesticides, paints, and catalysts. Sharply lower tin prices have helped lower prices of tin chemicals and hence have increased their use. It is expected that this end-use sector will continue to provide the most rapidly expanding outlet for tin. Consumption of tin in other uses includes tinning of copper-ware, electroplating, white-metals, bearings, bronzes, pewter, and other alloys. Individually, these end-uses have experienced significant changes over the years, but, collectively, their consumption has remained more or less constant. For example, tin use for bronze making has been declining rapidly, and this process is expected to continue, albeit at a slower rate. Generally, consumption of tin alloys and their tin content may get a boost from lower tin prices. SuWply Outlook Two prominent features of tin supply behavior in recent years have been the speed and extent of the supply increase in response to the temporary tin price recovery in 1988-89 and the emergence of Brazil as the world's dominant producer. The market economies' mine production of tin (concentrate) increased by 10.4% in 1988 and by 14.8% in 1989, while production of refined tin metal increased 14.3% and 4.7% in those years. In addition to new deposits tapped in Brazil and China, many of old facilities that had been closed down in the wake of the ITC's collapse were brought back into production in Malaysia, Indonesia, Thailand, and Bolivia, among others. The experience illustrates that supplies can be quite price elastic- -even in the short term- -because tin mining often involves little capital equipment, particularly in Southeast Asia. At tin prices of more than US,800/kg, there are a large number of marginal operations that can be easily brought back into production. Since 1988, Brazil has become the world's largest producer of tin-in- concentrate, surpassing Malaysia. China has also become an important exporter of tin concentrates. Since Brazil's potential, proven or otherwise, can support even larger production increases at low cost, what happens in Brazil will, in effect, dictate the future of the world tin market. After the collapse of the ITC, seven major tin-producing countries (Australia, Bolivia, Indonesia, Malaysia, Nigeria, Thailand, and Zaire) formed the Association of Tin Producing Countries (ATPC). Brazil and China were included only as observers. ATPC's main function has been to implement Supply Rationalization Schemes (SRS), or export quotas. The first SRS--covering March 1987 to February 1988 and with "advisory" quotas for Brazil, China, and Australia--was moderately successful in that most of the members complied with their quotas. However, as tin prices recovered in 1988-89 and most producers responded to higher prices with increased production as described above, it became apparent that the third SRS, even after an upward revision in quotas, could no longer be observed. Most of all, Brazil's "garimpeiros" (independent miners) production was uncontrollable, even by the Brazilian government. The market structure apparently has changed in the 1980s from one conducive to sustaining a producer cartel such as the ITC to one dominated by a producer that has, at least for the time being, more interest in expanding production than in supporting prices. As long as Brazil's (and other countries') production -132- continues to increase, it would be futile for the rest of the producers to institute and adhere to some type of production quota scheme.3 Table 2 provides forecasts of potential mine production of tin in terms of tin-in-concentrate. Actual production will depend on prices. Details of our expectations for the major tin-producing countries are given below. Australia: Australia's Renison mine, practically the country's sole producer of tin, has enough reserves to continue production well into the next century. Australia's production level is expected to remain fairly constant, at about 10,000 tons per year. Bolivia: Bolivia's tin industry has been restructured, partly with World Bank assistance. Since Bolivia's tin production comes mostly from underground mines, it had one of the highest production costs, and, until recently, its production level had been steadily declining. Current plans call for steady production increases, to almost double the present level by 2000. Reorganization of COMIBOL and assistance given to small and medium-scale mines have reduced costs, but it is not clear to what extent the planned increases will be adversely affected by the low tin prices expected in the 1990s. Although not yet proven, Bolivia has the potential to find low-cost tin resources in areas close to Brazil's tin-producing province of Rondonia. Brazil: It is estimated that Brazil produced more than 52,800 tons of tin-in-concentrate in 1989, of which approximately 56% was produced by garimpeiros. Discovery in 1987 of the high-grade Ariquemes deposit in Rondonia has made garimpeiros' "pick and shovel" mining profitable; they sell tin concentrates for $2/kg of contained tin at the mine or for $3/kg delivered to smelters. After adding smelting and refining charges of approximately $0.50/kg, this translates to a production cost of $3.50/kg of refined tin. In 1990, garimpeiros production was approximately 60% of last year's rate; it will soon be replaced by large-scale mining. However, the recent discovery of the Suracananus deposit in Roraima province, probably the largest ever in Brazil, could invite another run by garimpeiros unless the government enforces strict controls. It is highly likely that other large deposits will be found in the future. From known deposits alone, Brazil's production could easily reach more than 60,000 tons of tin-in-concentrate by 1995, and substantially more than that from then on. Currently, Brazil has the lowest production cost in the world, mostly at less than $5/kg; however, this can be significantly affected by the country's highly unstable inflation and exchange rates. China: Recently, China emerged as an important exporter of tin, with exports estimated at 27,000 tons of tin-in-concentrate and tin metals in 1989 out of total production of 40,000 tons. China's tin resources are believed to be large enough to support substantial production increases. Future capacity expansion will be determined by the government. Southeast Asia: Characteristics of tin mining are similar in Malaysia, Indonesia, and Thailand. Gravel pumps and dredges are the two dominant mining techniques used in Southeast Asia. The long history of tin mining in these countries has resulted in declines in ore grade and cost increases. A cost survey undertaken by the Malaysian government in 1987 indicated an average cost of $6/kg 3 Brazil recently announced its intention to join the ATPC, but then withdrew its bid at a later meeting of the organization. However, it agreed to some export limitation. These developments may broadly be interpreted as an indication of Brazil's growing realization that large production increases,as in the past, may not be in its best interest. It is yet unclear when Brazil will indeed join the ATPC and, more important, whether Brazil can implement production and export controls that it may agree to. -133- Table 2: Potential Mine Production of Tin, 1989-2005 1989 1990 1992 1995 2000 2005 ---('000 tons of tin-in-concentrate)--- Australia 10.0 10.0 10.0 10.0 10.0 10.0 Bolivia 14.6 15.0 16.5 17.5 20.0 22.0 Brazil 50.0 45.0 55.0 60.0 70.0 80.0 Canada 4.0 4.0 4.0 3.9 3.8 3.6 China 40.0 41.0 41.0 45.0 50.0 55.0 Indonesia 31.0 31.0 31.0 30.0 29.0 27.0 Malaysia 32.0 31.0 28.0 27.0 28.0 26.0 Peru 4.3 4.8 4.8 5.0 5.5 6.0 Portugal 0.2 2.0 5.0 5.0 6.0 6.0 Thailand 17.0 17.0 16.0 15.0 16.0 17.0 Other Europe 4.1 4.1 4.1 3.8 3.5 3.0 Other Asia 0.8 0.8 1.0 2.0 2.5 3.0 Africa 6.0 6.0 6.0 6.0 6.0 6.0 Other Latin America 1.0 1.0 1.0 1.0 1.5 2.0 Total 215.0 212.7 223.4 231.2 251.8 266.6 Source: World Bank, International Economics Department. for gravel pump operations and $5.20/kg for dredge mines. At today's price of around $6/kg, most of the dredge mines are profitable, while slightly less than one-half of gravel pump production is uneconomic. In the 1990s, therefore, marginal operations in these countries will suffer from the low prices and probably will shut down unless government provides some form of subsidy. After an initial loss, these countries' production is likely to stabilize at approximately their level in 1986-87. Since the collapse of the ITC, Indonesia's production has benefited from substantial depreciation of that country's currency, while Thailand's production has suffered from the lack of similar government measures. Portugal: The Neves Corvo copper mine produces tin as a joint product, together with other by-products. Thus, Portugal's tin output, expected to reach 6,000 tons by 2005, is virtually shock-proof from tin price fluctuations. Price Outlook As the large stock overhang from the collapse of the ITC buffer stock (BS) operation was gradually worked off, it seemed that tin prices were capable of returning to the levels of the ITC era. Tin prices at the Kuala Lumpur market peaked at $10.20/kg in April 1989, at a time when LME stocks--mostly consisting of the BS overhang--were reduced to their lowest level. At the end of 1985, just after ITC's collapse, LME stocks stood at 57,900 tons; they were reduced to 1,500 tons by the end of March 1989. Between December 1985 and March 1989, reported commercial tin stocks declined by 49,000 tons, to 43,000 tons at the end of March 1989. Under the assumption that the ITC' s BS overhang and other commercial stocks declined at the same rate over this period, approximately 32,500 tons of the BS overhang are estimated to have been liquidated over the period--from 61,000 tons at the time of ITC's collapse to 28,500 tons in March 1989. -134- Since the price peak in April 1989, reported tin stocks have increased to 54,300 tons (end of March 1990), and tin prices sharply declined to $6.10/kg (June 1990). The price decline and stock increase have been caused mainly by sharp production increases. It is reasonable to assume that much of the remaining BS overhang has been liquidated during the period of high prices and that the increase in reported stocks took place mostly at the producer and consumer level. Thus, the ITC stock overhang may no longer be a major consideration in forming price expectations. However, the latest total stock level is clearly too large, and the expectation that stocks probably will increase further is the main reason for today's low prices. Supply and demand forecasts (see Annex Tables Al-A2) show that, even if marginal suppliers cease production, world supply will exceed demand and stocks will increase throughout the first half of the 1990s. However, if Brazil implements a substantial production cutback, supply and demand could be more closely balanced, and stocks will not increase. In any case, the near- term outlook for tin prices is not promising. Our short-term outlook is based on the assumption that the ATPC, with Brazil's cooperation, will be moderately successful in managing excess supplies so that stocks would not increase by more than several thousand tons per year. Over the longer term, the market balance will critically depend on the extent of Brazil's production expansion. Under the assumption that Brazil's production increases only gradually, from 60,000 tons of tin-in-concentrate in 1995 to 80,000 tons by 2005, the market is expected to return to a balance between supply and demand around the year 2000. Thus, modest price recovery may be expected towards the end of the 1990s. Prices, however, are not likely to exceed $7/kg in constant 1989 dollars, because of the realization that marginal supplies can be reactivated in a short period of time. Most likely, prices will fluctuate within a relatively narrow band of $6-7/kg in the second half of the 1990s. It is not inconceivable that the ATPC, with Brazil and possibly, also, China as members, could become a meaningful market factor in the future. This will allow the market to clear at prices above Brazil's costs. However, chances of a rebirth of the ITC and its modus operandi are remote. Table Al: Tin Ore - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 15 17 15 15 15 15 15 15 15 15 14 14 3.6 -1 -0.3 Industrial Oceania 9 12 7 8 8 8 8 8 8 8 8 8 3.9 -1.8 0.2 Eastern Europe & USSR 12 19 19 16 17 17 17 17 18 18 19 20 2.6 2.4 1.3 Developing 193 200 168 192 193 194 194 196 196 197 204 218 -0.1 -1.2 0.8 Asia 138 152 103 114 116 115 114 114 113 113 112 114 -0.4 -1.8 0.0 Malaysia 75 61 29 32 31 31 30 30 29 28 26 25 -2.6 -5.4 -1.5 China, People's Rep. 22 16 30 33 34 34 35 35 36 37 41 45 -1.1 0.4 2.0 Indonesia 19 32 30 31 31 30 29 29 28 28 26 25 2.8 1.5 -1.4 Thailand 22 33 14 15 17 17 17 17 17 17 16 16 0.5 -1.4 0.5 Africa 19 12 6 6 6 6 6 6 6 6 6 6 -4.3 -6.1 -0.3 America 36 37 58 72 71 73 74 76 77 78 86 98 2.3 1.7 2.0 Bolivia 30 28 11 16 16 16 16 17 17 17 18 20 -2.1 -6 1.5 Brazil 3 7 43 50 50 51 52 53 54 55 62 72 14.9 15.9 2.3 World 220 236 202 223 225 225 226 227 228 229 237 252 0.3 -0.9 0.8 I Note: Details may not add to totals because of rounding. V1 Ia Least squares trend for historical periods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. Sources: International Tin Council, Monthly Statiscal Bulletin, and World Bureau of Metal Statistics, Metal Statistics (Actual)$ World Bank, International Economics Department (projected). Table A2: Tin Ore - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000 tons)----------------------------------------------------- ----------(p.a.)------ Industrial 4 9 12 10 11 10 11 10 10 10 10 10 9.9 4.6 0.1 SEC-10 1 2 3 2 3 2 3 2 3 2 2 2 8.6 8.7 0.3 Eastern Europe & USSR 0 0 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 Developing 50 23 39 42 44 43 44 44 45 45 47 51 -3.9 -3.9 1.2 Asia 14 7 15 17 17 17 17 17 16 16 16 17 -3.6 0.3 0.0 Africa 8 6 5 4 4 4 4 4 4 4 4 4 -1.7 -4.4 0.4 America 28 10 19 22 22 23 23 24 24 24 27 30 -4.7 -7.2 2.1 World 54 32 51 52 54 53 54 54 55 55 57 61 -2.5 -2.4 1.0 Notef Details may not add to totals because of rounding. I Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: International Tin Council, Monthly Statiscal Bulletin, and World Bureau of Metal Statistics, Metal Statistics (Actual)t World Bank, International Economics Department (projected). Table A3: Tin Ore - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 38 17 18 17 18 17 17 18 18 18 19 19 -4.5 -4.7 0.5 EEC-10 36 16 15 16 15 16 16 16 16 16 17 17 -4.6 -4.6 0.4 United Kingdom 23 7 8 8 8 8 8 8 8 8 8 9 -5.6 -6.3 0.6 Industrial Asia 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0.0 Eastern Europe & USSR 1 1 2 2 2 2 2 2 2 2 2 2 0 1.7 1.4 Developing 16 16 36 31 33 33 34 34 35 35 38 41 36 2.8 1.7 World 55 34 56 50 53 51 53 53 54 55 58 62 -1.8 -1.2 1.3 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: International Tin Council, Monthly Statiscal Bulletin, and World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A4: Tin Metal - Production by Main Countries and Economic Regions Actual Projected Grovth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- ----------t-P.a.)------ Industrial 47 25 18 27 28 28 28 28 28 28 28 28 -3.5 -4.6 0.1 Industrial Oceania 5 5 1 1 1 1 1 1 1 1 1 1 -2.0 -9.1 2.3 Eastern Europe & USSR 12 19 21 21 21 21 21 21 21 22 23 25 3.0 3.0 1.1 Developing 159 190 174 190 189 188 190 192 192 194 201 217 1.1 0.0 0.8 Asia 140 156 122 128 123 122 124 124 123 122 123 126 0.3 -1.2 -0.1 Malaysia 89 72 50 51 50 49 49 49 48 48 44 44 -2.2 -4.3 -0.9 China, People's Rep. 22 16 24 28 25 25 25 25 25 25 30 34 -1.0 0.6 1.2 Indonesia 7 30 28 30 29 29 29 29 29 28 27 25 13.8 6.3 -1.1 Thailand 22 33 15 15 14 14 15 15 15 15 15 15 0.0 -1.2 0.0 Africa 12 6 4 4 4 4 4 4 4 4 4 4 -3.5 -5.7 0.0 America 6 27 48 57 61 61 62 63 64 67 73 86 10.5 10.1 2.6 Bolivia 2 18 5 10 11 11 12 12 13 14 15 18 10.7 6.0 3.9 Brazil 3 9 41 44 47 47 47 48 48 50 55 65 12.6 14.1 2.4 World 217 233 213 238 237 236 , 239 240 241 244 252 270 0.4 -0.5 0.8 Note: Details may not add to totals because of rounding. I /a Least squares trend for historical periods (1961-88)g end-point for projected periods (1989-2005). /b Estimate. Sources: International Tin Council, Monthly Statiscal Bulletin, and World Bureau of Metal Statistics, Metal Statistics (Actual) I World Bank, International Economics Department (projected). Table AS: Tin Metal - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2003 --------------------------------------------(000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 153 134 132 133 131 119 130 132 133 134 139 143 -0.8 -1.8 0.5 North America 60 49 42 41 41 40 40 40 41 41 43 44 -2.0 -2.7 0.4 United States 55 45 38 37 37 36 36 36 37 37 39 40 -2.1 -2.8 0.4 EEC-10 61 49 53 53 52 52 52 53 53 54 56 57 -1.2 -2.1 0.5 Industrial Asia 27 31 32 34 34 34 34 34 35 35 36 37 2.8 0.3 0.6 Eastern Europe & USSR 31 40 44 42 41 41 41 42 42 43 45 48 2.6 2.1 0.8 Developing 34 38 59 58 58 58 59 60 61 62 67 73 1.8 2.1 1.4 Asia 21 20 40 40 40 41 42 42 43 44 49 53 1.5 2.4 1.7 China, People's Rep. 13 11 14 15 15 15 16 16 16 17 18 20 0.5 0.8 1.8 America 7 11 12 12 11 12 12 12 12 12 13 14 3.3 3.1 1.0 World 218 212 235 232 230 228 231 233 236 239 252 263 0.2 -0.4 0.8 Note: Details may not add to totals because of rounding. to /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: International Tin Council, Monthly Statiscal Bulletin, and World Bureau of Metal Statistics, Metal Statistics (Actual)t World Bank, International Economics Department (projected). Table A6: Tin Metal - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/& Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 29 21 27 11 23 17 20 18 19 19 19 19 -0.4 -0.8 3.6 EEC-10 25 18 25 10 22 16 19 17 18 18 18 18 -0.8 -0.3 3.6 United Kingdom 13 8 17 5 11 8 10 9 10 9 10 9 0.6 -1.4 3.6 Eastern Europe & USSR 0 0 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 Developing 140 165 139 168 173 170 173 173 173 175 177 187 1.0 -0.5 0.7 Asia 125 141 98 124 123 121 122 122 121 120 117 116 0.4 -1.6 -0.4 Malaysia 90 69 49 50 49 48 48 48 47 47 43 43 -2.3 -4.3 -0.9 Indonesia 7 28 27 26 26 26 26 26 26 25 24 22 0.0 6.7 -0.9 Thailand 23 32 13 11 11 11 12 12 12 12 12 12 0.0 -1.4 0.4 China, People's Rep. 6 4 7 10 8 9 8 8 8 8 10 11 -1.4 -0.1 0.9 Africa 11 4 2 0 1 1 1 1 1 1 1 1 -5.0 -8.2 9.0 America 3 20 40 44 49 48 50 50 51 54 59 70 16.3 15.8 3.0 Bolivia 2 16 6 10 12 11 12 12 13 14 15 19 10.1 5.6 4.3 Brazil 0 3 34 34 38 37 37 38 38 40 44 51 0.0 0.0 2.6 World 169 186 166 179 196 187 193 191 192 194 196 206 0.8 -0.5 0.9 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). lb Estimate. Sources! International Tin Council, Monthly Statiscal Bulletin, and World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). Table A7: Tin Metal - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------(p.a.)------ Industrial 137 135 125 114 119 114 117 117 119 120 124 128 0.4 -0.6 0.7 North America 58 52 48 38 42 39 40 40 41 41 43 44 -0.5 -1.6 0.9 United States 53 47 44 34 38 35 36 36 37 37 39 40 -0.5 -1.5 0.9 EEC-10 49 50 43 42 42 42 42 42 43 43 45 46 0.1 -0.4 0.6 Industrial Asia 27 31 32 33 33 33 33 33 34 34 35 36 3.3 0.6 0.7 Eastern Europe & USSR 16 26 25 24 23 23 23 24 24 24 26 27 2.8 2.3 0.8 Developing 13 15 34 19 26 23 25 24 25 26 28 30 2.8 5.1 2.9 Asia 6 9 26 19 23 21 22 22 23 23 26 28 4.6 8.5 2.5 World 165 176 184 157 169 160 165 165 168 170 178 185 1.0 0.4 1.0 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). - /b Estimate. Sources: International Tin Council, Monthly Statiscal Bulletin, and World Bureau of Metal Statistics, Metal Statistics (Actual); World Bank, International Economics Department (projected). -142- Table A8: Tin - Prices, /a 1950-89 (Actual) and 1990-2005 (Projected) - - - -- (0/ g - - -- - -- - -- - - -- - -- - - 0 k ) - -- - - -- - -- - - -------------------- 1985 Constant $----------------- --------Current $------ ---------MUV /a--------- -------US GNP /b------- Kuala Kuala Kuala LME Cash /c Lumpur /d LME Cash /c Lumpur /d LME Cash /c Lumpur /d 1950 206 865 954 1951 298 1,086 1,317 1952 266 925 1,158 1953 201 719 861 1954 198 724 835 1955 204 732 833 1956 217 752 858 1957 208 706 794 1958 203 200 677 666 759 746 1959 216 214 731 725 787 782 1960 220 213 729 705 789 763 1961 245 241 798 787 870 857 1962 247 242 789 773 858 840 1963 251 246 817 801 860 842 1964 341 335 1,092 1,071 1,149 1,127 1965 389 380 1,236 1,206 1,278 1,247 1966 357 349 1,096 1,070 1,133 1,106 1967 333 324 1,011 984 1,028 1,001 1968 313 306 959 936 920 898 1969 343 338 997 983 956 943 1970 367 359 1,004 982 969 948 1971 350 342 908 888 875 855 1972 377 368 898 875 900 878 1973 483 472 993 970 1,082 1,057 1974 820 784 1,383 1,323 1,686 1,612 1975 687 669 1,042 1,015 1,285 1,251 1976 758 747 1,135 1,118 1,333 1,314 1977 1,076 1,071 1,466 1,460 1,774 1,767 1978 1,291 1,252 1,529 1,482 1,983 1,923 1979 1,546 1,482 1,616 1,550 2,183 2,093 1980 1,678 1,644 1,599 1,567 2,172 2,128 1981 1,416 1,406 1,344 1,335 1,672 1,660 1982 1,283 1,295 1,237 1,248 1,423 1,437 1983 1,299 1,303 1,282 1,286 1,388 1,392 1984 1,227 1,246 1,237 1,256 1,264 1,283 1985 1,195 1,154 1,195 1,154 1,195 1,154 1986 NA 616 NA 523 NA 600 1987 NA 669 NA 517 NA 631 1988 NA 705 NA 508 NA 643 1989 813 /e 853 587 616 712 747 1990 610 414 515 1991 630 393 504 1992 650 401 507 1993 660 408 502 1994 680 414 503 1995 700 411 503 2000 1,000 488 618 2005 983 399 522 NA - Not available. /a Deflated by Manufacturing Unit Value (MUV) Index. /b Deflated by US GNP Deflator. /c LME Settlement Price, standard grade. /d Settlement price. 1e July-December, high-grade. Sources: Metals Week, various issues; International Tin Council, Tin Statistics, various issues (actual); World Bank, International Economics Department (projected). -143- Tin Prices (t/kg, 1985 constant) 2200 2000- 1800- 1600- 1400- 1200- 1000-?! 800- 800 S 600I - -.--- --- 400- 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index - - - - Deflated by US GNP deflator Source: World Bank, International Economics Department. -144- NICKEL Summary World nickel consumption is expected to stagnate in the early 1990s, largely due to the lagged effects of the sharp increases in nickel prices in the late 1980s. Over the longer term, world demand is expected to grow at a moderate pace, averaging 1.7% p.a. during the 1990-2005 period. Technological breakthroughs in certain nickel applications (e.g., batteries in electric-powered automobiles) may have the potential to substantially boost nickel consumption. World nickel production is projected to grow largely through addition to existing facilities. The growth rate over the period 1990-2005 is expected to average 1.9% p.a. Nickel prices are likely to decline as the market returns to balance following the surge in consumption in recent years. However, the decline is not expected to be as dramatic as the explosion in prices in 1988. In fact, between 1995 and 2000, nickel prices are expected to increase in real US dollars terms. For the years 2000 and 2005, nickel prices are expected be at $2.39/lb and $2.28/lb, respectively, in constant 1985 dollars, roughly equivalent to the marginal production costs expected to prevail over the long run. Historical Perspective The oil price shock of 1979 and 1980 was followed by world economic recession and a collapse in nickel consumption. From the 1979 peak to the 1982 trough, the market economies' consumption of nickel fell in three consecutive years by a total of 20%. Nickel producers were slow to react, and stocks rose by almost 100,000 tons during 1979-82. By 1984, nickel demand had recovered to its 1979 level. However, the huge overhang of stocks kept prices and capacity utilization rates low. Between 1981 and 1988, nickel plants with a combined capacity of 135,000 tons per year were closed down. By the second half of 1987, therefore, stocks had fallen to below-normal levels. A number of supply disruptions in late 1987 and early 1988, together with the sharp increase in stainless steel consumption, initiated the price explosion in the first half of 1988. In 1988, LME nickel prices averaged $6.25/lb, up 185% from those of 1987. Demand Outlook Nickel, when alloyed with other metals, imparts to the alloy desirable characteristics, the most important of which are high resistance to corrosion and high tensile strength at elevated temperatures. Nickel is also used for high-technology electrical batteries; its largest potential use is in battery-operated electric cars. Over 50% of nickel is consumed in capital investment-related applications, such as construction, chemical apparatus, petrochemical and gas industries, shipbuilding, and aerospace. Therefore, changes in economic activity, particularly those in capital expenditure, affect nickel consumption and prices. Table 1 presents a breakdown of nickel consumption by first-use categories. Stainless steel has been by far the largest and fastest-growing sector, and it accounted for over 60% of nickel consumption in 1989. Alloy steel and nickel-based alloys have also shown good growth. Table 2 shows nickel consumption by final end-use categories, illustrating the widespread industrial uses for nickel. For example, the transportation equipment sector consumes about 20% of nickel; therefore, a 10% demand shock in transportation equipment will only generate a 2% change in nickel demand. -145- Table 1: Nickel Consumption a/ by First-Use Categories 1987 1960-87 Shares Growth Rate (% p.a.) Stainless steel 55.5 6.0 Alloy steel 10.3 3.0 Ni-Base alloy 12.8 3.8 Cu-Base alloy 2.2 1.9 Plating 11.5 1.3 Foundry 4.6 -0.4 Others 3.1 -2.0 Total 100.0 3.5 a/ Based on 1987 market economies' nickel consumption. b/ In terms of quantities. Source: Ilmar J. Martens and Associates, Nickel Industry Outlook, 1990-2000, March 1990. Table 2: Nickel Consumption by Final End-Use Sectors (% Shares) a/ End-Use Category 1980 1987 Machinery 31.3 27.4 Electrical 20.3 21.0 Transport equipment 20.3 19.0 Products 16.0 17.3 Building and construction 6.3 9.4 Chemicals 1.7 1.5 Other 4.1 4.4 Total 100.0 100.0 a/ Total market economies' nickel consumption Source: Ilmar J. Martens and Associates, Nickel Industry Outlook, 1990-2000, March 1990. The market economies' (i.e., outside Eastern Europe and the USSR) stainless steel production increased by 13.3% in 1987 and 14.2% in 1988 to reach 10.52 million tons. Japan and Western Europe had particularly high growth in stainless steel production, in excess of 16% in both years. These two areas dominate world supplies of stainless steel production, with 73% of the market economies' production in 1988. The high nickel prices of 1988-89 have led to a rapid rise in stainless steel prices since the middle of 1988, which has induced a substantial decline in stainless demand in 1989 in most industrial countries. -146- By mid-1990, the downturn in stainless steel demand has shown up significantly in the United States and Canada, whereas in Japan and Western Europe, domestic economic fundamentals and export demand have kept final consumption of stainless steel high. However, capacity cuts in Japan and Western Europe seem to be unavoidable, as more producers begin to face oversupply and unprofitability. The decline in stainless steel demand is expected to continue in the early 1990s. Over the next 15 years (1990-2005), world stainless steel production and consumption are projected to grow, on average, at 2% p.a. The most rapid growth in stainless steel demand is expected to take place in the industrializing developing countries of Asia and elsewhere. Many of those countries have shown rapid growth in the intensity of use of stainless steel. The link between stainless steel production and primary nickel consumption is complicated by two factors: (1) not all stainless steels contain nickel; and (2) not all nickel used in stainless steel is primary nickel. Nickel-containing (austenitic) stainless steel accounted for just under 76% of total stainless steel output in 1988. Secondary sources of nickel consumed in stainless steel production include scrap generated in steelmaking and fabricating processes, and stainless steel products that have reached the end of their effective lifespan. Roughly 56% of all nickel consumed in the market economies is primary nickel; the rest comes from scrap. World nickel consumption is expected to grow at an average rate of 1.7% p.a. during the 1990-2005 period. Nearly flat growth in world nickel consumption is expected in the 1990-92 period in the industrial countries, Eastern Europe, and the USSR, in response to the sharp increases in the nickel price in the 1988-89 period and the expected slowdown in global and regional economies. During the 1993-2005 period, as demand and supply balance is resumed, world nickel consumption should increase on average by 1.9% p.a. Developing countries are expected to add around 80,000 tons to their nickel consumption, with average growth of 3.6% p.a. over the 1990-2005 period. Most of the increases will come from Asia (e.g., China). Supply Outlook Nickel is produced from two types of ore (i.e., sulphide and lateritic ores). Identified world resources in deposits averaging 1% nickel or better are estimated to be around 130 million tons of nickel metal. About 80% of this is contained in laterite deposits and the remaining 20% in sulphides. World resources of lower-grade nickel are large. In addition, there are extensive deep-sea resources of nickel in manganese nodules covering large areas of the ocean floor, particularly the Pacific ocean. Sulphide ores are mined in Western Australia, China, Finland, Canada, South Africa, USSR, and Zimbabwe. Sulphide ores usually occur in hard rock vein-type underground mines, and contain, in addition to nickel, copper, cobalt, and precious metals. Pure nickel in the form of electrolytic nickel or briquettes can be produced from sulphide ores. Lateritic ores are found mostly in tropical regions as large and near- surface deposits of nickel oxide and silicates. They are mined by the open-pit method in Australia, Brazil, Cuba, Dominican Republic, Greece, Guatemala, Indonesia, New Caledonia, Philippines, and the USSR. It is most economical to produce ferronickel or nickel oxide from lateritic ores. Nickel capacity consists of a combination of mining, milling, smelting, and refining capacities. Additions or subtractions to any of these individual components do not necessarily increase or reduce the overall production capacity of the industry; such changes often result in a considerable amount of semi-processed material being transferred among the various companies to fill various idle production capacities. Table 3 shows the mining, refining, and smelting capacities for selected countries. The market economies' nickel production capacity was approximately 658,000 tons in 1989, and is expected to increase to 675,000 tons in 1990. Canada and the USSR are by far the largest producers of nickel. -147- Table 3: World Nickel Production Capacities a/ Refinery and Country Mine Smelter Capacity Capacity ------('000 tons metal content)---- United Kingdom 0 45 Zimbabwe 18 18 South Africa 45 27 Botswana 20 0 China 36 23 Indonesia 59 5 Japan 0 112 Australia 75 54 Taiwan (China) 0 8 Philippines 41 32 New Caledonia 91 45 USSR 190 204 Canada 200 154 Colombia 22 23 Brazil 24 19 United States 0 50 Cuba 54 30 Dominican Republic 32 32 Albania 10 0 Greece 23 27 France 0 12 Finland 11 19 Norway 0 54 Other 27 15 World total 978 1,009 a/ As of Dec. 31, 1988. Source: William S. Kirk, Minerals Yearbook: Nickel-1988, US Bureau of Mines, 1989. The pattern of nickel production has changed significantly over the past two decades. The main change has been the relative and absolute decline of Canadian producers. In 1965, Canada's mine production accounted for over 75% of the market economies' output. The only other significant producer at the time was New Caledonia. By 1975, Canada's share had fallen to just over 40%. Australia, Dominican Republic, Greece, Indonesia, and South Africa had emerged as medium-sized producers. By 1985, more producers had joined the ranks such as Botswana, Brazil, and the Philippines, and Canada's share had further declined to 32%. In terms of smelting and refining, Inco's (Canada's top producer) share declined from 60% of the market economies' capacity in 1965 to 35% in 1975, and to 25% in 1985. The bulk of the increase in nickel smelting and refining capacities came from Asian and Australian producers. Nickel is by far the smallest of the base metals markets in terms of tonnages. It is less than one-twentieth the size of aluminum and only one-eighth the size of the next smallest market, lead. Despite its small volume, there is a wide range of nickel products. They vary from ferronickel, with 25% nickel -148- content, to class-one products, such as electrolytic nickel, with 99.95% nickel. Between these two extremes are products such as nickel oxide sinter, briquettes, and rondelles, with 75-99.5% nickel content. Sulphide ores are readily amenable to concentration by established mineral processing methods, but no effective means has been found to concentrate nickel lateritic ores (e.g., four methods co- exist in the industry). In consequence, estimated average costs of nickel production are subject to wide variation. Table 4 presents cost comparisons among "integrated greenfield" projects, incremental additions, and reactivation. The required nickel price to meet the stringent financial criteria for investing in a greenfield project is around $6.30/lb or $13,876/ton of nickel. However, "incremental" or "de-bottlenecking" capacity additions can be justified at much lower prices, at around $3/lb. Table 4: Production Cost Estimate a/ Greenfield Incremental Project b/ Additions c/ Reactivation c/ ---------------------($/1b)------------------------ Direct operating costs 2.00-2.50 2.00-2.50 2.00-2.50 Interest expenses 0.60 0.24 0.42 Depreciation (20 years) 0.75 0.20 0.35 Return on equity 2.70 0.48 0.84 Total average cost 6.05-6.55 2.92-3.42 3.61-4.11 a/ Assumed 10% interest rate; 30% on equity before tax; 20 years of depreciation. b/ Assumed 100 million lbs/year capacity with $1,500 million investment (40% debt, 60% equity). c/ Assumed 30 million lbs/year capacity with $30 million investment (60% debt, 40% equity). Source: Derived from the speech by Jim Lennon of Commodities Research Unit Ltd., in Metal Bulletin's 3rd Nickel & Molybdenum Conference, June 1990. The latest estimate of nickel production capacity in the USSR is 352,000 tons and 48,000 tons for Cuba. The USSR financed most of Cuba's nickel production capacity and, therefore, most Cuban nickel goes to the USSR for the payment of machinery and equipment. As new capacities have come on-line in Cuba, it is expected that Cuba will attempt to place some of its production on the international market. China has developed a major nickel deposit in the Gobi desert, believed to be one of the largest nickel reserves in the world. The deposit is reported to have 510 million tons of sulphide ores, averaging 1.07% nickel and 0.67% copper. Current annual production is approximately 30,000 tons of electrolytic nickel. Output is expected to increase significantly in the 1990s. Over the next five years, upwards of 90,000 tons of new capacity could be added in the market economies. However, only one-half of these proposals are "firm"; all of them are expansions to existing production facilities. Pacific Metals in Japan has completed the refurbisment of its -149- ferronickel operations, which added 4,000 tons per year capacity. Both Niquel Tocantins in Brazil and Aneka Tambang in Indonesia plan to double their nickel production by 1991-92. SLN plans to raise its capacity in New Caledonia by around 7,000 tons per year by the mid-1990s. Some of Inco's capacities at various locations worldwide are also designated for expansion. Beside those definite expansions, Cerro Matoso is considering an increase of 9,000 tons per year in capacity in its Colombian ferronickel operation. Outokumpu and ACM have plans to develop the Mt. Keith Nickel deposit in Western Australia. The growth rate of world nickel production over the period 1990-2005 is expected to average 1.9% p.a., largely through addition to existing facilities. Unlike the flat profile of world nickel consumption during the 1990- 92 period, world nickel production is anticipated to grow along its long-term trend, and the demand-supply imbalance is expected to narrow. After being stable around 140,000 tpy in recent years, Canadian producers should register a 1.7% p.a. increase when several reactivation projects bring new capacities on-line. Producers in developing countries are expected to achieve the highest growth rate (2.7% p.a.); significant producers among developing countries with rapid production growth are Brazil (4.5% p.a.), China (3.2% p.a.), and Cuba (3.2% p.a.). Trade Prospects The nickel industry is characterized by a high degree of vertical integration. Europe as a region is a large producer of refined nickel, but short of locally produced feed. Most of the region's imports of matte represent internal flows within multinational companies from Australia, Botswana, Canada, and New Caledonia. Japan accounts for a large share of ore and matte imports from Australia and the other Pacific Rim countries. Japanese importers have formed joint ventures with nickel producers to ensure long-term supplies. Recently, USSR exports have become a major factor in the world market balance. In the late 1970s and early to mid-1980s, USSR nickel exports to the market economies were running at approximately 35,000 tons per year. In 1986, USSR net exports to the market economies increased substantially. It is believed that the USSR increased nickel exports to compensate for the decline in oil prices. Forecasting USSR exports has been made difficult by the lack of information on production and consumption, and now there is the uncertainty created by the recent developments in Eastern Europe. However, reduced military armament needs could free up a substantial amount of USSR nickel to the world market. Price Prospects After averaging $2.11/lb over the 1982-87 period, nickel prices took off in 1988 and since then have averaged well over $6/lb. The LME cash price peaked at $10.84/lb in April 1988. In 1990, during the January-September period, LME prices averaged $4.06/lb, or $8,942/ton. Several supply disruptions in the second half of 1990 hindered the nickel markets' return to a balance of supply and demand, and nickel prices have remained at high levels. Market fundamentals projected for the period 1990-95 should mean a reduction of nickel prices from their current level. However, production problems among the market economies' producers and uncertainties or interruptions to USSR or Cuban supplies should prevent a free fall in nickel prices to pre-1988 levels. For 1990, the LME nickel price should average $8,850/ton, or $4.02/lb. Nickel prices will decline in real 1985 US dollar terms during the 1991-95 period (-4.8% p.a.), as production capacities expand and consumption remains flat. After 1995, higher demand growth worldwide will likely raise nickel prices in real terms for the 1995-2000 period (2.1% p.a.). In the longer term, nickel prices will closely reflect the average costs of major nickel-exporting countries. During the 2001- 2005 period, it is expected that nickel prices will decline, on average, by -0.9% p.a. in real terms, largely due to the projected lower energy costs. Table Al: Nickel Metal - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989~ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000Tons)----------------------------------------------------- -----------( p.a.)------ Industrial 383 404 419 421 425 430 435 440 446 451 478 506 1.5 -0.5 1.2 North America 176 157 137 138 141 143 145 148 150 153 166 180 -0.6 -2.3 1.7 Canada 162 115 137 138 141 143 145 148 150 153 166 180 -1.2 -2.7 1.7 EEC-10 72 59 74 74 75 76 77 79 80 81 86 92 -0.4 -2.0 1.3 France 10 8 9 9 9 9 9 10 10 10 11 12 -1.8 -3.0 1.5 United Kingdom 35 21 28 28 28 28 29 29 29 29 31 32 -2.8 -3.2 0.8 Other W. Europe 43 47 70 70 70 70 71 71 72 72 74 76 2.3 1.7 0.5 Finland 4 11 16 16 17 17 17 18 18 18 21 23 8.9 8.6 2.2 Industrial Asia 87 103 101 101 102 103 104 105 106 107 112 118 6.0 0.3 0.9 Industrial Oceania 5 39 37 37 37 37 38 38 38 38 39 40 0.0 10.6 0.5 Eastern Europe & USSR 129 176 227 231 237 243 250 256 263 270 306 347 4.0 3.3 2.5 I I- USSR 123 165 215 219 226 232 238 245 252 259 297 340 4.1 3.3 2.7 Ln 0 Developing 43 123 188 192 197 202 208 214 220 226 258 296 9.0 6.4 2.7 Asia 0 36 44 45 47 49 51 53 55 57 68 82 0.0 0.0 3.7 China, People's Rep. 0 11 40 41 43 45 47 48 50 52 64 77 0.0 0.0 3.9 Africa 14 32 46 47 48 49 50 51 52 53 59 66 12.6 4.3 2.2 South Africa 9 18 27 28 28 29 30 31 32 33 38 44 10.0 4.9 2.9 Zimbabve 5 14 18 18 18 18 18 19 19 19 20 20 0.0 3.6 0.8 America 20 43 79 81 83 85 88 90 93 96 110 126 5.2 5.7 2.8 Cuba 18 20 20 21 21 22 23 24 25 26 32 38 -0.6 0.5 3.9 Brazil 2 2 13 14 14 15 16 17 18 19 24 31 0.0 12.5 5.1 Colombia 0 0 17 17 17 18 18 18 18 19 20 21 0.0 0.0 1.4 Dominican Rep. 0 20 29 29 29 29 30 30 30 30 32 33 0.0 0.0 0.8 Southern Europe 8 13 19 19 19 19 19 20 20 20 21 22 0.0 2.2 0.8 Greece 8 13 13 13 13 13 13 13 14 14 14 15 0.0 -0.2 0.3 World 555 704 834 843 859 876 893 910 928 946 1042 1149 3.1 1.5 1.9 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: UNCTAD (Actual); World Bank, International Economics Department (projected). Table A2: Nickel Metal - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000Tons)----------------------------------------------------- -----------( )p.a.)----- Industrial 400 483 591 592 597 602 606 615 624 633 679 728 2.9 1.3 1.3 North America 153 154 154 158 161 163 164 167 170 173 189 206 0.3 -0.9 1.7 United States 140 145 141 145 149 152 154 157 159 163 178 195 0.3 -0.9 1.9 EEC-10 128 171 224 227 229 231 232 235 238 241 255 271 3.6 2.3 1.1 France 33 37 40 40 41 41 41 42 42 43 45 48 2.8 0.5 1.1 Germany, Fed. Rep. 37 69 89 90 91 93 94 95 97 98 106 115 5.4 4.2 1.5 Italy 18 25 29 29 30 31 31 32 32 33 36 40 5.0 2.4 2.0 United Kingdom 34 27 33 33 33 33 33 33 33 33 34 34 -0.7 -1.2 0.3 Other W. Europe 27 33 43 42 42 42 42 41 41 41 40 39 3.7 1.6 -0.6 Sweden 19 20 20 20 20 20 20 21 21 21 22 23 2.2 -1.9 0.8 Industrial Asia 88 121 161 163 164 167 168 171 174 177 194 212 7.4 2.7 1.7 Eastern Europe & USSR 106 168 177 177 178 180 181 185 189 193 214 238 3.4 2.9 1.8 USSR 87 130 130 130 131 132 133 136 139 142 157 175 2.8 2.5 1.8 Eastern Europe 19 38 47 47 47 48 48 49 50 51 57 63 5.8 4.2 1.8 Developing 29 57 104 103 104 105 106 110 115 120 149 183 6.6 7.1 3.6 Asia 22 34 70 72 75 78 81 84 87 90 109 131 5.2 6.8 3.7 China, People's Rep. 19 21 45 46 48 49 51 52 54 56 65 76 2.9 3.9. 3.1 World 535 709 866 870 879 886 893 911 928 947 1042 1149 3.3 2.1 1.7 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: UNCTAD (Actual)l World Bank, International Economics Department (projected). Table A3: Nickel Metal - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Ratesia Countriest 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 -------------------------------------------- ('000 Tons) ----------------------------------------------------- ----------- ( p.a.) ------ Industrial 280 256 172 173 177 179 181 182 185 188 195 203 0.0 -2.3 1.0 North America 166 116 114 115 117 119 121 124 126 128 136 144 -3.1 -6.4 1.4 Canada 162 101 112 113 115 117 119 122 124 126 133 141 -3.5 -7.2 1.4 EEC-10 67 70 67 67 68 68 69 69 70 70 71 71 1.5 -2.0 0.4 France 5 6 7 7 7 7 7 7 7 7 7 7 0.9 1.4 0.4 United Kingdom 30 15 16 16 16 16 16 17 17 17 17 17 -3.1 -6.4 0.4 Other W. Europe 43 46 63 63 64 65 66 66 67 68 70 72 2.2 1.3 0.8 Finland 4 11 10 10 10 11 11 11 11 12 13 14 8.4 8.0 2.0 Industrial Asia 0 1 1 1 1 1 1 1 1 1 1 1 0.0 0.0 0.4 Industrial Oceania 5 23 27 27 27 27 27 27 27 27 26 25 0.0 7.6 -0.5 Eastern Europe & USSR 35 53 52 52 52 52 52 52 52 52 50 48 6.3 2.8 -0.4 UJ USSR 34 46 46 45 44 43 42 42 41 40 36 32 5.7 2.2 -2.2 Developing 33 110 120 122 128 131 133 138 141 146 163 182 9.9 5.2 2.5 Asia 0 17 4 4 4 4 4 4 4 4 4 4 0.0 0.0 0.4 Africa 10 28 36 37 38 39 40 41 42 43 48 54 0.0 4.9 2.4 South Africa 5 15 18 19 19 20 21 22 23 24 28 33 0.0 6.5 3.7 Zimbabwe 5 13 18 18 18 18 18 19 19 19 19 19 0.0 3.5 0.4 America 17 47 65 66 68 71 73 75 77 79 89 100 6.8 5.6 2.6 Cuba 17 20 20 21 22 23 24 26 27 29 36 46 1.5 1.7 4.9 Colombia 0 0 16 16 16 16 17 17 17 17 18 18 0.0 0.0 0.8 Dominican Rep. 0 21 29 29 29 29 30 30 30 30 31 31 0.0 0.0 0.4 Southern Europe 7 17 13 13 13 13 13 13 14 14 14 14 0.0 1.3 0.4 Greece 7 16 13 13 13 13 13 13 14 14 14 14 0.0 1.3 0.4 World 348 418 343 347 357 362 365 372 378 385 408 434 2.0 -0.3 1.4 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: UNCTAD (Actual); World Bank, International Economics Department (projected). Table A4: Nickel Metal - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000Tons)----------------------------------------------------- -----------( p.a.)------ Industrial 239 259 290 293 299 303 306 312 318 324 345 367 1.3 0.3 1.4 North America 108 110 96 97 99 100 101 103 105 107 113 117 -0.8 -1.8 1.2 United States 96 106 92 93 95 96 98 100 101 103 109 115 -0.6 -1.2 1.4 EEC-10 99 112 136 137 138 140 141 143 145 147 151 156 2.9 1.3 0.8 France 11 21 25 25 25 25 26 26 26 26 26 27 6.2 4.5 0.4 Germany, Fed. Rep. 33 42 56 57 58 60 61 63 64 66 73 80 3.2 2.0 2.1 Italy 13 16 19 19 20 21 21 22 23 24 27 31 4.1 3.0 2.9 United Kingdom 35 18 16 16 16 16 16 16 16 16 15 14 -2.0 -4.0 -0.6 Other W. Europe 20 17 22 22 22 22 22 22 22 22 21 20 1.2 0.7 -0.4 Sweden 16 10 12 12 12 12 12 12 11 11 11 10 0.0 -1.6 -1.0 Industrial Asia 9 18 35 37 39 41 42 43 46 48 60 74 14.7 7.3 4.4 I Eastern Europe & USSR 20 32 35 35 36 36 37 38 38 39 41 42 2.8 3.0 1.2 LJ Eastern Europe 15 32 35 35 36 37 37 38 38 39 41 42 6.3 4.0 1.1 Developing 8 31 26 24 22 22 22 22 22 22 23 24 7.6 4.6 0.0 Asia 6 18 20 19 19 20 20 21 21 21 21 21 7.2 5.6 0.7 World 266 323 351 352 357 362 365 372 378 385 408 434 1.8 0.8 1.3 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: UNCTAD (Actual)l World Bank, International Economics Department (projected). -154- Table A5: Nickel - Prices, a/ 1950-89 (Actual) and 1990-2005 (Projected) -------------------------------($/ton)------------------------------------- Year Current $ --------------1985 Constant $------------- MUV b/ GNP c/ Actual 1950 988 4,150 4,576 1951 1,191 4,338 5,263 1952 1,246 4,330 5,424 1953 1,321 4,723 5,660 1954 1,334 4,878 5,626 1955 1,422 5,104 5,809 1956 1,437 4,979 5,680 1957 1,631 5,534 6,223 1958 1,631 5,442 6,097 1959 1,631 5,520 5,946 1960 1,631 5,407 5,848 1961 1,711 5,575 6,076 1962 1,762 5,628 6,120 1963 1,742 5,673 5,966 1964 1,742 5,575 5,869 1965 1,735 5,513 5,700 1966 1,739 5,339 5,519 1967 1,936 5,874 5,975 1968 2,075 6,357 6,101 1969 2,363 6,869 6,590 1970 2,846 7,785 7,513 1971 2,932 7,609 7,330 1972 3,080 7,334 7,349 1973 3,373 6,935 7,554 1974 3,825 6,454 7,864 1975 4,570 6,936 8,548 1976 4,974 7,445 8,749 1977 5,203 7,090 8,580 1978 4,610 5,458 7,083 1979 5,986 6,258 8,452 1980 6,519 6,214 8,438 1981 5,953 5,652 7,029 1982 4,838 4,664 5,367 1983 4,673 4,610 4,991 1984 4,752 4,791 4,893 1985 4,899 4,899 4,899 1986 3,881 3,292 3,779 1987 4,872 3,762 4,593 1988 13,778 9,918 12,558 1989 13,308 9,610 11,640 Projected 1990 8,850 6,014 7,466 1991 8,650 5,390 6,916 1992 8,200 5,053 6,402 1993 7,800 4,826 5,937 1994 7,750 4,718 5,729 1995 8,075 4,738 5,799 2000 10,800 5,272 6,671 2005 12,350 5,015 6,562 a/ For 1950-1979 period: Canadian nickel, electrolytic cathodes, Ni 99.9% shipping point. For 1980-2005: LME nickel price. b/ Deflated by Manufacturing Unit Value (MUV) index. c/ Deflated by US GNP deflator. Sources: Metals Week (actual); World Bank, International Economics Department (projected). -155- Nickel Prices ($Iton, 1985 constant) 13 12 10- 5- - I as* 4- V 1 1950 1955 1960 1965 1970 1975 1980 1985 1990 195 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index - -- - Deflated by US GNP deflator Source: World Bank, International Economics Department -156- ALUMINUM AND BAUXITE Summary From 1960 to 1989, world consumption of aluminum increased five-fold. From 1960 to 1970, consumption of aluminum grew at an annual rate of 9.1%. In the 1970s, the annual growth rate was reduced by one-half to 4.8%. From 1980 to 1989, consumption grew at an annual rate of only 2.6%. For the period 1990 to 2005, world consumption is expected to increase at an annual rate of only 1.8%. The production of aluminum and bauxite is expected to follow the pace of aluminum consumption over the long run. The data and projections suggest that a rising share of bauxite is being transformed into alumina in the country of origin. Similarly, more and more alumina is being transformed into aluminum in the country of origin. For this reason, the increase in the trade of bauxite and alumina is expected to be below the rate of increase in production. Prices of aluminum and bauxite are expected to rise moderately in 1991 and 1992, as the market balance turns to excess demand. Prices are expected to remain relatively low in real terms during 1993-95, as planned capacity expansions come on-stream. Over the long term (2000 and 2005), aluminum prices are projected at levels that will cover the costs of production of new capacities, estimated at about $1,200/ton in constant 1985 dollars. Demand Outlook From 1960 to 1970, the consumption of aluminum grew at an annual rate of 9.1%. In the 1970s the annual growth rate was reduced by one-half to 4.8%. From 1980 to 1989, consumption grew at only 2.6% p.a. The fast period of growth in consumption was due to end-users replacing other metals with aluminum due to its special characteristics and declining real prices. Aluminum is light and has a density about one-third that of steel. Second, it conducts electricity and heat as well. Third, it is resistant to weather and a large number of foodstuffs and liquids. Fourth, it has some decorative properties that make it suitable for interior and exterior architectural applications. Finally, although it is a strong material, it is easy to work with. In the 1970s, with the recession of 1975 and the increase in energy prices (which increased the costs of aluminum production), the boom years came to an end. The consumption of aluminum has continued to increase in several important sectors, however, namely packaging, construction, and transportation. Total aluminum consumption can be divided into primary and secondary components. The ratio of secondary (recycled) to total consumption has increased from 19.2% in 1960 to 26.5% in 1989. The main reason for the increase in recycling is the major energy savings associated with the use of recycled aluminum. Per capita consumption of aluminum in the United States, the largest consumer, has increased from 10.8 kg in 1960 to 27 kg in 1989. However, Japan and the Federal Republic of Germany overtook the United States for the first time in 1989 in the amount of aluminum consumed per head of population. Their per capita consumption was 27.5 kg and 28 kg, respectively. Data on consumption by end-uses is available for only a few countries, namely Western countries. In Table 1, we show consumption by main sectors for the United States, Japan, and Western Europe for various years over the past two decades. Packaging is the most important consumer of aluminum in the United States, followed by transportation and construction. In Japan and -157- Table 1: Total Aluminum Consumption by Main Sectors, 1970-88 1970 1974 1976 1980 1982 1984 1985 1986 1987 1988 -... .. ' 0..0..... .... ...- - ('000 tons) -------------------------------- United States Transportation 734 1,169 1,163 1,042 796 1,333 1,364 1,441 1,500 1,567 Electrical engineering 574 780 555 612 514 677 642 629 620 673 Construction 1,006 1,363 1 221 1 165 1,034 1 296 1 381 1,484 1,441 1 318 Packaging 665 1 027 1,166 1,512 1,618 1,832 1,863 1,899 2,052 2:036 Other 1,080 1:411 1,188 1 115 964 1,381 1 134 1,182 1,200 1,040 Exports of semi- manufactures a/ 527 428 379 995 587 488 546 376 569 786 Total 4,586 6,178 5,782 6,441 5,513 7,007 6,930 7,011 7,382 7,420 Japan Transportation 257 325 371 582 596 689 763 785 834 913 Electrical engineering 156 163 178 226 170 172 155 165 237 238 Construction 298 546 668 732 677 677 701 736 819 897 Packaging 20 83 104 134 149 168 177 202 223 266 Other 409 472 523 553 561 635 632 602 746 901 Exports of semi- manufactures a/ 53 34 77 82 162 257 258 231 194 122 Total 1,193 1,623 1,921 2,309 2,315 2,598 2,686 2,712 3,053 3,337 Western Europe b/ Transportation 611 617 667 741 688 726 766 841 902 923 ElectricaL engineering 259 265 244 277 231 239 237 232 232 241 Construction 234 376 409 486 433 440 438 487 539 570 Packaging 178 250 238 258 264 283 291 298 301 294 Other 641 858 848 826 787 830 856 887 887 926 Exports of semi- manufactures a/ 300 493 570 759 904 1,056 1,048 1,062 1,130 1,240 Total 2,223 2,859 2,976 3,347 3,307 3,574 3,636 3,807 3,991 4,194 a/ Exports of semi-manufactures are not broken down into various end-uses, but are included because they represent a component of domestic consumption. b/ HistoricaL end-use data only reported by the Federal Republic of Germany, France, Italy, and the United Kingdom. Note: Total aluminum consumption includes both primary and secondary aluminum. Thus, country totals in this table wiLl be greater than primary consumption data shown elsewhere. Data for 1989 are not yet available. Sources: Metal Statistics, Metattgesettschaft (various issues). Western Europe, transportation has the largest share due to the importance of automobile industries in those countries. In the United States, growth in the consumption of aluminum in packaging has slowed down sharply in the 1980s--from an annual rate of 8.5% to 3.8%. In Japan, aluminum packaging grew at 21% p.a. in the 1970s, but has grown only at 7.1% p.a. from 1980 to 1988. In Europe, the growth rate decreased from 3.8% to 1.6% over the same periods. This decline in the growth rate is due to several factors. First, aluminum cans are today much lighter than previously. Second, aluminum packaging has not been as successful in the food sector as in the beverage sector. Third, competition from other materials, e.g., plastics, has been increasing. Turning now to the outlook for aluminum consumption, it is expected that it will increase over the period 1990 to 2005 at an average annual rate of 1.8%. Aluminum consumption should grow faster in developing than in industrial countries because income growth rates are expected to be higher in the developing world. The expected annual rate of growth for the industrial countries is 1.6% and for the developing countries, 3.1%. Consumption in Germany and Japan should grow at a faster rate than in other industrial countries due to their higher expected economic growth rates. Among the developing countries, -158- consumption in Asia should grow at an annual rate of about 3.5% due to the continued fast growth of the Asian countries (See Table A8). The intensity of use of aluminum in these countries has increased because they have devoted a large share of their GDP to construction and capital equipment, which are metal- intensive activities. However, as per capita income continues to rise and basic needs are satisfied, expenditure will be expected to shift toward medical care, education and other services. The intensity of use of metals should then decline. The consumption of aluminum by Eastern European countries and the USSR virtually stagnated in the 1980s. It is expected to grow at an annual rate of 1.0% from 1990 to 2005. Although there has been a deterioration in their economic performance in recent years, these countries have improved their efficiency in the consumption of metals. Governments have begun to put more emphasis on product quality and more efficient materials management at the firm level. It is expected, therefore, that as these policies continue to be implemented and as central planning diminishes and competition increases, the intensity of use of aluminum should decrease. Projections by end-use for industrial countries are presented in Table 2. In the United States, packaging is expected to remain the most important consumer of the metal, due to improvements in its technical properties that make it more resistant to corrosive materials. The automobile industry will increase its use of aluminum to improve the fuel efficiency of its products. In Europe and Japan, the relative importance of the packaging sector will increase as marketed beverage consumption increases. The transportation sector, however, will remain the major consumer of the metal. Consumption of aluminum in the transportation sector in the United States is expected to increase by 2% p.a. from 1990 to 2005. In Western Europe and Japan, the expected growth rate is 3%. The use of aluminum is expected to reduce the midsize car's overall weight by about 300 kg. This would cut gasoline consumption by 1 gallon for each 100 miles driven. With increasing pressure to raise fuel economy standards in the United States, aluminum use in US cars could reach 100 kg by 1993. In the construction sector, the consumption of aluminum is expected to increase over the long term by 1.14% p.a. in the United States and by 3% and 2.5% p.a. in Japan and Western Europe, respectively. Due to aluminum's bulkiness and poorer electrical conductivity than copper, its use in the electrical engineerine sector is expected to decrease by 0.5% p.a. in Western Europe and the United States and by 0.6% p.a. in Japan. Suply Outlook When the growth rate of consumption began to decline in the 1980s, investments in capacity slowed from an annual increase of 2.3% in the 1970s to 1.5% in the 1980s. Following the upturn in demand from the last quarter of 1987, by 1989 and early 1990, smelters were producing at more than 100% of name-plate capacity. New investments in capacity are thus expected to take place in the early 1990s. In Table 3, we show actual and projected worldwide aluminum capacity from 1985 to 2005. Capacity in the industrial world decreased by 1% p.a. from 1985 to 1989 due mainly to plant closures in the United States (such as Alcoa Wenatchee smelter). In the developing world, capacity increased by 7.7% p.a., due mostly to major investments in India, China, Brazil, and Venezuela. -159- Table 2: Aluminum Consumption by End-Uses, 1988-2000 Actual ---------------Projected-------------- Growth Rate 1988 1990 1995 2000 2005 1988-2005 -----------------------('000 tons)-----) -- ----()---- United States Transportation 1,567 1,450 1,601 1,850 2,194 2.0 Electrical engineering 673 670 650 630 618 -0.5 Construction 1,318 1,250 1,350 1,450 1,598 1.1 Packaging 2,036 2,050 2,250 2,450 2,622 1.5 Other 1,040 900 1,000 1,100 1,231 1.0 Exports of semi-manufactures 786 585 789 850 1,012 1.5 Total 7,420 6,905 7,640 8,330 9,275 1.3 Japan Transportation 913 989 1,200 1,300 1,509 3.0 Electrical engineering 238 257 240 230 214 -0.6 Construction 897 972 1,050 1,250 1,482 3.0 Packaging 266 288 380 550 716 6.0 Other 901 976 1,000 1,050 1,100 1.2 Exports of semi-manufactures 122 133 152 177 194 2.8 Total 3,337 3,615 4,022 4,557 5,215 2.7 Western Europe a/ Transportation 923 983 1,200 1,370 1,525 3.0 Electrical engineering 241 257 240 230 221 -0.5 Construction 570 607 700 800 867 2.5 Packaging 294 313 400 500 621 4.5 Other 996 986 1,040 1,050 1,096 1.0 Exports of semi-manufactures 1,240 1,321 1,400 1,500 1,629 1.6 Total 4,194 4,467 4,980 5,450 5,959 2.1 a/ Historical end-use data only reported for the Federal Republic of Germany, France, Italy, and the United Kingdom. Note: Total aluminum consumption includes both primary and secondary aluminum. Sources: Metal Statistics, Metallgesellschaft (actual); World Bank, International Economics Department (projections). Expansion of capacity depends on the expected price of aluminum, the expected growth in demand, and the expected trend in costs. The most important factor determining the location of a new investment is cost and availability of an energy source. The abundance of bauxite also plays a crucial part. For these reasons, most investments in aluminum smelter capacity in the 1990s are expected to take place in four geographical areas, namely Australia, Canada, the Middle East, and South America. Worldwide aluminum capacity is expected to reach 23 million tons in the year 2000 and 25.6 million tons in 2005. In 1985, 60% of world capacity was in the industrial countries. This ratio is expected to decline to 53% in 1995 and to 51% in 2005. The share of developing countries is expected to increase from 26% in 1989 to 34% in 2005. The share of Eastern Europe and the USSR is expected to decline dramatically as industrial restructuring takes place in these countries. Investments in capacity in Canada and Australia are expected to take place as planned in the early 1990s. Projects such as Deschambault and Septiles in Quebec will add 430,000 tons to capacity by 1994. Unless political and social conflicts delay investments, it is expected that aluminum capacity in Canada will reach 2,764 tons in 2000 and 3,317 tons in 2005. In Australia, projects, such as Boyne Island and Kemerton Perth, will add 435,000 tons to capacity by 1995. Australia benefits from its large reserves of bauxite. -160- Table 3: Aluminum Capacity, 1985-2000 Countries/ ------------Actual-------- --------------Projected--------------- Economies 1985 1987 1989 1990 1995 2000 2005 ----------------------------( '000 tpy)-------------------------------- Industrial 11,099 10,429 10,659 10,699 11,421 12,134 12,992 United States 4,603 4,014 4,012 4,012 4,012 4,012 4,012 Canada 1,347 1,577 1,596 1,596 2,304 2,764 3,317 EEC-10 2,316 2,303 2,267 2,242 2,357 2,357 2,357 France 324 385 326 326 451 451 451 Germany, Fed. Rep. 795 775 762 737 727 727 727 Italy 252 243 262 262 262 262 262 Netherlands 265 265 266 266 266 266 266 United Kingdom 285 287 292 292 292 292 292 Spain 395 348 359 359 359 359 359 Other Western Europe 1,126 1,209 1,234 1,269 1,168 1,168 1,168 Austria 95 95 94 94 11 11 11 Iceland 88 88 88 88 88 88 88 Norway 774 869 880 915 915 915 915 Sweden 83 75 94 94 94 94 94 Switzerland 86 82 78 78 60 60 60 Japan 649 64 64 64 64 64 64 Oceania 1,058 1,262 1,486 1,516 1,516 1,769 2,074 Australia 813 1,018 1,238 1,268 1,268 1,521 1,826 New Zealand 245 244 248 248 248 248 248 Developing 3,812 4,687 5,123 5,503 6,551 7,145 8,806 Africa 622 629 636 636 636 766 1,096 Cameroon 81 84 82 82 82 82 82 Egypt 166 170 179 179 179 179 179 Ghana 200 200 200 200 200 200 200 Southern Africa 175 175 175 175 175 175 175 Nigeria - - - - 200 200 200 Other - - - - - 130 460 Latin America 1,159 1,659 1,814 1,814 2,267 2,468 3,054 Argentina 140 140 158 158 158 158 158 Brazil 514 953 881 881 1,214 1,214 1,500 Venezuela 400 470 679 679 799 1,000 1,300 Other 105 96 96 96 96 96 96 Asia 1,499 1,778 2,098 2,460 2,855 3,248 3,963 Bahrain 170 170 180 205 455 500 550 China 503 660 944 1,142 1,222 1,350 1,500 India 363 485 471 610 610 610 610 Indonesia 225 225 225 225 225 225 225 Iran 50 50 50 50 50 50 50 Korea, Rep. of 18 18 18 18 18 18 18 Other Asia - - - - - 220 435 United Arab Emirates 150 150 170 170 235 235 535 Korea, Dem. Rep. 20 20 40 40 40 40 40 Southern Europe 532 621 575 593 593 593 593 Greece 147 150 150 150 150 150 150 Turkey 60 60 60 60 60 60 60 Yugoslavia 325 411 365 383 383 383 383 Eastern Europe & USSR 3,565 3,812 3,799 3,799 3,799 3,799 3,799 Czechoslovakia 60 60 60 60 60 60 60 German Dem. Rep. 85 70 70 70 70 70 70 Hungary 90 72 74 74 74 74 74 Poland 55 115 55 55 55 55 55 Romania 250 250 250 250 250 250 250 USSR 3,025 3,245 3,290 3,290 3,290 3,290 3,290 Total 18,476 18,928 19,581 20,001 21,771 23,078 25,597 Sources: Engineering and Mining Journal, McGraw Hill, January 1990; James F. King, World Ca acity eport.! Primary ALuminum. Alumina and Bauxite (various issues); Bureau of MinU Department of the interior; World bank, International Economics Department (actual and projected). -161- Venezuela had previously announced that it intended to increase its production capacity to 2 million tons by the year 2000. But due to the fall in the price of aluminum in 1989 and the first half of 1990, together with the difficulty of raising the needed finance, these plans have been delayed. In Table 3, we have projected Venezuela's smelting capacity to reach 1 million tons by 2000 and to 1.3 million tons in 2005 as some of the projects, such as Matanyas and Alisa, are completed. The rise in the prices of oil and aluminum that occurred in the second half of 1990 increases the likelihood that these forecasts will be on target. In the Middle East, and particularly in the Gulf, several projects are planned. Bahrain, Qatar, and Saudi Arabia have announced major investments to take place before 1995. They enjoy lower labor and energy costs, which will make them very competitive in the international markets. Algeria and Iraq, too, have plans to build smelters that will add 435,000 tpy to Middle East production by 1994. These investments could be delayed if there is further instability in the region. In Table 4, we forecast worldwide alumina capacity to grow from almost 42 million tons in 1989 to 52.5 million tons in 2005. The share of the industrial countries will decrease from 53% in 1989 to 48% in 2005. Developing countries will increase their share from 32% in 1989 to 39% in 2005. Eastern Europe and the USSR make up for the difference which is decreasing over time. Most of the increase in alumina capacity is expected to occur in bauxite-producing countries in Latin America, with projects in Brazil, Jamaica, and Venezuela. Latin America's alumina capacity is expected to increase by 3.3% p.a. from 1990 to 2005. During the same period, Asia's capacity will increase by 2.5% p.a. due to some major investments in India and China. In Table 5, we show forecasts of bauxite capacity by countries and regions. Worldwide capacity is expected to increase from 133 million tons in 1989 to 164 million tons in 2005. The share of the industrial countries, which is dominated by Australia, is expected to remain around 35%. The share of developing countries increases from 53% to 56%. Most of the increase in bauxite capacity is expected to take place after 1995 in Australia, Brazil, China, Guinea, Guyana, and Venezuela. Most of the bauxite development will be closely associated with an expanding domestic aluminum industry. The production of Guinea and Guyana, however, is destined primarily for export. While our projections of capacity have been based on information reported from various sources and our own judgments, the production forecasts are derived from our global econometric model, where supply is a function of output price, capacity, and the price of energy. Our forecasts for bauxite and primary aluminum are presented in Annex Tables Al, A4, and A7. The production of aluminum is expected to increase worldwide by 1.8% p.a., while the production of alumina and bauxite should increase at annual rates of 1.7% and 2.1%, respectively. Countries in Asia and South America should significantly increase their production of aluminum due to their increased capacity and cheaper energy sources. The most important increases in the production of bauxite are expected to take place in Latin America, especially in Venezuela and Guyana. The share of Latin America in world production should increase from 22% in 1989 to 26% in 2005. Australia will remain the most important producer of bauxite. Its share in the world total is expected to remain at about 36-37%. Europe's share will decrease, mainly because of disinvestment in capacity. The production of alumina in Latin America is expected to increase by 3.2% p.a. from 1989 to 2005. Brazil and Jamaica will increase significantly -162- Table 4: Alumina Capacity, 1985-2000 Countries/ ----------Actual---------- --------------Projected--------------- Economies 1985 1987 1989 1990 1995 2000 2005 --- 0 0- -- (000tpy)---------------------------------------- Industrial 23,875 22,629 22,255 23,195 23,435 24,267 25,145 United States 5,920 4,724 4,945 5,245 5,485 5,760 6,050 Canada 1,225 1,225 1,225 1,225 1,225 1,225 1,225 EEC-10 5,480 5,210 4,500 4,670 4,670 4,670 4,670 France 1,350 1,050 710 710 710 710 710 Germany, Fed. Rep. 1,690 1,710 1,170 1,170 1,170 1,170 1,170 Ireland 800 800 870 220 220 220 220 Italy 720 730 750 750 750 750 750 United Kingdom 120 120 120 120 120 120 120 Spain 800 800 880 1,000 1,000 1,000 1,000 Japan 1,840 1,320 910 910 910 910 910 Oceania 9,410 10,150 10,675 11,145 11,145 11,702 12,290 Australia 9,410 10,150 10,675 11,145 11,145 11,702 12,290 Developing 11,400 12,170 13,262 14,197 16,582 18,430 20,630 Africa 700 700 700 700 700 700 700 Guinea 700 700 700 700 700 700 700 Latin America 6,700 7,135 6,655 7,740 9,765 11,150 12,650 Brazil 1,160 1,310 1,640 1,640 2,840 3,500 4,300 Guyana 315 - - - - - - Jamaica 2,825 3,155 3,015 3,100 3,275 3,500 3,700 Suriname 1,400 1,320 1,650 1,650 1,650 1,650 1,650 Venezuela 1,000 1,350 1,350 1,350 2,000 2,500 3,000 Asia 1,580 2,235 2,787 3,637 4,137 4,600 5,300 China 920 1,000 1,180 2,030 2,530 2,800 3,250 India 660 1,235 1,607 1,607 1,607 1,800 2,050 Other Asia - - - - - - - Southern Europe 2,420 2,100 2,120 2,120 1,980 1,980 1,980 Turkey 200 200 200 200 200 200 200 Yugoslavia 1,620 1,300 1,320 1,320 1,180 1,180 1,180 Greece 600 600 600 600 600 600 600 Eastern Europe & USSR 6,650 6,400 6,320 6,320 6,420 6,720 6,720 Czechoslovakia 130 130 130 130 130 130 130 Germany Dem. Rep. 60 60 60 60 60 60 60 Hungary 860 880 880 880 880 880 880 Romania 650 650 650 650 650 650 650 USSR 4,250 4,680 4,600 4,600 4,700 5,000 5,000 World 41,925 41,549 41,837 43,712 46,437 49,417 52,495 Sources: Engineering and Mining Journal, McGraw Hill, January 1990; James F. King, World Capacit Report. Primary Aluminum, Alumina and Bauxite (various issues); Bureau of Mines, Department of the Interior; World Bank, International Economics Department (actual and projected). -163- Table 5: Bauxite Capacity 1985-2000 Countries/ ---------Actual--------- -------------Projected------------- Economies 1985 1987 1989 1990 1995 2000 2005 ------------------------'000 tpy)-------------------------------- Industrial 43,410 44,895 46,825 47,350 46,330 52,330 57,330 United States 2,260 1,000 1,660 1,260 1,260 1,260 1,260 EEC-10 1,350 1,950 1,215 1,140 120 120 120 France 1,350 1,950 1,215 1,140 120 120 120 Oceania 39,800 41,945 43,950 44,950 44,950 50,950 55,950 Australia 39,800 41,945 43,950 44,950 44,950 50,950 55,950 Developing 60,170 62,998 70,390 77,455 79,255 83,960 91,160 Africa 14,400 14,760 18,450 18,450 19,950 20,950 23,400 Ghana 400 350 400 400 400 400 400 Guinea 13,250 13,410 16,550 16,550 17,550 18,550 21,000 Sierra Leone 750 1,000 1,500 1,500 2,000 2,000 2,000 Latin America 29,150 29,267 31,185 36,750 36,050 38,450 42,200 Brazil 6,800 6,650 9,585 9,950 10,350 10,950 12,950 Dominican Republic - - 250 250 250 250 250 Guyana 4,500 4,750 2,400 5,600 6,100 7,000 8,000 Haiti - - - - - - - Jamaica 12,850 12,767 12,850 12,850 12,850 13,000 13,000 Suriname 5,000 4,500 5,100 5,100 3,300 3,500 3,500 Venezuela - 600 1,000 3,000 3,200 3,750 4,500 Asia 7,650 9,016 10,985 12,485 13,485 14,550 15,550 China 2,350 2,500 3,750 5,250 6,250 7,250 8,250 India 3,000 4,215 4,935 4,935 4,935 5,000 5,000 Indonesia 1,300 1,500 1,300 1,300 1,300 1,300 1,300 Malaysia 1,000 800 1,000 1,000 1,000 1,000 1,000 Southern Europe 8,970 9,955 9,770 9,770 9,770 10,010 10,010 Turkey 600 635 610 610 610 610 610 Yugoslavia 4,710 4,320 4,400 4,400 4,400 4,400 4,400 Greece 3,660 5,000 4,760 4,760 4,760 5,000 5,000 Eastern Europe & USSR 16,450 16,450 16,010 15,510 15,510 15,510 15,510 Hungary 3,950 3,950 3,760 3,260 3,260 3,260 3,260 Romania 1,000 1,000 750 750 750 750 750 USSR 11,500 11,500 11,500 11,500 11,500 11,500 11,500 World 120,030 124,343 133,225 140,315 141,095 151,800 164,000 Sources: Engineering and Mining Journal, McGraw Hill, January 1990; James F. King, World Ca acit eport. Primary Aluminum. Alumina and Bauxite (various issues); Bureau of Mines, Department of the Interior; orld Bank, International Economics Department (actual and projected). their shares in total production. While Australia will remain the most important producer, the share of developing countries is expected to rise from 27% in 1989 to 40% in 2005. The share of developing countries in world production of aluminum is expected to increase from 23% in 1989 to 32% in 2005. The shares of Asia and Latin America will rise due to expected production increases in Bahrain, Brazil, China, India, and Venezuela. Low energy costs, as well as the abundance of bauxite in developing countries, are expected to lead to improvements in their relative position in the long run. Aluminum production costs have been increasing, as can be seen from Table 6. The average total cost is estimated to have increased by 22% from 1984 to 1990, or an average annual increase of 3.34%. This rate of increase is lower than the average rate of inflation in the G-5 countries, mainly due to the moderate increase in electricity prices, which have increased by only 2.25% p.a. Most aluminum producers, such as the smelters in the Pacific Northwest of the United States, benefit from discounted electricity prices. -164- Table 6: Estimated Movements in Aluminum Production Costs, 1984-90 Average Average Average Average marginal total electricity alumina LME cost cost price (mills/KWh) price a/ Price ----------------------------(/ton)----------------------------------- 1984 1,140 1,400 18.2 204 1,251 1985 1,050 1,390 16.2 180 1,041 1986 1,010 1,365 16.8 158 1,150 1987 1,045 1,395 18.4 156 1,565 1988 1,164 1,533 20.7 198 2,581 1989 1,333 1,680 20.5 288 1,947 1990 b/ 1,333 1,705 20.8 303 1,680 a/ C.i.f. import price. b/ Estimate as of August 1990. Source: Anthony Bird Associates, Aluminum Annual Review, March 1990. In Table 7, the projected aluminum costs for a typical new facility in an industrial country are presented. Labor and alumina costs have been assumed to increase at an average annual rate of 3.4%, which is slightly higher than the projected inflation rate for the G-5 countries. Electricity costs are expected to increase at 2.6% p.a. since, as stated above, most aluminum smelters discounted prices. We estimate, therefore, that operating costs for new facilities will increase by 53% from 1989 to 2005, i.e., an increase of 2.7% p.a. Trade Outlook Exports of bauxite worldwide are expected to increase by an average of 2% p.a. from 1989 to 2005 (see Tables A2 and A3). This rate is about the same as the expected 2.1% p.a. increase in production, indicating that bauxite will be transformed to alumina in countries with inexpensive energy sources, only a subset of which also have bauxite. The shares of Central and South America in world exports are expected to increase from 25% in 1989 to 31% in 2005, though developing countries as a whole are expected to maintain their share of world exports at around 83%. Imports by the industrial countries are expected to increase, on average, by 1.4% p.a. Their share of world imports will decline from 72% in 1989 to 65% in 2005. Exports of alumina are expected to increase worldwide at an annual rate of 1.35%. This rate is slightly below the 1.48% p.a. increase in production, indicating a slightly rising share of alumina being transformed into aluminum in the country of origin. South and Central America are expected to keep their share of world exports at around 21%. The share of developing countries in total exports will remain at 30%. The industrial countries will remain the major exporters and importers of alumina, with Australia being the major exporter and Canada the biggest importer (see Tables A5 and A6). Exports of aluminum are expected to expand worldwide at an annual rate of 1.65%. The shares of Canada and some developing countries (e.g., Bahrain and Venezuela) will rise as their production increases. Canada's exports are expected to increase at an average annual rate of 5.5%, while those of developing countries, in total, will grow at about 2% p.a. South America's exports should rise at an average annual rate of about 4%. Since Japan does not plan to increase its production, it is expected to remain the largest importer of aluminum, with imports growing at an annual rate of about 2% (see Appendix Tables A9 and A10). -165- Table 7: Projected Aluminum Production Costs--Typical New Facility, 1989-2005 1989 1990 2000 2005 -------------(current $/ton)------------- Labor 185 195 274 324 Electricity 330 350 443 515 Alumina 500 390 550 642 Other costs 261 280 395 470 Operating costs 1,276 1,215 1,662 1,951 Capital servicing, profit 589 569 775 216 Total costs 1,865 1,784 2,437 2,867 Alumina price (US$/ton) 258 200 284 331 Electricity (mills/KWh) 20.5 22 31 36 Note: Table 6 contains average cost data for currently operating facilities. Costs will differ for a new facility. Source: World Bank, International Economics Department. Price Outlook Like most primary commodities, aluminum prices have been highly volatile in recent years. The London Metal Exchange (LME) price, which was established in 1979, has fluctuated significantly in the last decade. Statistical tests carried out at the World Bank support the notion of the aluminum market being efficient. The volatility of the price is seen to be due mostly to fluctuation in industrial production, as well as changes in aluminum production capacity. The high prices being received for aluminum at the time the previous edition of this report was written in 1988 continued into the first half of 1989. But with the slowdown of industrial production growth, particularly in the US economy, prices declined in the second half of 1989 and in the first half of 1990. The LME price is expected to reach an average of $1,680/ton for 1990 compared with $1,947/ton in 1989 and $2,581/ton in 1988. Forecasts of the supply and demand balance for primary aluminum are summarized in Table 8 (for more details, see Annex Tables A7 and A8). Prices are projected for the short run on the basis of expected supply and demand balance and stock changes. For the long run, the trend in prices is primarily determined by estimated production costs. 1 See L. Hobeika, "On the Efficiency of the Aluminum Market," presented at the Metal Bulletin 6th International Aluminum Conference in Singapore, Nov. 11- 13, 1990. -166- Table 8: Aluminum Materials Balance, 1989-2005 1989 1990 1995 2000 2005 ------------------('000 tons)-------------------- Primary aluminum consumption a/ 15,171 15,406 16,671 18,539 20,577 Net imports from Eastern Europe & USSR 245 200 50 100 300 Primary demand 14,926 15,206 16,721 18,439 20,277 Primary production 14,779 15,099 16,645 18,228 20,257 Aluminum stocks b/ 1,860 1,753 2,300 2,100 2,600 Months covered by inventories 1.5 1.4 1.7 1.4 1.5 a/ Exclusive of Eastern Europe and USSR. b/ Total commercial stocks (producer and consumer stocks plus exchange stocks, year end). Source: World Bank, International Economics Department. The recent decline in aluminum prices has discouraged investments in smelter capacity. Prices are expected to pick-up in 1991 and 1992, however, as the market balance turns to excess demand, largely because of the lack of capacity expansion in the last few years. Many previously announced projects, especially in Brazil and Venezuela, have been delayed. It is clear from Table 7 that the costs for 1990 are higher than recent LME prices, and, thus, any new smelter will be able to cover operating costs only. The excess demand should boost prices, enough to bring in marginal supplies and stimulate capacity expansion. Price increases, however, are likely to be only modest, given adequate stocks and strong short-term supply response. As capacity expansions come on-stream, prices are expected to remain relatively weak in real terms through 1995. Demand for primary aluminum depends on levels GDP or industrial production, the price of substitutes, and the price of aluminum. Our projections for demand have been mainly determined by macroeconomic forecasts, namely the industrial production projections. In the event the Middle East crisis results in a recession in industrial countries, the demand for aluminum could suffer seriously, and the forecast of a deficit in 1991 would not materialize. The short-term forecast assumes a slowdown in US economy but not a recession in industrial countries. Over the long run, prices are expected to cover production costs. Our price projections for aluminum prices are set at slightly above the average total costs shown in Table 7 for the 2000-2005 period. This can happen only if the planned increases in capacity take place without delay. Since an important part of the planned increase in capacity is expected to take place in the Middle East, the events that began in 1990 may significantly affect planned investments. In that case, shortages of primary aluminum are bound to happen unless Venezuela and Brazil make up for the difference. Supply and demand for primary aluminum will be affected, too, by the quality and prices of substitutes. Technological advances have made plastics a major competitor, especially in automobile production. However, the difficulty of recycling plastics has limited its expanded use in this area. In the food industry, technological progress is improving the resistance of aluminum to corrosion so that is becoming more likely to replace steel in packaging. However, the accuracy of price projections can be seriously affected by unexpected breakthroughs in technology. Unlike aluminum, bauxite is not traded on exchanges such as the LME or COMEX. In the past, bauxite price projections were based on a constructed series for Jamaican bauxite prices and an estimate of production costs and the -167- bauxite levy. However, the decline in Jamaican exports and the changes in policy towards the bauxite levy have made such estimation procedures difficult. Consequently, the US import price has been adopted as the indicator price for bauxite. The nominal price for a ton of bauxite is expected to increase to $45 by 2000 and to $48 by 2005 with the increase in the demand for aluminum. These imply an increase in real terms to the year 2000, and then a decline to the year 2005, in line with the forecast of aluminum prices. Bauxite-exporting countries, such as Jamaica, Guyana, and Guinea, depend heavily on bauxite exports for their foreign exchange earnings. These countries cannot easily decrease their production whenever there is a slowdown in the economies of the West. As long as the price of bauxite remains above their own estimated costs, they will continue to produce it. Bauxite prices, therefore, are likely to average at close to the recent low levels in real terms over the forecast period. Table Al: Bauxite - Production by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000tons)---------------------------------------------------- -----------(Xp.a.)------ Industrial 15,203 30,291 37,778 38,422 38,729 38,720 39,560 41,137 42,135 43,320 46,620 51,670 9.0 3.9 1.9 EEC-10 3,230 1,927 998 570 120 120 120 120 120 120 120 120 -3.2 -5.9 -9.3 France 3,010 1,897 978 550 120 120 120 120 120 120 120 120 -2.7 -5.7 -9.1 Industrial Oceania 9,970 26,734 36,192 37,852 38,609 38,600 39,440 41,017 42,015 43,200 46,500 51,550 22.8 5.8 1.9 Eastern Europe & USSR 8,252 9,830 9,306 9,113 9,000 9,100 9,150 9,150 9,200 9,300 10,500 12,500 2.2 0.3 2.0 USSR 5,467 6,433 5,900 5,900 5,900 6,100 6,100 6,050 6,050 6,200 7,000 9,000 1.6 0.3 2.7 Eastern Europe 2,785 3,397 3,406 3,213 3,100 3,000 3,050 3,100 3,150 3,100 3,500 3,500 3.5 0.3 0.5 Developing 36,567 49,869 52,417 55,334 58,010 58,810 60,010 61,510 63,360 65,110 71,910 79,410 3.5 1.5 2.3 Asia 4,021 5,402 7,797 8,229 9,000 9,300 9,500 9,800 10,000 10,400 10,900 11,500 4.7 3.6 2.1 India 1,326 1,897 3,415 4,162 4,100 4,200 4,150 4,200 4,250 4,250 4,600 4,800 6.3 4.8 0.9 Indonesia 1,131 1,168 518 518 550 600 650 700 750 800 1,000 1,200 0.9 -4.0 5.4 1" as' co Africa 3,344 14,249 18,272 18,168 18,100 18,150 18,200 18,300 19,150 19,350 20,300 22,500 10.7 9.3 1.3 1 Guinea 2,526 13,371 16,600 16,400 16,000 16,050 16,100 16,150 17,000 17,200 18,000 20,000 11.6 10.5 1.2 America 24,703 23,641 20,512 22,655 24,400 24,700 25,500 26,350 27,000 28,000 32,900 37,000 0.8 -1.9 3.1 Jamaica 11,684 11,696 7,408 9,395 9,400 9,500 9,600 9,700 9,800 10,000 12,000 12,500 -0.1 -3.8 1.8 Suriname 6,325 4,590 3,434 3,434 3,400 3,000 3,000 3,100 3,000 3,100 3,200 3,300 -1.2 -4.9 -0.2 Guyana 4,319 2,934 1,774 1,432 2,000 2,200 2,400 2,600 2,800 3,000 4,000 5,000 -1.1 -4.0 8.1 Brazil 476 3,419 7,728 7,726 8,000 8,200 8,400 8,600 8,800 9,000 10,000 11,500 18.0 18.2 2.5 Venezuela 0 0 0 550 1,500 1,700 1,900 2,100 2,300 2,500 3,200 4,000 0.0 0.0 13.2 Southern Europe 4,498 6,578 5,836 6,282 6,510 6,660 6,810 7,060 7,210 7,360 7,810 8,410 3.8 1.4 1.8 Yugoslavia 2,062 3,133 3,034 3,252 3,300 3,350 3,400 3,450 3,500 3,550 3,700 3,800 3.9 3.6 1.0 Greece 2,367 3,014 2,533 2,420 2,600 2,700 2,800 3,000 3,100 3,000 3,500 4,000 3.0 -0.5 3.2 World 60,022 89,990 99,501 102,869 105,739 106,630 108,720 111,797 114,695 117,730 129,030 143,580 4.6 2.1 2.1 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)l end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellschaft, Metal Statistics, UNCTAD (actual); World Bank, International Economics Department (projected). Table A2: Bauxite - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Ratesia Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 3,904 6,735 4,986 5,250 5,350 5,350 5,500 5,700 5,800 5,950 6,400 7,100 9.0 -1.0 1.9 EEC-10 151 118 110 100 100 100 100 100 100 100 100 100 -1.5 3.4 0.0 Industrial Oceania 3,705 6,540 4,860 5,082 5,183 5,180 5,293 5,504 5,638 5,797 6,240 6,917 16.5 -1.2 1.9 Eastern Europe & USSR 673 545 460 450 450 450 450 460 480 500 550 650 -1.9 -2.9 2.3 Developing 22,892 28,491 27,910 26,956 30,058 31,051 31,080 31,188 32,050 33,348 34,780 37,198 2.2 1.1 2.0 Asia 2,057 2,113 1,470 1,500 1,595 1,651 1,750 1,750 1,800 1,850 1,900 1,950 0.5 -2.1 1.7 Indonesia 988 1,053 650 650 650 650 650 650 650 700 800 1,000 0.6 -3.8 2.7 Africa 1,595 11,293 15,200 15,200 16,200 16,200 16,200 16,200 17,200 17,300 18,000 18,800 17.3 13.7 1.3 Guinea 777 10,459 14,000 14,000 15,000 15,000 15,000 15,000 16,000 16,200 17,000 18,500 25.3 18.6 1.8 America 16,095 12,787 9,300 8,306 10,213 11,140 11,030 11,038 10,800 11,898 12,530 13,998 -1.6 -3.3 3.3 Jamaica 7,722 5,987 4,100 4,500 4,500 4,500 4,500 4,500 4,500 4,500 5,000 5,100 -2.1 -4.7 0.8 Suriname 3,565 1,707 850 850 850 800 800 800 800 800 800 800 -7.3 -10.8 -0.4 Guyana 2,810 1,559 1,500 1,300 1,500 1,500 1,600 1,700 1,800 1,800 2,000 2,500 -1.4 -4.5 4.2 Southern Europe 3,146 2,299 1,940 1,950 2,050 2,060 2,100 2,200 2,250 2,300 2,350 2,450 -0.8 -3.1 1.4 World 27,469 35,771 33,356 32,656 35,858 36,851 37,030 37,348 38,330 39,798 41,730 44,948 2.7 0.6 2.0 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellschaft, Metal Statistics, UNCTAD (actual)t World Bank, International Economics Department (projected). Table A3: Bauxite - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- ---------- p.a.)------ Industrial 24,236 30,542 23,640 23,456 24,858 25,368 25,665 25,800 25,968 26,415 27,295 29,248 1.7 -1.0 1.4 North America 16,000 16,828 13,248 12,706 13,567 14,072 14,301 14,429 14,470 14,802 15,209 16,701 -0.3 -2.6 1.7 United States 13,584 14,043 10,897 10,500 11,291 11,801 11,909 11,916 12,050 12,224 12,665 13,929 -0.6 -3.0 1.8 Canada 2,416 2,785 2,352 2,206 2,276 2,270 2,392 2,513 2,420 2,577 2,544 2,772 1.3 -0.6 1.4 EEC-10 4,261 8,713 8,122 8,550 9,073 9,078 9,144 9,149 9,252 9,386 9,724 10,096 6.0 3.7 1.0 Germany, Fed. Rep. 2,492 3,927 2,577 2,500 2,525 2,525 2,530 2,530 2,540 2,540 2,600 2,700 3.7 0.6 0.5 France 491 1,689 1,069 1,011 1,451 1,450 1,455 1,455 1,460 1,460 1,490 1,540 10.4 2.7 2.7 Italy 621 2,095 1,407 1,400 1,410 1,510 1,515 1,515 1,520 1,520 1,550 1,600 6.9 3.0 0.8 Industrial Asia 3,817 4,886 2,149 2,200 2,218 2,219 2,220 2,222 2,247 2,227 2,361 2,451 3.0 -4.1 0.7 Eastern Europe & USSR 2,394 4,272 6,247 6,200 6,200 6,200 6,200 6,200 6,200 6,200 6,200 6,200 7.2 5.3 0.0 USSR 1,453 2,909 5,000 5,000 5,000 4,802 4,802 4,852 4,852 4,939 4,613 4,613 10.5 7.5 -0.5 Eastern Europe 941 1,362 1,247 1,200 1,200 1,398 1,398 1,348 1,348 1,261 1,587 1,587 2.3 0.3 1.8 -4 Developing 315 436 3,611 3,000 4,800 5,283 5,165 5,348 6,162 7,183 8,235 9,500 17.7 19.3 7.5 World 26,944 35,249 33,498 32,656 35,858 36,851 37,030 37,348 38,330 39,798 41,730 44,948 2.8 0.5 2.0 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). lb Estimate. Sources; Metallgesellschaft, Metal Statistics, UNCTAD (actual): World Bank, International Economics Department (projected). Table A4: Alumina (Metal Contents) - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 12,924 20,898 21,866 23,405 22,916 23,500 23,229 23,276 23,322 23,329 23,916 24,922 3.4 2.3 0.4 North America 7,172 7,701 6,098 5,942 6,327 6,515 6,538 6,601 6,564 6,628 6,643 6,965 1.3 -2.0 1.0 United States 6,089 6,623 5,105 5,011 5,372 5,561 5,532 5,543 5,554 5,565 5,621 5,882 -1.6 -2.4 1.0 Canada 1,083 1,078 993 931 955 954 1,006 1,058 1,010 1,062 1,022 1,084 0.1 -0.3 0.9 EEC-10 2,165 4,063 4,479 4,471 4,480 4,489 4,527 4,536 4,545 4,554 4,600 4,646 4.7 4.4 0.2 Industrial Asia 1,317 1,886 778 996 947 944 946 948 950 911 920 929 0.4 -3.4 -0.4 Industrial Oceania 2,265 7,247 10,511 10,823 11,160 11,194 11,216 11,189 11,261 11,233 11,750 12,379 12.3 7.6 0.8 Eastern Europe & USSR 3,446 4,895 6,200 6,120 6,132 6,145 6,137 6,149 6,161 6,275 6,641 6,707 3.4 3.2 0,6 USSR 2,683 3,417 4,600 4,600 4,609 4,618 4,628 4,637 4,646 4,756 5,006 5,057 2.9 3.1 0.6 Eastern Europe 762 1,479 1,600 1,520 1,523 1,526 1,509 1,512 1,515 1,518 1,635 1,651 5.1 3.5 0.5 Developing 4,828 8,071 11,046 10,751 12,976 13,348 13,308 13,677 13,912 14,717 16,655 20,852 5.4 3.8 4.1 America 3,138 4,409 5,847 6,647 7,533 7,839 7,694 7,709 7,725 9,154 9,751 11,074 4.3 2.4 3.2 Jamaica 1,625 2,340 1,514 2,050 2,890 3,100 3,116 3,123 3,129 3,236 3,471 3,710 1.9 -1.7 3.7 1-. Suriname 1,091 1,333 1,632 1,620 1,629 1,631 1,610 1,613 1,616 1,619 1,636 1,652 2.8 0.8 0.1 Brazil 124 487 1,417 1,690 1,711 1,752 1,610 1,613 1,616 2,529 3,060 4,110 14.9 14.1 5.6 World 21,198 33,864 39,112 40,276 42,024 42,992 42,675 43,102 43,396 44,320 47,212 52,482 3.9 2.9 1.7 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellschaft, Metal Statistics (actual)l World Bank, International Economics Department (projected). Table AS: Alumina (Metal Contents) - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------(X p.a.)------ Industrial 1,784 4,555 5,927 5,700 5,500 5,700 5,800 5,800 5,900 6,000 6,500 7,000 12.8 5.8 1.3 North America 540 421 531 400 400 450 550 550 500 500 400 400 4.0 -2.8 0.0 United States 533 403 511 380 380 430 530 530 480 480 380 380 3.8 -3.2 0.0 EEC-10 260 597 1,113 1,100 1,100 1,100 1,050 1,050 1,000 1,000 900 800 8.3 6.8 -2.0 Industrial Oceania 902 3,352 4,183 4,200 4,000 4,150 4,200 4,200 4,400 4,500 5,200 5,800 0.0 7.5 2.0 Eastern Europe & USSR 205 337 350 350 350 360 370 380 380 390 400 450 6.5 1.7 1.6 Eastern Europe 205 337 350 350 350 360 370 380 380 390 400 450 6.5 1.7 1.6 Developing 1,836 2,663 2,463 2,550 2,600 2,600 2,620 2,630 2,700 2,750 2,950 3,200 5.1 0.8 1.4 Africa 304 342 280 280 290 300 300 300 310 320 350 400 1.2 0.1 2.2 Guinea 304 342 280 280 290 300 300 300 310 320 350 400 1.2 0.1 2.2 America 1,431 1,903 1,860 1,860 1,890 1,890 1,900 1,900 1,900 1,950 2,100 2,250 5.2 0.0 1.2 Jamaica 790 1,173 800 800 800 800 800 800 800 800 900 1,000 3.8 -1.7 1.4 Suriname 485 642 670 670 700 700 700 700 700 700 750 800 0.0 1.5 1.1 j. Southern Europe 98 381 270 280 290 300 300 310 330 350 400 450 18.3 7.6 3.0 World 3,825 7,555 8,740 8,600 8,450 8,660 8,790 8,810 8,980 9,140 9,850 10,650 8.8 3.7 1.3 Note: Details may not add to totals because of rounding. la Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellschaft, Metal Statistics, UNCTAD (actual); World Bank, International Economics Department (projected). Table A6: Alumina (Metal Contents) - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 -------------------------------------------- ('000 tons) ----------------------------------------------------- ----------- (% p.a.) ------ Industrial 2,977 5,351 5,943 6,000 5,900 6,062 6,150 6,160 6,280 6,400 7,000 7,650 7.5 2.7 1.5 North America 1,583 2,554 3,238 3,200 3,150 3,100 3,105 3,200 3,209 3,300 3,600 4,000 7.8 3.2 1.4 United States 1,111 2,059 2,305 2,200 2,100 2,000 1,900 1,900 1,850 1,800 1,800 1,700 12.3 2.6 -1.6 Canada 472 495 933 1,000 1,050 1,100 1,205 1,300 1,359 1,500 1,800 2,300 3.5 4.9 5.2 EEC-10 420 1,241 1,331 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300 10.4 4.1 0.0 Other W. Europe 780 1,040 1,079 1,100 1,200 1,200 1,250 1,250 1,300 1,500 1,800 2,000 4.6 2 3.7 Industrial Asia 178 359 36 30 30 30 30 30 30 30 25 25 9.9 -14 -1.1 Eastern Europe & USSR 489 799 668 700 700 700 700 700 700 700 750 800 10 1.4 0.8 USSR 311 570 500 540 540 550 550 550 550 550 600 650 0 2.9 1.2 Eastern Europe 177 229 168 160 160 150 150 150 150 150 150 150 3.5 -2.3 -0.4 Developing 264 1,178 1,714 1,900 1,850 1,898 1,940 1,950 2,000 2,040 2,100 2,200 15.1 10.7 0.9 Africa 164 451 597 590 600 580 600 610 630 650 700 750 11.2 6.8 1.5 H America 62 466 414 400 400 500 600 600 600 600 700 800 18.3 12.8 4.3 World 3,730 7,328 8,325 8,600 8,450 8,660 8,790 8,810 8,980 9,140 9,850 10,650 8.5 3.7 1.3 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellachaft, Metal Statistics, UNCTAD (actual)l World Bank, International Economics Department (projected). Table A7: Primary Aluminum - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000 tons)----------------------------------------------------- -----------( p.a.)------ Industrial 7,355 10,393 10,258 10,661 10,596 10,512 10,724 11,057 11,281 11,465 11,813 12,646 3.6 0.9 1.1 North America 4,517 5,582 5,478 5,585 5,511 5,693 5,844 6,017 6,160 6,354 6,600 7,228 2.4 0.3 1.6 United States 3,536 4,566 3,944 4,030 3,908 4,031 4,104 4,203 4,232 4,240 4,151 4,141 2.2 -0.5 0.2 Canada 981 1,016 1,535 1,555 1,603 1,661 1,740 1,814 1,928 2,114 2,449 3,085 2.6 2.9 4.3 EEC-10 1,123 2,390 2,163 2,219 2,224 2,139 2,163 2,268 2,283 2,328 2,351 2,323 5.6 2.9 0.3 Germany, Fed. Rep. 333 734 744 742 745 733 724 712 712 719 736 743 6.4 3.4 0.0 France 379 421 328 335 334 321 327 333 364 405 419 443 0.3 -1.0 1.8 Other W. Europe 795 991 1,175 1,356 1,358 1,215 1,228 1,210 1,212 1,215 1,176 1,188 4.4 1.6 -0.8 Industrial Oceania 193 473 1,407 1,501 1,503 1,466 1,489 1,562 1,626 1,569 1,685 1,907 15.3 10.6 1.5 Eastern Europe & USSR 2,042 2,878 2,905 2,900 2,806 2,786 2,867 2,823 2,778 2,682 3,165 3,401 4.0 1.5 1.0 USSR 1,683 2,390 2,440 2,440 2,445 2,430 2,515 2,419 2,374 2,328 2,635 2,835 4.0 1.6 0.9 Eastern Europe 359 488 465 460 361 357 352 403 404 455 531 567 4.1 0.9 1.3 Developing 795 2,315 4,317 4,118 4,503 4,787 4,890 4,950 5,053 5,180 6,416 7,611 12.5 9.7 3.8 Asia 311 771 1,644 1,823 2,004 2,238 2,313 2,363 2,413 2,322 2,977 3,496 11.2 9.4 4.1 Bahrain 3 127 183 186 205 206 206 207 207 460 510 566 0.0 0.0 7.0 China, People's Rep. 137 353 713 700 801 1,003 1,005 1,007 1,009 1,062 1,123 1,236 9.3 9.6 3.6 India 157 203 335 422 501 552 553 554 555 556 562 619 7.6 3.6 2.4 Africa 172 440 597 603 606 616 621 622 631 632 665 824 10.7 6.5 2.0 America 169 757 1,552 1,692 1,893 1,932 1,956 1,965 2,009 2,225 2,774 3,291 17.3 14.3 4.2 Brazil 60 252 874 888 882 884 865 887 909 1,012 1,073 1,236 15.9 15.6 2.1 Venezuela 19 282 443 546 551 562 573 575 586 658 816 1,079 0.0 22.8 4.3 World 10,192 15,586 17,480 17,679 17,905 18,085 18,481 18,830 19,112 19,327 21,393 23,658 4.7 2.3 1.8 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellachaft, Metal Statistics & World Bureau of Metal Statistics (actual)4 World Bank, International Economics Department (projected). Table AS: Primary Aluminum - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000tons)----------------------------------------------------- -----------( p.A.)------ Industrial 7,369 10,251 11,681 11,970 12,134 12,270 12,441 12,591 12,728 12,912 14,104 15,343 4.1 1.7 1.6 North America 3,937 4,856 5,035 4,763 4,760 4,783 4,939 5,004 5,070 5,110 5,516 6,030 2.7 0.4 1.5 United States 3,707 4,578 4,598 4,326 4,309 4,326 4,477 4,536 4,595 4,625 5,005 5,463 2.6 0.3 1.5 EEC-10 2,070 3,024 3,625 3,804 3,869 3,234 3,974 4,062 4,131 4,200 4,454 4,728 4.6 2.6 1.4 Germany, Fed. Rep. 666 1,044 1,233 1,322 1,351 1,375 1,408 1,441 1,474 1,503 1,674 1,865 5.6 3.3 2.1 France 386 579 661 669 683 625 706 719 731 743 808 878 4.3 2.8 1.7 United Kingdom 373 390 427 454 460 465 471 477 482 488 518 549 0.6 -0.7 1.2 Other W. Europe 329 441 540 888 899 913 927 942 957 972 1,052 1,139 4.9 2.3 1.6 Industrial Asia 897 1,671 2,123 2,204 2,304 2,343 2,384 2,436 2,489 2,544 2,820 3,071 8.9 3.0 2.1 Eastern Europe & USSR 1,862 2,720 2,652 2,640 2,645 2,654 2,662 2,671 2,680 2,698 2,855 3,082 4.0 1.6 1.0 USSR 1,318 1,858 1,800 1,800 1,804 1,809 1,814 1,821 1,828 1,867 1,982 2,104 3.5 1.6 1.0 Eastern Europe 544 861 852 840 842 844 848 850 851 871 924 979 5.2 1.9 1.0 Developing 848 2,178 3,196 3,201 3,271 3,356 3,424 3,545 3,650 3,759 4,436 5,234 10.3 7.1 3.1 1 Asia 444 1,135 1,785 2,162 2,209 2,291 2,376 2,463 2,555 2,649 3,173 3,800 10.6 7.5 3.5 America 200 543 731 803 821 842 865 889 913 938 1,070 1,221 9.8 6.9 2.6 World 10,080 15,148 17,529 17,811 18,051 18,280 18,526 18,807 19,058 19,369 21,394 23,659 4.7 2.4 1.8 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellschaft, Metal Statistics & World Bureau of Metal Statistics (actual)$ World Bank, International Economies Department (projected). Table A9: Primary Aluminum - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 1,973 3,090 4,533 4,580 4,660 4,700 4,775 4,850 5,010 5,140 5,520 6,150 4.5 5.0 1.8 North America 1,052 1,068 1,411 1,430 1,510 1,550 1,675 1,700 1,860 1,990 2,220 2,650 2.0 3.4 3.9 Canada 791 687 1,008 1,025 1,120 1,150 1,275 1,300 1,480 1,640 1,920 2,400 2.1 3.0 5.3 United States 261 381 403 405 390 400 400 400 380 350 300 250 1.6 5.2 -3.0 EEC-10 330 1,128 1,095 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 5.8 6.2 0.0 Netherlands 72 359 330 300 300 300 300 300 300 300 300 300 15.2 5.8 0.0 France 154 175 113 100 100 100 100 100 100 100 100 100 -0.8 -1.3 0.0 Germany, Fed. Rep. 49 242 322 300 300 300 300 300 300 300 300 300 9.4 9.5 0.0 Other W. Europe 518 695 999 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 4.6 3.2 0.0 Industrial Oceania 63 190 1,025 1,050 1,050 1,050 1,000 1,050 1,050 1,050 1,200 1,400 0.0 14.2 1.8 Eastern Europe & USSR 510 710 810 805 800 780 750 700 670 650 900 1,200 6.3 2.2 2.5 USSR 365 488 566 563 560 546 525 490 469 455 630 850 5.3 2.0 2.6 Developing 305 802 1,645 2,309 2,428 2,524 2,626 2,757 2,793 2,855 3,058 3,145 14.4 11.2 1.9 Africa 149 244 378 400 400 400 400 400 400 400 400 500 8.2 6.1 1.4 Ghana 111 151 140 150 150 150 150 150 150 150 150 150 0.0 -1.8 0.0 America 54 292 617 761 850 855 855 855 855 990 1,215 1,440 0.0 19.9 4.0 World 2,788 4,602 6,988 7,694 7,888 8,004 8,151 8,307 8,473 8,645 9,478 10,495 5.8 5.6 1.9 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). lb Estimate. Sourcest Metallgesellschaft, Metal Statistics & World Bureau of Metal Statistics (actual)t World Bank, International Economics Department (projected). Table A10: Primary Aluminum - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 2,115 3,391 6,282 6,334 6,472 6,554 6,665 6,777 6,895 6,999 7,582 8,275 7.0 6.3 1.7 North America 430 579 1,086 1,000 1,000 1,000 1,050 1,050 1,070 1,075 1,200 1,350 4.9 5.9 1.9 United States 417 563 1,027 966 946 948 980 990 1,001 1,005 1,078 1,196 4.7 6.0 1.3 EEC-10 1,313 1,720 2,525 2,660 2,702 2,740 2,765 2,820 2,860 2,200 3,050 3,250 5.2 3.6 1.3 Germany, Fed. Rep. 399 532 805 859 876 890 910 930 950 965 1,066 1,196 7.6 5.3 2.1 France 164 316 462 468 477 484 491 499 506 514 554 596 8.8 5.3 1.5 Netherlands 45 182 168 160 160 170 170 170 180 180 190 200 11.2 5.8 1.4 Other W. Europe 105 155 376 500 500 510 510 520 530 540 600 675 7.2 6.2 1.9 Industrial Asia 266 929 2,292 2,174 2,270 2,304 2,340 2,387 2,435 2,484 2,732 3,000 19.6 13.1 2.0 Eastern Europe & USSR 225 503 533 560 600 610 620 640 660 700 800 900 8.4 4,3 3.0 Eastern Europe 225 503 533 560 600 610 620 640 660 700 800 900 8.4 4.3 3.0 Developing 227 550 806 800 816 840 866 890 918 946 1,096 1,320 9.6 7.3 3.1 Asia 63 339 647 778 794 821 850 880 910 942 1,120 1,330 16.6 14.6 3.4 World 2,567 4,444 7,621 7,694 7,888 8,004 8,151 8,307 8,473 8,645 9,478 10,495 7.4 6.2 1.9 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. Sources: Metallgesellschaft, Metal Statistics & World Bureau of Metal Statistics (actual); World Bank, International Economics Department (projected). -178- Table All: Primary Aluminum - Prices, 1960-89 (Actual) and 1990-2005 (Projected) ----------------($/ton)-------- -------------------($/ton)-------------------------------- ---------------------1985 Constant $----------------------- --------Current $-------------- ---------MUV a/------------ -------US GNP b/---------- Transactions LME Transactions LME Transactions LME price C/ cash d/ price c/ cash d/ price c/ cash d/ ACTUAL 1958 490 1,635 1,832 1959 486 1,645 1,772 1960 500 1,657 1,793 1961 470 1,532 1,669 1962 435 1,390 1,511 1963 444 1,446 1,521 1964 493 1,578 1,661 1965 489 1,554 1,606 1966 479 1,471 1,520 1967 484 1,469 1,494 1968 457 1,400 1,344 1969 581 1,689 1,620 1970 540 1,477 1,426 1971 435 1,129 1,088 1972 432 1,029 1,031 1973 663 1,363 1,485 1974 944 1,593 1,941 1975 690 1,047 1,291 1976 862 1,290 1,516 1977 991 1,350 1,634 1978 1,045 1,237 1,605 1979 1,520 1,602 1,589 1,675 2,146 2,262 1980 1,730 1,780 1,649 1,697 2,239 2,304 1981 1,338 1,262 1,270 1,198 1,580 1,490 1982 1,061 991 1,023 955 1,177 1,099 1983 1,495 1,440 1,475 1,421 1,597 1,538 1984 1,371 1,251 1,382 1,261 1,412 1,288 1985 1,110 1,041 1,110 1,041 1,110 1,041 1986 1,261 1,150 1,070 975 1,228 1,120 1987 1,583 1,565 1,222 1,208 1,492 1,475 1988 2,570 2,581 1,850 1,858 2,342 2,352 1989 1,955 1,947 1,412 1,406 1,710 1,703 Projected 1990 1,640 1,114 1,384 1991 1,775 1,106 1,419 1992 1,850 1,140 1,444 1993 1,825 1,129 1,389 1994 1,870 1,138 1,382 1995 2,000 1,173 1,436 2000 2,650 1,293 1,637 2005 2,900 1,178 1,541 a/ Deflated by Manufacturing Unit Value (MUV) Index. b/ Deflated by US GNP Deflator. c/ Certain other transaction, US shipments to Europe, Min 99.5%, c.i.f. Europe (Source: Metal Bulletin). This quotation was published beginning December 20, 1975. d/ Average bid/asked (Source: Metals Week). Sources: See Footnotes for actual; World Bank, International Economics Department (projected). -179- Table A12: Bauxite - Prices, a/ 1975-89 (Actual) and 1990-2005 (Projected) --($/ton)-- ------------($/ton)---------- --------1985 Constant $------ Current $ MUV b/ US GNP c/ Actual 1975 22.2 33.6 41.4 1976 25.4 38.1 44.8 1977 30.3 41.2 49.9 1978 31.3 37.0 48.0 1979 30.7 32.1 43.4 1980 32.0 30.5 41.4 1981 35.4 33.5 41.8 1982 40.4 39.0 44.8 1983 37.4 36.9 40.0 1984 37.0 37.0 38.1 1985 35.7 35.7 35.7 1986 33.7 28.6 32.8 1987 29.5 22.8 27.8 1988 30.3 21.8 27.6 1989 28.5 20.6 24.9 Projected 1990 30.0 20.4 25.3 1991 32.0 19.9 25.6 1992 32.2 19.8 25.1 1993 33.0 20.4 25.1 1994 34.0 20.7 25.1 1995 36.0 21.1 25.9 2000 45.0 22.0 27.8 2005 48.0 19.5 25.5 a/ US Import price c.i.f. US port. b/ Deflated by Manufacturing Unit Value (MUV) Index. c/ Deflated by US GNP Deflator. Sources: US Bureau of Mines, Minerals Yearbook: Bauxite and Alumina, various years (actual); World Bank, International Economics Department (projected). -180- Aluminum Prices ($/ton, 1985 constant) 2400 2200, 2000 1800 1600 ^ 1400 \ 1200- EUROPEN MARKTS LME *0- - I I ISI11 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 20d05 - Deflated by Manufacturing Unit Value (MUV) Index -.-- Deflated by US GNP deflator Source* World Bank, International Economics Department -181- Bauxite Prices ($/ton, 1985 constant) 50 45- 40- 35-,. -' 25- 20- 1950' 195 16 0 1965' 19670 1975 1980 1985 1990 1995 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index - -- - Deflated by US GNP deflator Source: World Bank, International Economics Department. -182- IRON ORE Summary World iron ore consumption is expected to increase at an average rate of 1.4% p.a. over the 1990-2005 period, in line with the projected growth of world steel production. Australia and Brazil will maintain their dominant position in iron ore production. The traditional relationships within the world iron ore trade will continue, largely due to the geographic location of the major producers and consumers and the technical specifications of the consumers' requirements. In the short term, producer optimism will persist, as favorable market conditions continue to strengthen the producers' position, despite the fact that the large price increases negotiated in 1989 and 1990 were not repeated in 1991. In the long term, the international market for iron ore is expected to become more competitive. At the same time, however, the traditional price negotiations between the main iron ore suppliers and steel producers will continue to be the major format within which prices will be settled. The trend in iron ore prices over the 1990-2005 period is projected to decline slightly in real terms. Demand Outlook Iron ore demand basically derives from steel production. During the 1962-73 period, world production of crude steel grew at 5.4% p.a., while world consumption of iron ore increased by 5% p.a. During the 1974-88 period, however, growth rates for world crude steel and iron ore production dropped to 0.3% and 0.8% p.a., respectively. The slowdown in iron ore consumption can be attributed to the same set of reasons that affected global steel production and consumption. Moreover, technical advances in the steel industry have reduced iron ore consumption over and above the decline due to the decline in steel production--in particular, the increased use of electric arc furnaces for steelmaking, which demands 100% steel scrap or direct-reduced iron (DRI). The industrial economies' apparent consumption of iron ore is projected to grow at 0.2% p.a. over the 1990-2005 period, in line with the projected growth rate of steel output for this grouping (0.6% p.a.). However, with US consumption declining by -0.8% p.a., North America should register a negative growth rate of -0.7%. Most countries within the EEC (-0.1 p.a.) should increase iron ore consumption slightly, with the main exception of the United Kingdom. Given the optimistic forecast about the Japanese steel industry, iron ore demand in Japan is not expected to decline as in the recent past; instead, its projected demand (0.8%) is the highest among the industrial countries. World iron ore consumption is expected to increase at an average rate of 1.4% p.a. over the forecast period, primarily driven by strong demand growth in the developing countries (3.3% p.a.). By the year 2000, total apparent consumption of iron ore in the developing countries will exceed total consumption in the industrial countries. China and the Republic of Korea will continue their efforts to realize ambitious steel capacity expansion plans, which should put them at the top of the developing countries in terms of demand growth for iron ore. Supply Outlook The 1980s, for the most part, proved to be a period of disappointment and turbulence for iron ore suppliers. World iron ore capacity declined gradually during the 1980s. In the last two years of the decade, however, growth in steel production and iron ore demand helped to change the outlook and justify -183- additional iron ore capacity in the 1990s. A growing number of mines are currently increasing or are considering increases in their pellet production capacity. In 1989, world proven iron ore reserves (nominal capacity in terms of metal content) was estimated at 66,100 million tons (see Table 1). At current production levels, these proven reserves will satisfy world demand for 150 years. Three countries, Australia, Brazil, and the USSR, have almost two-thirds of the proven reserves. Table 1: World Mine Production, Reserves, and Reserve Base Production (1989) Crude ore Iron content (gross weight) reserves a/ base b/ reserves base --------------------(million tons)---------------------- Australia 97.0 16,000 28,100 10,200 17,900 Brazil 156.0 11,100 17,300 6,500 10,100 Canada 38.6 11,900 25,500 4,600 10,000 China 112.0 9,000 9,000 3,500 3,500 France 9.1 2,200 2,200 900 900 India 54.2 5,400 12,100 3,300 6,300 Liberia 11.9 900 1,600 500 800 South Africa 28.9 4,000 9,300 2,500 5,900 Sweden 21.2 3,000 4,600 1,600 2,400 United States 58.7 16,100 25,200 3,800 6,000 USSR 252.0 60,000 60,000 25,000 25,000 Venezuela 19.5 2,000 2,000 1,200 1,200 World Total 943.1 147,400 210,100 66,100 96,600 a/ That part of the reserve base that could be economically extracted or produced at the time of determination. b/ Reserve base: that part of an identified resource that meets specified minimum physical and chemical criteria related to current mining and production practices. Source: US Bureau of Mines, Mineral Industry Surveys. World iron ore production grew 2.6% in 1989. Production declines in the EEC, Eastern Europe, and USSR were more than made up by increases in North America, Australia, and the developing countries. Iron ore production in the industrial countries is expected to grow slowly or stagnate, with the exception of Australia. Canada's iron ore output is projected to grow at only 0.2% p.a. over 1989-2005 period, while the percentage of its pellets output to total iron ore output is expected to increase from the current level of 85% to 88%; this increase will strengthen its position in the international market, given that pellets are in strong demand compared with other iron ore products. The outlook for Australia's iron ore production is good, due to its high-grade iron ore deposits, its competitive cost structure, and continuous effort to establish long-term relationships with major iron ore consumers. Australia's iron ore output is projected to grow at 1.0% p.a.--the highest rate among the industrial countries. -184- Rather than developing new mines, the policy in the USSR now is said to be concentrated on upgrading existing ore facilities and improving the efficiency of raw material use. USSR iron ore production is forecast to grow at only 0.1% p.a. over the long term because of slowing domestic steel production and the expected decline in the export of iron ore to East European countries. Although it is likely that the East European countries will increase iron ore imports from sources other than the USSR, the limited availability of hard currency and the opportunities for barter trade will greatly limit that possibility in the short term. Subsidized, low-quality mines are likely to be kept in operation in Eastern Europe. China's iron ore production is forecast to grow rapidly (3.3% p.a.), but still fall short of consumption requirements. About 98% of China's reserves are low grade, with an average iron content of around 30%. In order to overcome its shortage of high-grade iron ore, China entered its first off-shore mining investment in 1987 to obtain ore supplies through joint ventures with Australian firms. In 1989, China's iron ore imports from Australia increased by 63.7%, and China became the second largest Australian consumer. Also, through a trade agreement signed with India in late 1989, shipments from India to China are expected to rise. India's iron ore production is projected to grow at 0.3% p.a. World production of DRI (direct-reduced or sponge iron) currently amounts to 2% of world pig-iron production. Of total sponge-iron production, 90% is obtained by means of gas reduction. Direct reduction can be efficient only on sites where the required energy (natural gas or coal) is available at low cost. Unavailability of natural gas and higher natural gas prices have prevented sponge iron production from making its way in the industrial countries. Major locations of sponge-iron production are Africa, Asia, Latin America, and the Middle East. Trade Outlook In 1989, world trade in iron ore set a new record of 414 million tons (gross weight), accounting for 42% of global iron ore output. This level was more than 2% above the 402 million tons traded in 1988. In 1980, exports from developing countries accounted for 41% of world iron ore trade, while, at present, they represent 48%. In contrast, at the beginning of the 1980s, the industrial countries had a 46% market share, while at the end they had 42%. Australia and Brazil are the leading exporting countries. Together, they had 41% of total exports in 1980 and 51% in 1989. The EEC and Japan remain the key importing markets; their share of world imports declined slightly from 68% to 65% during the 1980-89 period. Iron ore is the most important dry commodity in world seaborne trade, accounting for 15% of the total volume of dry cargo trade. In 1989, seaborne trade in iron ore increased from 348 million tons (gross weight) to 367 million tons. During the 1990s, Australia and Brazil will remain the dominant exporters, supplying large volumes of high-grade iron ore. Japan's role as the main importer is expected to decline gradually as industrializing developing countries (e.g., China and the Republic of Korea) increase imports rapidly. Both exporters and importers have sought to diversify their trading relationships; however, such efforts have been constrained by their geographic location and the technical specification of the iron ore. Table 2 presents the trade flow matrix between the major iron ore exporters and importers for 1980 and 1988. It can be seen that there has been some diversification, but the traditional trading relationship has largely been maintained. Thus, Australia will continue to be the primary supplier to Japan, while Brazil will remain the leading supplier to Europe. -185- Table 2: Matrix of Iron Ore Trade Flow, 1980, 1988 ---- Japan ---- Germany, F.R. -----us----- ---Total ---- 1980 1988 1980 1988 1980 1988 1980 1988 -----------------------------(%)------------------------------ Australia 51.la/ 47.6 14.7 17.9 0.0 5.2 34.7 35.0 91.3a/ 85.2 8.7 13.0 0.0 1.8 100.0 100.0 Brazil 29.7 29.2 42.1 54.1 10.5 22.0 29.0 34.7 63.7 52.7 30.0 39.7 6.3 7.6 100.0 100.0 India 15.8 20.1 0.0 0.3 0.0 0.9 9.8 12.8 100.0 98.6 0.0 0.5 0.0 0.9 100.0 100.0 Sweden 0.0 0.9 18.0 17.0 0.2 1.1 3.7 5.0 0.0 10.8 99.3 86.5 0.7 2.6 100.0 100.0 Canada 3.4 2.1 25.2 10.7 89.3 70.8 22.8 12.6 9.3 10.6 22.8 21.7 67.9 67.7 100.0 100.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Note: Details may not add to totals because of rounding. a/ Shares of Australian exports in Japanese imports. b/ Shares of Japanese imports in Australian exports. Source: Trade Analysis and Reporting System, United Nations Statistical Office. Price Prospects Iron ore currently accounts for less than 10% of the cost of a ton of crude steel in major steel-producing countries. Therefore, the price of iron ore does not necessarily follow the fluctuations in crude steel prices. The global demand, supply, and trading profiles for iron ore largely determine its price-setting process. In international markets, iron ore is mostly traded on the basis of long-term contracts with annual renegotiation of prices. The negotiations over specific types of iron ore are very complex and largely unobservable. Since the European "iron ore year" is the calendar year and Japan's is the fiscal year (April 1 to March 31), price negotiations between Brazilian iron ore producers and German steel mills often start and finish earlier than the negotiations between the Australians and the Japanese. Once the first negotiation for the next iron ore year is over, the settlement reached on the percentage of the price change almost universally serves as a benchmark for subsequent negotiations. A peculiar pricing system (freight sharing) has been adopted in the Japanese market because the c.i.f. price for "Atlantic" ores (from Brazil) is substantially higher than the "Pacific" ores (from Australia). The freight sharing system allows the difference between the freight for iron ore shipped to Japan and that shipped to Europe from "Atlantic" locations to be shared by the buyer and the seller on an equal basis. Table 3 shows comparisons between prices of fine ore brands from Australia (represented by Australia's Hamersley, Mt. -186- Newman, etc.) and Brazil (represented by CVRD-Itabira) in Japanese and European markets. There is about an average three cents difference between Australian ore and Brazilian ore in Japan, and a three cent discrepancy between Brazilian ore in Japan and in Europe. However, there is virtually no wedge between Australian ore in Japan and Brazil ore in Europe. In the European iron ore market, the idea of sharing freightage in the case of iron ore from Australia does not apply and, hence, Australian iron ore is exported to Europe at a price less ocean freightage, and the resultant price difference from its Brazilian counterpart now exceeds ten cents. Table 3: Comparison in Prices in Australian Fine Ore to Japan and Brazilian Fine Ore to Japan and to Europe Year Japanese Market a/ European Market Australian Brazil Brazil 1982 34.80 31.02 33.02 1983 30.45 27.47 29.47 1984 26.67 24.27 26.57 1985 27.05 24.65 26.99 1986 25.97 23.66 26.68 1987 24.67 22.24 24.89 1988 23.68 21.23 23.88 1989 26.76 23.99 26.99 1990 31.03 27.82 31.29 a/ In cents f.o.b. Price per Fe % DLT. Source: The Tex Report, No. 5198. In the early 1980s, the worldwide excess supply and large stocks of iron ore put producers at a disadvantage in price negotiations. Over the past two years, however, conditions have been changed significantly. Since steel production began to increase in 1987, iron ore exporters have been able to win price increases from a level that the mining companies argued had threatened their survival and hindered the renewal of production capacities. In 1988, Australian iron ore producers won a 13% price increase from Japanese steelmakers for fine ores and a similar percentage increase for other iron ore types. The first settlement for 1990 was reached in the European market between Brazilian iron ore producers and German steelmakers over an increase in the fine ore price of 15.96%. Given our forecast of a gradual slowdown in global steel production and the ample capacity in the low-cost, iron ore-producing countries, the iron ore price in real terms is expected to decline over the 1990-2005 period. In the short term, however, optimism persists, as favorable market conditions continue to strengthen the producers' position. This optimism should dampen as the slowdown in the industrial countries takes place. The slowdown in industrial activity in the major industrial countries will dampen steel production, which, in turn, will depress iron ore consumption. Meanwhile, the supply of iron ore from the major iron ore producers will not ease, and world exports of iron ore (average 2% p.a.) will grow faster than world iron ore consumption (average 1.1% p.a.) over the 1990-95 period. Although it is likely that iron ore producers -187- will see a rise in nominal prices from the 1991 price negotiations, the soaring international inflation projected for 1991 as a result of the falling dollar and the increase in oil prices will result in a decline of the iron ore price in real terms. We, anticipate, therefore, that 1990 prices will be the peak in real terms and that iron ore prices will continue to decline in real terms over 1990- 95 period (-2.2% p.a.). During the 1995-2000 period, the optimistic outlook for global steel production will push up iron ore demand, and prices of iron ore in real terms are expected to increase on average by 1.7% p.a. During the 2000-2005 period, iron ore prices are projected to decline in real terms (-1.2% p.a.) much in line of its long-term trend, largely due to external factors projected outside the iron ore market, such as the stable but slow growth of crude steel production in the industrial countries and the improved efficiency of iron ore usage in the steel industry. Table Al Iron Ore (Metal Contents) - Production by Main Countries and Economic Resions Actual Projected Growth Ratesia Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000Tons)----------------------------------------------------- -----------( p.a.)------ Industrial 164,702 173,938 143,856 147,743 148,748 149,794 150,879 152,005 153,174 154,384 152,809 151,332 0.6 -2.0 0.2 North America 78,448 81,980 59,569 62,130 61,891 61,654 61,420 61,188 60,958 60,730 60,029 59,354 -0.8 -3.2 -0.3 United States 52,052 48,769 33,840 34,686 34,404 34,125 33,848 33,573 33,300 33,030 32,101 31,198 -2.0 -4.2 -0.7 Canada 26,396 33,211 25,729 27,444 27,487 27,529 27,572 27,615 27,658 27,701 27,928 28,157 1.6 -1.6 0.2 EEC-10 27,886 13,778 5,139 5,011 4,995 4,981 4,966 4,951 4,936 4,921 4,847 4,775 -6.6 -9.4 -0.3 France 17,523 8,339 3,119 2,963 2,957 2,951 2,945 2,938 2,932 2,926 2,896 2,866 -6.7 -10.1 -0.2 Other W. Europe 24,991 20,488 16,202 16,056 15,831 15,610 15,391 15,176 14,963 14,754 13,733 12,783 -1.0 -3.5 -1.4 Sweden 20,700 16,296 13,393 13,246 13,034 12,825 12,620 12,418 12,219 12,024 11,591 11,174 -1.5 -4.0 -1.1 Industrial Oceania 32,455 57,414 62,788 64,546 66,031 67,549 69,103 70,692 72,318 73,982 74,204 74,426 12.1 2.1 0.9 Australia 32,417 55,489 61,494 63,339 64,922 66,545 68,209 69,914 71,662 73,454 73,821 74,190 12.0 2.0 1.0 Eastern Europe & USSR 107,514 136,666 140,228 136,972 137,396 137,821 138,247 138,674 139,103 139,533 141,783 144,069 2.4 1.2 0.3 USSR 104,466 134,722 138,600 136,597 136,726 137,355 137,483 137,612 137,741 137,871 138,566 139,265 2.6 1.3 0.1 Developing 141,317 211,021 249,229 261,932 267,312 272,842 278,529 284,379 290,396 296,587 339,602 389,383 4.6 2.3 2.5 Asia 50,801 81,733 89,493 92,240 94,820 97,473 100,200 103,003 105,885 108,847 125,295 144,230 4.1 2.6 2.8 H China, People's Rep. 23,400 51,417 53,900 55,594 57,413 59,292 61,232 63,236 65,305 67,442 79,472 93,649 5.7 3.8 3.3 0 India 19,686 25,619 30,929 31,269 31,457 31,646 31,835 32,026 32,219 32,412 31,958 32,956 4.1 2.1 0.3 9 Africa 37,560 38,481 35,075 32,926 30,191 29,472 28,769 29,081 28,908 28,250 27,115 24,317 3.1 -0.9 -1.9 South Africa 5,686 17,770 16,380 16,673 16,620 16,566 16,513 16,460 16,408 16,355 16,094 15,836 7.8 6.3 -0.3 Liberia 15,557 11,344 8,581 7,875 5,132 4,896 4,667 5,445 5,729 5,519 5,041 4,199 2.1 -4.1 -3.9 Mauritania 5,640 5,790 6,358 6,218 6,050 5,887 5,728 5,573 5,423 5,276 5,028 4,792 6.0 -0.3 -1.6 America 49,784 87,208 119,486 129,179 129,557 129,936 130,316 130,698 131,081 131,464 133,472 135,510 5.7 3.6 0.3 Brazil 21,864 62,627 94,276 105,602 106,294 106,990 107,691 108,397 109,107 109,822 113,568 117,441 10.3 6.4 0.7 World 413,533 521,626 533,314 546,647 553,456 560,457 567,655 575,059 582,673 590,505 634,194 684,783 2.5 0.5 1.4 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. Sources: UNCTAD (Actual)t World Bank, International Economics Department (projected). Table A2: Iron Ore (Metal Contents) - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1962-88 1970-88 2005 --------------------------------------------('000Tons)----------------------------------------------------- -----------( p.a.)------ Industrial 244,133 251,703 207,781 223,049 223,540 224,033 224,525 225,020 225,514 226,009 228,608 231,221 0.6 -1.9 0.2 North America 80,077 73,360 51,293 50,425 49,951 49,481 49,016 48,555 48,099 47,647 46,246 44,887 -2.4 -4.9 -0.7 United States 75,231 63,328 42,690 41,337 40,916 40,499 40,086 39,677 39,272 38,872 37,698 36,560 -3.0 -5.5 -0.8 EEC-10 87,543 85,247 72,716 74,204 74,101 73,997 73,894 73,790 73,687 73,584 73,079 72,577 0.3 -1.7 -0.1 Germany, Fed. Rep. 27,230 28,720 23,089 23,122 23,200 23,277 23,355 23,433 23,511 23,589 23,999 24,416 0.6 -1.1 0.3 France 17,080 16,404 13,069 13,207 13,270 13,333 13,397 13,460 13,525 13,589 13,926 14,272 -0.5 -2.7 0.5 United Kingdom 14,716 8,849 11,614 11,458 11,235 11,016 10,801 10,590 10,384 10,181 9,210 8,331 -2.1 -2.8 -2.0 Italy 6,879 9,784 7,534 8,082 8,130 8,178 8,226 8,275 8,323 8,373 8,630 8,895 3.7 1.2 0.6 Industrial Asia 62,204 77,850 70,540 72,479 73,061 73,647 74,237 74,832 75,433 76,038 79,217 82,529 5.1 -0.3 0.8 Eastern Europe & USSR 108,091 144,990 154,343 150,367 150,967 151,571 152,176 152,784 153,395 154,008 157,210 160,479 2.5 1.5 0.4 USSR 84,914 110,782 116,819 115,330 115,560 115,790 116,020 116,251 116,482 116,714 117,932 119,164 2.3 1.4 0.2 Eastern Europe 23,177 34,208 37,524 35,036 35,408 35,781 36,156 36,533 36,913 37,294 39,278 41,317 3.2 1.9 1.0 Developing 57,363 114,350 157,648 173,231 178,948 184,853 190,953 197,255 203,764 210,488 248,376 293,084 5.8 4.5 3.3 Asia 35,951 78,333 91,783 96,223 100,745 105,480 110,438 115,628 121,063 126,753 160,150 202,347 5.8 4.6 4.6 0 China, People's Rep. 23,400 54,224 60,249 62,357 64,664 67,056 69,538 72,110 74,779 77,545 93,318 112,298 6.0 4.5 3.7 Korea, Rep. of -3 5,723 9,477 10,698 11,239 11,808 12,406 13,034 13,694 14,388 18,501 23,790 16.0 16.0 5.0 India 8,280 11,484 10,557 10,601 10,722 10,844 10,967 11,091 11,217 11,345 12,021 12,736 2.9 1.6 1.1 America 9,201 22,163 43,581 43,768 43,983 44,198 44,414 44,632 44,850 45,070 46,217 47,394 7.3 6.1 0.5 Brazil 4,056 11,765 27,670 28,033 28,246 28,461 28,677 28,894 29,114 29,335 30,495 31,702 7.9 7.7 0.8 World 409,587 511,043 519,772 546,647 553,456 560,457 567,655 575,059 582,673 590,505 634,194 684,783 1.6 -0.3 1.4 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). Due to data problems, two historical growth rates for Rep. of Korea are for 1974-1988. lb Estimate. Sources: UNCTAD (Actual)t World Bank, International Economics Department (projected). Table A3: Iron Ore (Metal Contents) - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Ratesia 1989- Countries/l99 Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000Tons)----------------------------------------------------- -----------( p.a.)------ Industrial 77,291 99,814 95,376 95,700 96,591 97,522 98,492 99,503 100,555 101,650 101,499 101,394 3.5 0.0 0.4 North America 25,488 30,261 22,996 23,196 23,054 22,914 22,774 22,635 22,497 22,360 22,224 22,089 0.8 -0.9 -0.3 Canada 22,738 26,812 20,080 21,157 21,164 21,170 21,177 21,183 21,190 21,196 21,658 22,131 1.2 -1.4 0.3 EEC-10 6,800 3,570 2,384 2,324 2,317 2,310 2,304 2,297 2,290 2,283 2,294 2,306 -5.2 -7.5 -0.0 France 5,750 2,609 1,149 1,089 1,087 1,085 1,083 1,081 1,079 1,077 1,088 1,099 -7.1 -10.4 0.1 Other W. Europe 19,278 15,368 12,018 11,921 11,764 11,610 11,458 11,308 11,160 11,014 10,519 10,047 -1.2 -3.5 -1.1 Sweden 17,521 13,423 10,953 10,821 10,636 10,454 10,275 10,099 9,927 9,757 9,590 9,426 -1.5 -3.7 -0.9 Industrial Oceania 25,724 50,614 57,978 60,097 61,993 63,949 65,967 68,049 70,196 72,410 74,695 77,052 0.0 2.4 1.6 Australia 25,710 48,925 57,219 59,311 61,184 63,115 65,107 67,162 69,283 71,470 73,726 76,053 0.0 2.4 1.6 Eastern Europe & USSR 20,085 24,357 21,781 21,275 21,341 21,408 21,475 21,544 21,614 21,684 22,484 23,322 3.4 0.2 0.6 USSR 19,552 23,940 21,581 21,075 21,141 21,208 21,275 21,344 21,414 21,484 22,284 23,122 3.4 0.5 0.6 Developing 85,440 112,660 119,747 125,850 128,435 131,092 133,825 136,635 139,527 142,501 266,019 193,675 3.8 1.2 2.7 Asia 14,938 15,904 20,372 20,871 21,315 21,769 22,233 22,706 23,190 23,683 26,847 30,433 1.8 1.2 2.4 India 11,406 14,135 20,372 20,596 20,720 20,844 20,969 21,095 21,221 21,349 21,477 22,577 4.4 2.3 0.6 Africa 29,041 30,074 21,030 20,830 19,254 19,179 19,103 19,528 20,453 20,378 20,424 20,471 2.6 -2.1 -0.1 Liberia 12,993 12,902 8,783 7,825 5,082 4,846 4,617 5,395 5,679 5,469 4,991 4,149 3.0 -2.5 -4.0 America 41,383 66,678 78,345 84,700 84,948 85,197 85,446 85,696 85,947 86,199 89,239 92,387 5.1 2.8 0.5 Brazil 17,807 50,861 66,605 76,319 76,996 77,680 78,370 79,065 79,767 80,475 85,815 91,508 11.1 6.3 1.1 World 182,816 236,831 236,904 242,826 246,367 250,022 253,792 257,682 261,695 265,836 290,002 318,390 3.6 0.6 1.7 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: UNCTAD (actual)s World Bank, International Economics Department (projected). Table A4i Iron Ore (Metal Contents) - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------(000Tons)----------------------------------------------------- -----------( p.a.)------ Industrial 156,722 177,579 159,301 171,006 171,383 171,761 172,140 172,519 172,900 173,281 178,747 184,385 2.6 -0.9 0.5 North America 27,117 21,641 14,720 14,545 14,428 14,311 14,195 14,081 13,967 13,854 13,742 13,631 -2.8 -5.4 -0.4 United States 25,929 18,008 11,766 11,430 11,319 11,210 11,101 10,994 10,887 10,782 10,678 10,574 -3.4 -6.9 -0.5 EEC-10 66,457 75,039 69,961 71,393 71,293 71,193 71,094 70,994 70,895 70,796 71,726 72,668 2.2 -0.4 0.1 Germany, Fed. Rep. 25,304 28,193 23,079 23,112 23,190 23,267 23,345 23,422 23,501 23,579 24,460 25,375 1.5 -0.7 0.6 France 5,306 10,675 11,099 11,216 11,269 11,323 11,377 11,431 11,486 11,541 12,058 12,598 8.2 2.6 0.7 United Kingdom 11,492 8,338 11,565 11,410 11,188 10,969 10,755 10,546 10,340 10,138 9,374 8,667 -0.2 -1.4 -1.7 Italy 6,534 9,721 7,534 8,082 8,130 8,178 8,226 8,275 8,323 8,373 8,797 9,243 5.0 1.4 0.8 Industrial Asia 61,283 77,572 70,382 72,317 72,897 73,482 74,071 74,665 75,264 75,867 80,557 85,536 6.1 -0.3 1.0 Eastern Europe & USSR 20,662 32,681 35,896 33,516 33,871 34,229 34,588 34,948 35,311 35,676 38,288 41,041 4.2 2.1 1.3 Eastern Europe 20,662 32,681 35,896 33,516 33,871 34,229 34,588 34,948 35,311 35,676 38,288 41,041 4.2 2.1 1.3 Developing 1,486 15,989 28,166 38,303 41,113 44,032 47,065 50,215 53,485 56,879 72,967 92,964 18.3 19.1 5.5 Asia 88 12,504 22,662 23,758 24,875 26,044 27,268 28,550 29,891 31,296 40,168 51,555 38.0 36.7 4.8 China, People's Rep. 44 4,522 11,195 11,389 11,569 11,752 11,937 12,125 12,317 12,511 13,804 15,230 33.7 36.1 1.8 Korea, Rep. of 23 5,466 9,114 10,288 10,809 11,356 11,931 12,535 13,170 13,837 18,069 23,596 0.0 39.4 5.2 America 800 1,633 2,440 2,450 2,462 2,475 2,487 2,499 2,511 2,523 2,638 2,758 6.9 5.4 0.7 World 178,870 226,249 223,363 242,826 246,367 250,022 253,792 257,682 261,695 265,836 290,002 318,390 3.4 0.4 1.7 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). lb Estimate. Sources: UNCTAD (Actual)$ World Bank, International Economics Department (projected). -192- Table AS: Iron Ore - Prices, a/ 1950-89 (Actual) and 1990-2005 (Projected) --------------------------------($/ton)------------------------------------ Year Current S ----------1985 Constant S------------------ MUV b/ GNP c/ Actual 1950 12.4 52.1 57.4 1951 16.3 59.4 72.0 1952 22.3 77.5 97.1 1953 20.1 71.9 86.1 1954 17.1 62.5 72.1 1955 18.2 65.3 74.3 1956 21.4 74.1 84.6 1957 22.5 76.3 85.8 1958 21.5 71.7 80.4 1959 17.1 57.9 62.3 1960 17.1 56.7 61.3 1961 17.8 58.0 63.2 1962 16.8 53.7 58.4 1963 15.7 51.1 53.8 1964 15.7 50.3 52.9 1965 15.7 49.8 51.5 1966 15.3 47.0 48.6 1967 13.5 41.0 41.7 1968 12.6 38.6 37.0 1969 11.8 34.3 32.9 1970 15.2 41.6 40.2 1971 13.5 34.9 33.7 1972 12.8 30.5 30.5 1973 17.1 35.2 38.4 1974 19.0 32.0 39.0 1975 22.6 34.6 42.3 1976 21.9 32.8 38.6 1977 21.6 29.5 35.7 1978 19.4 23.0 29.8 1979 23.3 24.3 32.9 1980 26.7 25.5 34.6 1981 24.3 23.1 28.8 1982 25.9 25.0 28.7 1983 24.0 23.6 25.6 1984 23.2 23.4 23.9 1985 22.7 22.7 22.7 1986 22.0 18.6 21.4 1987 22.2 17.2 21.0 1988 23.1 16.6 21.1 1989 26.4 19.1 23.1 Projected 1990 29.2 19.8 24.5 1991 30.2 18.8 24.1 1992 29.6 18.2 23.1 1993 29.1 18.0 22.1 1994 29.2 17.8 21.6 1995 30.2 17.7 21.7 2000 39.5 19.3 24.4 2005 44.6 18.1 23.7 a/ Spot sinter fines of Brazilian ore, c.i.f. German rts, 65% metal content; prior to 1975, 68% metal content. Prices for 1950-59 were estimated on the basis of Swedish ore. b/ Deflated by Manufacturing Unit Value (MUV) index. c/ DefLated by US GNP deflator. Sources: Statistich Bundesamt Preise und Preisindizes fur die ein und Ausfuhr, various issues (actual); World Bank, Internationat Economics Department (projected). -193- Iron Ore Prices ($/ton, 1985 constant) 100 90-I go- 80- 70- 60- !' 50- 40- .- IIfS 50- 2 10 ' t Ii--i--CT T-TTT T i TT I i ITI I I F Ti IT Tl I I FI TIF IT I T I I II III TF 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index - --- Deflated by US GNP deflator Source: World Bank, International Economics Department. -194- STEEL Summary World steel consumption is projected to grow at an average annual rate of 1.6% during the 1990-2005 period. Most incremental demand will come from the developing countries, whose total steel consumption will surpass that of the industrial countries by the year 2005. Demand and supply will move towards close balance in industrial country and developing country regions, as the industrial countries cut back production capacity in line with slower consumption growth and as developing countries increase production to close the gap between consumption and production. Steel prices are expected to decline in real terms during the first half of the 1990s, increase during the second half of the decade, and then hold constant over the 2000-2005 period. Demand Outlook Steel consumption in the industrial countries has declined significantly since the first oil shock in 1973. The decline in consumption hit its low point in 1982 and 1983 after the second oil shock. Recently, however, some recovery in consumption has been observed, particularly in 1988 and 1989, when the construction sectors in the major industrial countries enjoyed an unprecedented boom. However, steel consumption in the industrial countries is not expected to regain its 1973 level even by the end of the century. Several factors will contribute to the slow recovery. Energy price shocks and competition from substitute materials will continue to shift demand towards lighter, stronger materials. The increasing share of continuous casting and other new steelmaking technologies will result in downward pressure on crude steel consumption, largely through the reduction in the amount of scrap generated in the production process. Production in manufacturing sectors of consumer durable goods, such as automobiles and appliances, are unlikely to initiate a demand boom for steel. Greater environmental concerns in many industrial countries will impose additional costs on steel production (e.g., reducing the proportion of steel produced through the coke oven process), which will make steel use less cost effective compared to substitute materials. However, on the positive side, important programs of infrastructure replacement in Japan and in EEC countries will generate incremental steel demand from the construction sector in the early 1990s. The projected growth rates for industrial production for the major industrial countries average 3-4 % p.a. for the 1990s, which is higher than their projected GDP growth rate. For the United States and Canada combined, annual consumption of crude steel is expected to continue to decline from 125 million tons in 1990 to 114 million tons in 2005. The EEC's (EEC-10) consumption of crude steel is foreseen to remain mostly flat during the period from 1995 to 2005. Saturated markets for steel embedded manufactured goods and the Community's aging population will tend to depress steel demand growth. However, this negative influence will be largely offset by the economic integration in 1992 and the projected appreciation of the US dollar vis-a-vis European currencies, which will increase the competitiveness of EEC exporting industries and thus increase the demand for steel. Japan's steel consumption is likely to grow slightly over the projection period. Intensified competition in the export of manufactured goods -195- from third countries in the face of Japan's appreciating currency should relatively weaken its crude steel demand. However, vigorous growth in the construction sector and a strong public works program will sustain strong demand for structural steel products. In addition, given the continued expansion in global market shares of certain Japanese industries, e.g., the automobile and electronics industries, including the optimistic outlook for those industries in emerging new markets such as Eastern Europe, the derived demand for flat steel products is expected to increase. Japanese total steel demand is therefore expected to increase from 87 million tons in 1990 to 93 million tons in 2005. In contrast with the industrial countries, prospects for steel consumption in the developing countries look bright, with more favorable assumptions for GDP and investment growth than the industrial countries (e.g., GDP of Asian and Southern European developing countries is projected to grow at 5.7% p.a. in constant dollars over the next 15 years). Many of these countries are in the early stages of modernization, where steel intensities (i.e., steel consumption per unit of GDP) are generally high compared, say, with most industrial economies. Table 1 shows steel intensities for countries at different stages of development. As can be seen, steel intensities of the developing countries in 1987 were much higher than in the industrial countries and were trending upwards. Table 1: Steel Intensity, 1968-87 a/ Country 1968 1980 1987 ------------(kg/'000 1980 $)-------------- Industrial countries 68.70 49.30 38.42 Federal Republic of Germany 71.62 48.06 36.09 Japan 98.60 79.23 59.75 United States 75.22 46.03 33.65 USSR and Eastern Europe 132.34 112.87 98.27 Developing countries 72.61 100.30 126.18 Brazil 56.34 66.05 58.45 Republic of Korea 63.50 110.61 143.70 Turkey 30.29 63.09 106.74 World 79.16 68.02 60.56 a/ Steel intensity is defined as the ratio of crude steel consumption to GDP in constant terms. Source: World Bank, International Economics Department. Impressive gains in steel consumption should be seen, in particular, in Asia. China is the largest steel producer and consumer among the developing countries, with an estimated apparent consumption of 86 million tons in 1989. Its steel consumption is projected to reach 150 million tons by the end of the century, and 193 million tons by 2005. The Republic of Korea registered the -196- highest growth rate in crude steel production and consumption among major steelproducing countries over past 20 years. Strong growth is expected to continue well into the next century because of its investments in infrastructure and rapid expansion of the automobile industry. For the developing countries as a whole, the average growth rate of steel consumption during 1990-2005 is projected at 3.7% p.a. At that rate, their total steel consumption would increase from 215 million tons (61% of total steel consumption in industrial countries) in 1989 to 385 million tons (103% of total steel consumption in industrial countries) in 2005. Steel intensity of developing countries will decline over the forecast period, from 109.4 kg per thousand 1980 US dollars in 1995 to 97 in 2000 and 91.2 in 2005. In Eastern Europe and the USSR, political changes have made the future much less predictable than in the past. Steel consumption in this group of countries is projected to grow at 1% p.a. over the forecasting period. In order to adjust to the new free market environment, Eastern European steel producers need capital equipment and finance, as well as technical and management expertise, to improve the efficiency of production facilities. Joint venture partnerships could be the pattern for future development of the Eastern European steel industry. While the Western European and US steel producers are willing to provide technical and management know-how, the Japanese steelmakers are more interested in looking for long-term investment. Supply Outlook World crude steel production reached an all-time high of 783 million tons in 1989, a 0.4% increase from 1988. The industrial countries as a group remain the largest producer and consumer of steel products, followed by the economies of Eastern Europe and USSR and the developing countries (Table Al). The largest industrial country steel producers are the Federal Republic of Germany, Japan, and the United States. Brazil, China, and the Republic of Korea are important developing-country producers. The USSR is the largest producer of steel. The industrial countries and Eastern Europe and USSR are net exporters of steel, while the developing countries are net importers. Investments in steelmaking capacity are influenced by many factors. Besides cash flow, availability of raw materials, and cost competitiveness, two factors have become important recently: (1) many steelmakers have been delaying expansion plans until they get a better feel for new technological developments in ironmaking, steelmaking, continuous casting, and rolling; and (2) world trade in steel slabs has become a fully accepted concept, and many steel companies count on imports of steel slab instead of building their own facilities. Because of the robust demand during the 1988-89 period, many planned closures of steel plants in the industrial countries have been postponed. Nevertheless, there is a strong likelihood that many of these plants will close if demand weakens and prices fall. The recent global pattern of steel production growth is likely to persist in the 1990s. With the aid of new technologies and management schemes, steel producers in the industrial countries will attempt to keep a competitive edge in the shrinking domestic and volatile international markets. The average growth rate of steel production is projected to be 0.4% p.a. over the 1990-2005 period for the industrial countries. Steel producers in the developing countries, confronting ever-increasing domestic demand, will likely be able to expand their capacity and production rapidly. The average growth rate of steel production is expected to be 3.8% p.a. for the developing countries. Most capacity expansions will take place in the developing countries- -some 69 million tons will be added to total capacity of those countries, with China alone accounting for 34 millions tons. -197- Technological innovations have enhanced efficiency in steel production. For the same amount of final steel products produced, the latest technologies generally require fewer material inputs and less crude steel. Table 2 shows the impact of two major technical innovations in steelmaking: (1) changes in the composition of three different types of furnaces used in steel making and (2) increasing share of continuous casting. It is easy to see that the Electric Arc and Basic Oxygen Furnaces have become the preferred production technologies at the expense of the Open Hearth Furnace. The continuous-casting technique has become the industry standard in many countries over the past ten years. However, China and the USSR, two of the most important producers, have not adopted the new technologies with the same speed as the rest of the world and have a long way to go to catch up. Table 2: The Impact of Technological Change in Major Steel-Producing Countries US Japan Germany, UK France Korea, Brazil USSR China F.R. R. of -----------------------------(%)------------------------------------ Production Process 1980 B.O.F. 61.2 75.5 78.4 59.4 81.9 69.2 63.5 28.4 49.0 E.A.F. 27.2 24.5 14.9 40.6 15.9 29.7 24.7 10.1 19.0 0.H. 11.6 0.0 6.7 0.0 2.2 1.1 11.8 61.5 32.0 1988 B.0.F. 58.0 70.3 82.7 73.9 73.7 68.4 75.1 37.1 58.0 E.A.F. 36.9 29.7 17.3 26.1 26.3 31.6 23.9 13.6 20.0 0.H. 5.1 0.0 0.0 0.0 0.0 0.0 1.0 49.3 22.0 -------------------------------(%)------------------------------------- Continuously Cast Steel 1980 20.3 59.5 46.0 27.1 41.3 32.4 33.4 10.7 4.0 1988 61.3 93.1 88.5 70.5 94.0 88.3 49.0 16.6 14.7 Sources: IISI, "Steel Statistical Yearbook"; P. Marcus and K. Kirsis, World Steel Dynamics: Chinese Steel, Paine Webber, New York, February, 1990. Table 3 presents recent estimates of the cost structure for selected major steel-producing countries. The competitive international markets for steel and the pressures to remove barriers to trade have forced steel producers in these countries to become more efficient. Total costs per ton of steel produced have been brought into line in many industrial countries. Developing countries and the USSR still have an edge in labor costs due to their lower wage rates. -198- Table 3: Cost Structures of Major Steel-Producing Countries a/ US Japan Germany, U.K. France Korea, Brazil USSR China F.R. R. of ---------------------------($/ton shipped)------------------------- Man hour/ton 6.3 6.6 6.4 6.3 6.3 7.3 14 14.5 120 Cost/hour 26 21 20 16 19 9 4 4 0.2 Labor cost 164 139 128 101 120 66 56 58 24 Iron ore 45 30 29 29 29 30 20 23 40 Coal 55 62 61 53 61 64 83 65 21 Scrap 110 120 110 105 100 135 125 100 21 Energy & others 91 73 75 103 92 61 22 122 105 Material costs 301 285 275 290 282 290 250 310 187 Operating costs 465 424 403 391 402 356 306 368 211 Depreciation 25 65 37 18 28 80 85 44 19 Interest 10 16 10 1 10 17 45 0 2 Pretax costs 500 505 450 410 440 453 436 412 232 Source: P. Marcus and K. Kirsis, World Steel Dynamics: Structural Changes in Steel, Paine Webber, New York, March, 1990. P. Marcus and K. Kirsis, World Steel Dynamics: Chinese Steel, Paine Webber, New York, February, 1990. a/ As of November 1989. Trade Prospects Historically, most countries have protected their domestic steel markets. Forms of protection include both tariff and non-tariff (quotas, voluntary restraint arrangements or VRAs, quality controls, certificates, price controls, price surcharges, anti-dumping acts, etc.) barriers. Among the industrial countries, Japan and the United States have lower tariffs than the EEC against developing country exports for most steel products. Non-tariff barriers (NTBs) are more important than tariff barriers in steel trade. The EEC protects 63-80% of its market for flat products by NTBs, and the United States protects its market almost completely under its VRA system. However, given the depressed domestic steel markets in the industrial countries and the strong exporting position of some developing countries, more and more tonnages of steel products have been channeled to the international markets, and, despite import protection schemes by various countries, the international markets for steel have been rather competitive. Among the industrial countries, Japan and the EEC will remain net exporters of steel during the 1990-2005 period. However, their net exports will show only a small increase (see Table 4). The United States is not expected to Table 4: Steel (Crude Equiv.) - Trade by Main Countries and Economic Regions/a Actual Projected Countries/ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 --------------------------------------------('000 Tons)------------------------------------------------------ Industrial 24,974 48,203 18,606 22,460 23,079 23,714 24,365 25,032 25,715 26,414 30,170 34,381 North America -12,920 -14,627 -21,203 -22,068 -21,728 -21,390 -21,056 -20,724 -20,396 -20,070 -16,874 -13,784 United States -12,309 -15,947 -20,406 -15,912 -15,431 -14,955 -14,485 -14,020 -13,559 -13,104 -9,536 -6,120 EEC-10 15,876 29,259 19,742 21,873 22,102 22,331 22,562 22,793 23,026 23,259 24,441 25,648 Germany, Fed. Rep. 4,799 8,729 6,808 6,762 6,947 7,133 7,321 7,511 7,702 7,895 8,888 9,927 France 790 3,149 2,154 2,336 2,507 2,680 2,853 3,028 3,204 3,382 4,288 5,228 United Kingdom 2,767 -1,328 1,460 1,372 1,269 1,168 1,068 970 874 780 333 -73 Italy -2,335 1,310 -2,337 -1,126 -1,110 -1,093 -1,076 -1,059 -1,041 -1,023 -927 -821 Industrial Asia 24,952 32,171 18,837 20,718 21,448 22,188 22,937 23,696 24,464 25,243 29,285 33,590 Eastern Europe & USSR 3,757 -341 3,547 -659 -665 -672 -679 -685 -692 -699 -735 -772 USSR 5,468 -2,429 -1,399 -2,715 -2,742 -2,769 -2,797 -2,825 -2,853 -2,882 -3,029 -3,183 Eastern Europe -1,711 2,088 4,946 2,056 2,077 2,097 2,118 2,140 2,161 2,183 2,294 2,411 Developing -28,731 -52,833 -20,441 -21,801 -22,414 -23,043 -23,687 -24,347 -25,023 -25,715 -29,435 -33,609 Asia -13,002 -32,711 -28,160 -29,903 -31,306 -32,773 -34,309 -35,917 -37,598 -39,358 -49,457 -62,115 China, People's Rep. -3,573 -9,028 -14,010 -15,891 -17,418 -19,054 -20,806 -22,681 -24,686 -26,831 -39,962 -58,112 Korea, Rep. of -845 1,947 3,288 5,220 5,710 6,239 6,810 7,426 8,091 8,807 13,306 19,791 India -403 -2,553 -2,040 -2,639 -2,914 -3,206 -3,517 -3,847 -4,197 -4,568 -6,787 -9,737 America -6,647 -6,182 12,445 12,226 12,268 12,310 12,350 12,390 12,429 12,467 12,643 12,790 Brazil -898 1,098 12,937 12,727 12,868 13,011 13,155 13,300 13,447 13,595 14,357 15,155 World 0 -4,971 1,712 0 0 0 0 0 0 0 0 0 Note: A minus sign before a figure indicates imports. a/ Production minus consumption by main countries and economic regions. b/ Estimate. Source: World Bank, International Economics Department. -200- become a net exporter during this period, but the gap between production and consumption is narrowing. The USSR will continue to be a net importer, while Eastern Europe should continue to be a net exporter. The developing countries as a whole will not be able to narrow the gap between production and consumption due to projected high demand growth. China and India will continue to import steel to meet the demands for their development of metal-intensive industries and massive infrastructure investments, despite ambitious expansion plans for their own steel production capacity. Price Outlook The World Bank's steel price index (WBSP) is the weighted sum of Japanese export prices (excluding exports to China) of the following products: rebars, plates, sections, hot roll, cold roll, wire rod, merchant bars, and galvanized sheet (see Table 5). The weights are the shares of these products in the total output of Japan, the United States, and the Federal Republic of Germany for the 1984-86 period. The WBSP index (1985 - 100) declined from its high of 135.2 in 1981 to a low of 100 in 1985. As the steel market rebounded with the construction boom in the industrial countries, the index increased sharply in 1988 and 1989, almost reaching 174.7. However, with the industrial economies slowing down, prices of many steel products declined in the first few month of 1990--with the exception of constructional steel (e.g., rebars). The WBSP index is projected to increase on average by 2.6% p.a. over the period 1991-95, which is less than the projected MUV rate of growth (2.94% p.a.) during the same period. The weighted average of steel prices, therefore, should be declining in real terms over this period. Over the 1996-2000 period, the index is forecast to achieve an average growth rate of 4.9% p.a., which is higher than the MUV's (3.68% p.a.), implying that steel prices are expected to gain in real terms during the second half of the 1990s. Finally, in the period 2001-2005, the index should increase, on average, by 3.2% p.a.--about the same rate of growth as the MUV (3.35% p.a.). Steel prices are not expected to increase in real terms in the first half of the present decade because of the expected slowdown in industrial activity during this period in major countries and the oversupply of steel products arising from the slow trimming of excess steel production capacities in the industrial countries. In the 1995-2000 period, the industrial production index of OECD countries is expected to grow faster than in the first half of the decade, thus leading steel demand on the international market to exceed supply and push up steel prices in real terms. Higher production costs due to the higher energy costs will also act to push up steel prices. Over the 2000-2005 period, most macrovariables are forecast to be around their long-run trend. Thus, global steel demand and supply are also projected to be balanced, and prices should not be subject to large changes in real terms. Not all prices of the different steel products are expected to change at the same rate. Under the assumption that construction and renovation activities continue to be strong in the industrial countries, long product prices are projected to increase at a faster rate than the WBSP index, while flat products will have a slower rate. -201- Table 5: Steel Product Prices a/, 1980-1989 (Actual) and 1990-2005 (Forecast) World Bank CR HR Galv. Merchant Wire Year Steel Index b/ Sheets Sheets Sheets Bars Plates Sections Rod Rebars (1985 = 100) ---------------------------(Current $/ton)--------------------------- 1980 131.1 386.1 323.3 471.0 342.5 341.7 358.3 350.8 330.8 1981 135.2 399.7 328.8 504.2 328.8 356.8 382.4 387.5 313.3 1982 116.7 367.9 281.7 431.7 258.3 309.2 333.8 353.3 242.5 1983 110.1 360.4 270.0 420.0 245.8 286.3 285.8 312.5 222.5 1984 116.1 376.7 283.8 452.1 266.4 305.1 300.8 308.8 233.3 1985 100.0 326.3 245.8 369.6 229.6 266.7 246.7 272.9 225.4 1986 101.9 325.4 269.6 384.6 229.2 285.4 248.8 239.6 219.6 1987 119.0 385.4 323.3 454.2 244.2 360.8 330.8 248.3 202.9 1988 155.6 501.3 395.8 625.0 370.4 432.5 433.3 313.8 262.5 1989 174.7 550.4 441.9 735.0 416.3 478.8 441.7 350.8 341.7 1990 162.2 510.0 405.0 630.0 405.0 450.0 415.0 345.0 350.0 1991 166.5 522.1 414.0 647.5 416.7 462.9 427.4 355.3 359.4 1992 171.5 537.4 425.5 669.0 430.9 478.8 442.4 367.8 361.0 1993 175.0 546.8 432.3 683.4 440.6 489.6 452.8 376.4 368.4 1994 179.0 557.8 440.3 699.8 451.6 501.8 464.6 386.2 376.9 1995 184.1 572.2 451.0 720.7 465.6 517.3 479.4 398.5 387.7 2000 234.6 719.8 563.4 924.1 599.8 666.4 620.5 515.9 494.8 2005 275.5 833.9 647.9 1091.5 711.9 791.0 740.1 615.3 581.6 al Steel prices are f.o.b. Japan excluding shipments to China and United States. All products items refer to base size: cold-rolled coil/sheet, hot-rolled coil/sheet, galvanized iron sheet, merchant bars, medium plates, H-shape sections, wire rod, concrete reinforcing bars (rebars). b/ Composite steel price index is a weighted average price index (1985-100) for products given in the table. Weights used are shares of apparent consumption of each product in the Federal Republic of Germany, Japan and United States during the period 1984-86. Source: Japan Metal Bulletin; Commodities Research Unit LTD, CRU Metal Monitor (actual); World Bank, International Economics Department (projected). Table Al: Steel (Crude Equiv.) - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 ---------------------------------------'00os ------------------------------------------------------ ------pa------- Industrial 376,897 400,486 368,118 371,380 373,608 375,850 376,105 380,374 382,656 384,952 396,640 408,663 1.1 -1.1 0.6 North America 129,438 127,175 105,497 103,872 103,457 103,043 102,631 102,220 101,811 101,404 100,998 100,594 -0.7 -2.5 -0.2 United States 118,907 111,586 90,631 88,414 88,060 87,708 87,357 87,008 86,660 86,313 85,968 85,624 -1.2 -2.9 -0.2 EEC-10 140,638 143,802 136,058 138,375 138,790 139,206 139,624 140,043 140,463 140,885 143,010 145,169 0.8 -1.0 0.3 Germany, Fed. Rep. 43,557 43,829 41,023 41,073 41,361 41,650 41,942 42,235 42,531 42,829 44,349 45,923 0.4 -1.1 0.7 France 23,042 22,398 19,122 19,287 19,441 19,597 19,754 19,912 20,071 20,231 21,054 21,910 0.0 -1.9 0.8 United Kingdom 26,316 16,105 18,950 18,740 18,515 18,293 18,073 17,857 17,642 17,431 16,410 15,448 -2.2 -3.2 -1.2 Italy 17,052 25,176 23,760 25,180 25,407 25,635 25,866 26,099 26,334 26,571 27,788 29,061 3.5 1.3 0.9 Industrial Asia 88,015 108,273 105,681 107,909 108,988 110,078 111,179 112,291 113,413 114,548 120,391 126,532 4.5 0.1 1.0 Eastern Europe & USSR 155,521 208,243 224,385 217,971 220,151 222,352 224,576 226,821 229,090 231,381 243,183 255,588 3.2 1.8 1.0 USSR 115,613 148,512 163,037 160,077 161,678 163,295 164,927 166,577 168,243 169,925 178,593 187,703 2.9 1.6 1.0 Eastern Europe 39,908 59,731 61,348 57,894 58,473 59,058 59,648 60,245 60,847 61,456 64,591 67,885 3.9 2.2 1.0 Developing 51,828 114,827 187,237 193,561 200,916 208,551 216,476 224,702 233,241 242,104 291,735 351,541 7.7 7.3 3.7 Asia 28,441 67,666 116,802 122,452 128,820 135,518 142,565 149,978 157,777 165,982 213,865 275,561 8.0 8.2 5.1 China, People's Rep. 18,767 38,990 67,718 70,087 73,031 76,098 79,296 82,624 86,095 89,711 110,200 135,370 7.5 7.3 4.1 0 Korea, Rep. of 442 8,974 19,118 21,873 23,229 24,669 26,199 27,823 29,548 31,380 42,391 57,266 24.8 23.8 6.0 India 6,311 10,135 14,309 14,429 14,905 15,397 15,905 16,430 16,972 17,532 20,622 24,257 3.7 4.4 3.2 America 13,108 27,946 42,693 42,897 43,369 43,846 44,328 44,816 45,309 45,807 48,383 51,103 7.7 6.6 1.1 Brazil 5,437 14,152 24,657 25,017 25,367 25,722 26,082 26,448 26,818 27,193 29,151 31,249 9.3 8.6 1.4 World 584,246 723,556 779,740 782,912 794,675 806,753 819,157 831,897 844,986 858,436 931,558 1,015,811 2.6 1.0 1.6 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). lb Estimate. Sources: IISI (International Iron and Steel Institute); World Bank, International Economics Department (projected). Table A2: Steel (Crude Equiv.) - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/& Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000Tons)------------------------------------------------------ -----------( p.a.)------- Industrial 351,923 352,283 349,512 348,920 350,529 352,135 353,740 355,342 356,941 358,537 366,470 374,301 0.8 -1.2 0.4 North America 142,358 141,802 126,700 125,940 125,184 124,433 123,686 122,944 122,207 121,473 117,873 114,379 -0.1 -1.8 -0.6 United States 131,216 127,533 111,037 104,326 103,491 102,663 101,842 101,027 100,219 99,417 95,504 91,744 -0.3 -2.0 -0.8 EEC-10 124,762 114,543 116,316 116,502 116,689 116,875 117,062 117,250 117,437 117,625 118,569 119,521 0.4 -1.5 0.2 Germany, Fed. Rep. 38,758 35,100 34,215 34,311 34,414 34,517 34,621 34,725 34,829 34,933 35,460 35,996 0.1 -1.4 0.3 France 22,252 19,449 16,968 16,951 16,934 16,917 16,900 16,883 16,866 16,850 16,766 16,682 -0.2 -2.9 -0.1 United Kingdom 23,549 17,433 17,490 17,368 17,246 17,125 17,005 16,886 16,768 16,651 16,076 15,521 -1.6 -3.1 -0.7 Italy 19,387 23,866 26,097 26,306 26,516 26,728 26,942 27,158 27,375 27,594 28,716 29,883 2.6 0.8 0.8 Industrial Asia 63,063 76,102 86,844 87,191 87,540 87,890 88,242 88,595 88,949 89,305 91,105 92,942 4.1 0.6 0.4 Eastern Europe & USSR 151,764 208,584 220,838 218,630 220,816 223,024 225,254 227,507 229,782 232,080 243,918 256,360 3.2 1.7 1.0 USSR 110,145 150,941 164,436 162,792 164,420 166,064 167,724 169,402 171,096 172,807 181,621 190,886 3.3 1.9 1.0 Eastern Europe 41,619 57,643 56,402 55,838 56,396 56,960 57,530 58,105 58,686 59,273 62,297 65,474 3.0 1.2 1.0 Developing 80,559 167,660 207,678 215,362 223,330 231,594 240,163 249,049 258,263 267,819 321,170 385,150 6.8 5.4 3.6 I. Asia 41,443 100,377 144,962 152,355 160,125 168,292 176,874 185,895 195,376 205,340 263,322 337,676 7.8 7.4 5.0 0 China, People's Rep. 22,340 48,018 81,728 85,978 90,449 95,152 100,100 105,305 110,781 116,542 150,162 193,481 8.0 7.8 5.1 Korea, Rep. of 1,287 7,027 15,830 16,653 17,519 18,430 19,388 20,397 21,457 22,573 29,085 37,476 18.3 14.4 5.1 India 6,714 12,688 16,349 17,068 17,819 18,603 19,422 20,277 21,169 22,100 27,409 33,994 3.9 4.8 4.3 America 19,755 34,128 30,248 30,671 31,101 31,536 31,978 32,425 32,879 33,340 35,740 38,313 4.9 1.8 1.4 Brazil 6,335 13,054 11,720 12,290 12,499 12,711 12,928 13,147 13,371 13,598 14,794 16,095 6.5 2.8 1.7 World 584,246 728,527 778,028 782,912 794,675 806,753 819,157 831,897 844,986 858,436 931,558 1,015,811 2.6 1.0 1.6 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). lb Estimate. Sources: IISI (International Iron and Steel Institute): World Bank, International Economics Department (projected). -204- LEAD AND ZINC Summary Lead and zinc prices have increased to record-high levels in recent years. Zinc prices reached peaks in 1989 and lead prices in 1990. The price increases were fueled mostly by increased industrial production, supply disruptions, low stocks, and the US dollar depreciation. Over the short term, lead and zinc prices are likely to decline- -but not drastically. Continued growth of industrial production and extremely low stocks provide the underpinnings for a relatively optimistic short-term outlook for producers. In the years following, lead and zinc prices are expected to follow roughly the cyclical patterns of other base metals prices--from lows in the mid-1990s to price recovery in real terms towards the year 2000 and then declining to 2005. Over the long term, the trend in prices is expected to be near to the long-run cost of production, which is estimated at around $550-600/ton for lead and $1,000-1,100/ton for zinc. The future demand for lead critically depends on the production of batteries, and hence on automobile production and stocks. However, rapid expansion of industrial applications of batteries and lessened pressures for battery downsizing are expected to allow total lead consumption to grow at modest rates, around 1.2% p.a. during 1989-2005. World zinc consumption is also expected to increase at 1.2% p.a. in the 1989-2005 period, a rate slightly higher than that of the 1970-88 period. Zinc demand is highly sensitive to fluctuations in industrial activity and vulnerable to substitution by other materials in the medium term. During the 1990 to 2005 period, world lead mine capacity is expected to increase by 350,000 tons, most of it taking place in Canada, Australia, Latin America, and Asia. During this period, world smelter capacity for secondary lead is forecast to increase by 300,000 tons, mostly in industrializing developing countries. In the case of zinc, mine production of zinc is anticipated to increase by 600,000 tons, mostly in the countries mentioned above, as well as in Turkey and Thailand. Demand Outlook Between 1986 and 1989, the market economies' lead and zinc consumption increased, on average, at 2.7% p.a. and 2.3% p.a., respectively. Of the net increase in lead consumption during the period, 62% was accounted for by the industrial countries and the remaining 38% by the developing countries. The increases were highly concentrated in a few countries--the United States, France, the Federal Republic of Germany, and Japan among the industrial countries and the Republic of Korea, Thailand, and Taiwan (China) among the developing countries. Of the net increase in zinc consumption in this period, 55% took place in the industrial countries and 45% in the developing countries. The increases in zinc consumption were more widespread among the industrial and developing countries than was the case for lead. In Eastern Europe and the USSR, lead consumption declined by 4.9% p.a. and zinc consumption increased by 1.0% p.a. during 1986-89. (i) Lead Table 1 shows the end-use markets for lead in the main lead-consuming countries. Batteries have been the most important end-use sector for lead, and their share in total lead consumption has been expanding steadily, from 49.4% in 1980 to 61.2% in 1988. Indeed, about 81% of the net increase in lead consumption during 1986-88 was for increased battery production. End uses for cable sheathing, alloys, and as gasoline additives have been declining in absolute terms, as well as in terms of their relative shares. Other uses have maintained either their market share or their absolute levels of consumption. -205- Since the first oil price shock of 1973/74, automotive batteries have undergone major technological changes that led to downsizing of batteries without sacrificing power. This was achieved mainly by the development of thinner grids that reduced the lead content of typical automotive batteries. It is estimated that the lead content of an average battery in the United States declined from 10.5 kg in the early 1970s to about 7 kg in recent years (and stabilizing at that level). Similar declines, from 9.7 kg to 6.5 kg, are also estimated for Japan. These declines, however, have been more than compensated for by increases in battery production. In the United States, automotive battery production increased at almost 2% p.a. during 1970-88, while Japan's growth rate averaged 4% p.a. over the 1975-87 period. During 1983-88, world battery production increased at 3.5% p.a. Table 1: Lead Consumption by End-Use Sectors, 1980-88 1980 1982 1984 1985 1986 1987 1988 ----------------------(%)----------------------- Batteries 49.4 52.1 56.8 58.1 59.8 60.6 61.2 Cable sheathing 7.6 7.6 5.7 5.7 5.4 4.9 4.7 Rolled/extruded 9.5 7.9 8.2 7.6 7.9 7.6 7.9 products Shot/ammunition 2.7 2.8 2.9 2.8 2.6 2.3 2.2 Alloys 5.8 5.4 4.6 4.2 3.9 4.0 3.8 Pigments/compounds 13.1 13.7 13.3 13.9 13.4 13.5 13.3 Gasoline additives 7.4 6.4 4.6 3.7 3.0 2.8 2.5 Miscellaneous 4.5 4.1 3.9 4.0 4.0 4.3 4.4 Total 100 100 100 100 100 100 100 Note: Includes most industrial countries and major developing countries. For details, see International Lead and Zinc Study Group (ILZSG), Trends in Consumption of Lead and Zinc, April 1989, and subsequent updates. Source: ILZSG. The average battery life also has been increased--up to 5 years in Europe, where, 10 years ago, it was 2.5 years to 3 years. In the United States and Japan, an average battery life of 3.3 to 4 years has become the norm. Despite the increase in battery life, the demand for replacement batteries increased at 3.1% p.a. in the United States during 1970-88, 3.5% p.a. in Western Europe during 1976-87, and at 3.9% p.a. during 1975-87 in Japan. Since the stock of automobiles tends to increase steadily while annual production of automobiles fluctuates in concert with the business cycle, the proportion of replacement batteries in total battery production normally increases in countries with high per capita automobile ownership. Thus, the replacement battery market will be a source of strong and sustained demand increases for lead. Recently, the increasing use of electronic equipment in automobiles has demanded greater reserve power in batteries. Research to improve battery performance is now focused on providing reserve power, as well as cold-cranking ability. Until such improvements have been made, these demands may result in a temporary increase in lead consumption per batteries. -206- Data available for the United States indicate that batteries used for industrial purposes have been the most rapidly increasing segment of lead consumption, increasing at 9.6% p.a. during the last five years (in terms of the total sales value of industrial batteries). The fastest-growing industrial uses for batteries are in providing standby power, which means large batteries to store electricity to provide emergency power. A particularly promising application of large-scale batteries is in peak load management, currently under experimentation at US electric utilities. Comprehensive information on this rapidly growing market is not available. However, it could be reasonably expected that such rapidly growing industrial markets for lead batteries will be generated in other industrial countries and in industrializing developing countries. The growth rate of the industrial economies' battery demand is projected to slow in the 1990s and beyond as the automobile population reaches the saturation level in most of these economies. However, rapid expansion of industrial applications and lessened pressures for battery downsizing are expected to allow total lead consumption for batteries to grow at modest rates, at around 2% p.a. during the 1989-2005 period in the industrial and developing countries. Demand growth in rolled and extruded products, and in pigments and other compounds, is likely to be mostly offset by declines in markets for cable sheathing, alloys, and gasoline additives. Plastics will continue to replace lead in cable sheathing, although at slower rates than in the past. Many developing countries still use leaded gasoline, and this practice will come under increasing pressure because of health and environmental concerns. For the same reason, the lead content of solder, the main lead alloy, will continue to decline. Lead in pigments and other compounds that do not pose health risks has been increasing and will continue to increase. Among the rolled and extruded products and other miscellaneous uses, the promising areas for future growth are in nuclear waste management and protection from radiation, lead roofing and pipes, and in galvanizing. (ii) Zinc Table 2 shows the main end-use markets for zinc. The largest and the fastest-growing market for zinc is the galvanizing market, currently accounting for 45% of zinc consumption in the market economies. In recent years, most other end-use markets have been maintaining their market shares, implying modest demand growth. This resulted from increased industrial activity and reduced pressures to substitute or downsize. Table 2: Zinc Consumption by End-Use Markets, 1980-88 1980 1982 1984 1985 1986 1987 1988 Galvanizing 39.5 43.4 41.9 42.3 43.8 45.1 45.5 Alloys 16.1 15.5 15.3 16.0 15.7 15.1 15.0 Brass and bronze 24.1 19.3 21.9 20.3 20.9 20.3 20.3 Semi-manufactures 7.7 9.5 8.0 7.9 7.0 7.0 6.9 Chemicals 8.7 8.0 8.5 9.1 8.2 8.2 7.9 Others 4.0 2.7 2.6 2.9 3.0 2.9 3.0 Total 100 100 100 100 100 100 100 Note: Countries included are the same in Table 1. Source: ILZSG. -207- Galvanizing consumption of zinc in the market economies increased at 5.7% p.a. during 1986-88, a marked departure from the stagnation during the 1980- 86 period. This recent growth resulted from the strong recovery in industrial production, particularly in capital goods industries and in automobiles. The galvanizing market for zinc has been adversely affected by two technological developments. One is the progressively thinner coatings of zinc, and the other is the introduction of zinc alloys such as Galvalume (55% aluminum, 43.5% zinc, and 1.5% silicone) and Galfan (5% aluminum and 95% zinc) as the coating material. Increased adoption of electrolytic galvanizing in place of the hot dipping method, because of the former's more uniform and thinner coating properties, has reduced the overall thickness of zinc coating in galvanized steel. In electro-galvanizing itself, the coating thickness has been reduced through improvements in technology. Galvalume provides better corrosion protection than does zinc at the cost of some undesirable properties. Galfan, developed by the International Lead and Zinc Research Organization, has shown greater corrosion resistance than zinc without losing the desirable properties of zinc. It is estimated that between the 1960s and the early 1980s, zinc consumption per ton of galvanized steel declined by 8.7%. Continued research and development in this area is expected to bring about further declines in the zinc intensity of galvanized steel. However, the drive to improve the product quality of manufactures will require better corrosion protection and, hence, more widespread use of galvanized steel. The most dramatic example has been in the automobile sector, where, during the 1982-86 period, the amount of zinc used for corrosion protection in an average automobile increased by 45% in the United States. Many other product categories offer opportunities for increased use of galvanized steel, such as construction beams and posts. Zinc-based alloys for diecasting have widespread industrial applications, the most important of which is in automobiles. However, zinc diecasts in automobiles have been under intense competitive pressure from plastics and aluminum, as the drive for fuel efficiency has required lighter products. The zinc industry's answer to this challenge was the introduction of thin-walled diecasts, which helped stabilize the share of zinc diecasts but reduced the amount of zinc used. As a result, zinc diecasts used per automobile produced in the United States declined from 64 lb in 1967 to 20 lb in 1986. Consumption of zinc-based alloys is expected to grow roughly in line with industrial production, unless the pressure of substitution intensifies because of the high cost of zinc or for other reasons. Brass and bronze, long used widely for a variety of purposes, are considered to be mature products with little scope for market expansion. Their consumption has generally been declining. (Brass is used mainly in plumbing fixtures and for heat-exchange components such as automobile radiators.) Both of these markets have been, and will continue to be, under strong competitive pressure from plastics and aluminum. Other important uses of zinc include zinc oxide and other zinc compounds for chemical purposes, and zinc sheets and strips. Zinc chemicals have enjoyed modest growth and will continue to do so, mainly benefiting from production increases in automobile tires and oil-based paints. In total, world zinc consumption is expected to increase at 1.2% p.a. in the 1989-2005 period, a rate slightly higher than that of the 1970-89 period. Zinc demand is highly sensitive to fluctuations in industrial activity and vulnerable to substitution by other materials in the medium term. It should be kept in mind, therefore, that zinc consumption could experience wider fluctuations than the forecasts presented here, and its consumption growth rate in the long run could be significantly lower if prices remain high over an extended period. -208- Supply Outlook Lead and zinc are produced mostly as joint products; about 60% of the market economies' lead and zinc output is derived from ores containing both lead and zinc, often together with silver and copper, and sometimes gold. In 1987, the market economies' lead and zinc mines produced as joint products 0.42 tons of lead, 1.20 kg of silver, and 0.11 tons of copper for each ton of zinc. Because of this joint production, decisions about investment in lead and zinc mining are complicated by the different market outlooks for the various metals vis-a-vis the metal content of the deposits. Because of the poor market prospects for lead over the last 15 years, deposits consisting mostly of lead were rarely considered economic. However, lead deposits with significant silver content have been attractive, in which case lead is treated as a by-product. It has become rare, therefore, to develop lead-only mines, which are mostly confined to Morocco, South Africa, and the United States. Over the years, lead and zinc mining has gradually shifted to deposits that contain more zinc relative to lead, unless otherwise justified by the presence of silver or gold. Lead production was almost "involuntary." This state of affairs explains the steady decline in world mine capacity and production of lead since the early 1970s. Lead smelter and refinery capacity also continued to decline until 1988, the latest year for which data are available, when it rebounded slightly. Between 1980 and 1988, the market economies' lead mine capacity declined from 2.63 million tons to 2.59 million tons; large increases in Australia, Brazil, Mexico, and Peru were more than offset by declines in Western Europe, Canada, United States, and Japan. Restructuring of the lead industry during the first half of the 1980s meant large-scale retirement of primary and secondary lead smelter and refinery capacities in the United States and Western Europe. New smelter and refinery capacities added in Asia and Latin America were not large enough to compensate for the declines in the industrial countries. Newly industrializing developing countries with expanding automobile fleets provided the largest increases in secondary lead smelter and refinery capacity. Except for a few years in the 1980s, world mine and refined production of zinc has been steadily increasing, implying that there has not been discontinuities in investment in lead and zinc capacity primarily geared to producing zinc. Between 1980 and 1988, the market economies' zinc mine capacity increased from 4.95 million tons to 5.5 million tons, a rate of growth of 1.3% p.a. Most of the mine capacity increases took place in Australia, Mexico, Peru, Chile, Brazil, Canada, India, and Thailand, while declines were concentrated in the United States, Western Europe, and Japan. It is interesting to note that in Canada, lead mine capacity declined while zinc mine capacity increased. Because of the excess capacity present in 1980, total zinc smelter capacity in the market economies has shown little change in the 1980s. Declines of smelter capacity in the United States, Western Europe, and Japan were largely offset by increases in Asia, Latin America, and Canada. Investments in new lead and zinc mines in the 1980s have been characterized by a tendency to develop large-scale projects in hostile environments. Examples are the Polaris mine in Canada's Northwest Territories, the Red Dog mine in Alaska, and the Mae Sod mine in Thailand. These require relatively large infrastructure investment and have a limited period of operation each year because of climatic conditions. Partly for this reason, a high zinc to lead ratio in the deposit often becomes a necessary condition for their development. For example, the Red Dog deposit has 17.1% zinc, 5% lead, and 2.4 oz. silver per ton of ore. This characteristic also applies to new mine projects being developed or planned to come on-stream in the 1990s. During the early 1990s, major increases in zinc mine capacity, together with by-product lead, are expected take place in Australia, Canada, India, Tunisia, and Turkey. -209- An implication of the above is that world primary lead production will continue to grow at a much lower rate than that of zinc. An important contributing factor to the record-high lead prices in 1989-90 was the scarcity of lead concentrates that resulted from the decline in lead mine capacity throughout the 1980s. Even with the significant increases in secondary lead production expected to take place in the industrial and developing countries in the 1990s, a significant increase in primary lead capacity is required to meet the expected demand increases. This increase will not be forthcoming, however, unless new investments are made to boost lead production above and beyond those currently anticipated. This conclusion implies relatively strong lead prices over the medium term. Table 3 shows forecasts of lead mine capacity and secondary lead smelter capacity for broad country groups. During the period 1988 to 2000, world lead mine capacity is expected to increase by 250,000 tons, most of it taking place in Canada, Australia, Latin America, and Asia. During the same period, world smelter capacity for secondary lead is forecast to increase by 300,000 tons. These increases will be sufficient to meet the increases in demand. Smelter and refinery capacity for primary lead is expected to increase enough to process the increase in mine production. For the period 2000-2005, capacity expansions are projected in line with expected demand growth. In the case of zinc, mine production will be the main source of output to meet demand increases for zinc metal. Forecasts of zinc mine capacity are shown in Table 4. Price Outlook Lead and zinc prices increased to record high levels in recent years. High prices continued unabated into the summer of 1990, with July lead prices 153% higher than in 1986 and zinc prices 155% higher. Zinc prices reached a peak in 1989 and lead prices in 1990. An analysis of the 1987-89 period shows that although zinc price increases were fueled mostly by increased industrial production, supply disruptions, low stocks, and the US dollar depreciation also added important boosts.' US dollar depreciation probably had more of an impact on lead and zinc prices than on other base metals, excluding nickel. The analysis also shows that supply disruptions were not important to lead price increases up to 1989, which is consistent with industry reports of adequate supplies up to that time. Supply disruptions figured more importantly in lead price increases in 1990. Over the short term, lead and zinc prices are likely to decline, but not drastically. Prices are expected to remain at relatively high levels by historical standards over the next year or two. This forecast is based on the assumption that growth of industrial production in major industrial economies anq developing countries will continue at the moderate rates of the -recent past. This implies consumption growth of 1% p.a. to 1.5% p.a. for lead and zinc in the next several years. However, a tally of available lead and zinc supplies in 1991 indicates the likelihood of a large increase in production, partly from new mines and smelters coming on-stream in 1990-91 and partly as a result of a return to normal production from supply disruptions in 1990. Although the market balance, 1 B.J. Choe, "Metals Price Boom of 1987-89: The Role of Supply Disruptions and Stock Changes," PRE Working Papers WPS 542, International Economics Department, World Bank, November 1990. 2 In the event of an economic recession, perhaps triggered by the Middle East crisis and the resulting higher oil prices, the short-term outlook for lead and zinc prices would be considerably more pessimistic. -210- Table 3: Lead Mine and Secondary Smelter Capacities, 1980-2005 1980 1984 1988 1990 1995 2000 2005 --------------------mine capacity---------------- ('000 tons) Industrial countries North America 954 776 909 870 900 890 880 Western Europe 368 329 283 280 260 280 300 Australia 430 514 516 550 580 610 640 Other 40 38 29 25 22 20 15 Developing countries Latin America 433 459 504 510 530 550 580 Africa 244 310 238 210 230 250 270 Asia 165 132 111 100 120 130 150 Total 4,614 4,542 4,578 4,535 4,637 4,730 4,840 ------------secondary smelter capacity---------- ('000 tons) Industrial countries North America 1,382 1,064 918 900 930 970 1,050 Western Europe 894 774 794 800 840 880 930 Japan 126 126 121 125 140 180 230 Other 33 32 32 34 36 40 45 Developing countries Latin America 180 169 176 180 190 210 240 Asia 107 162 227 250 280 320 370 Africa 56 49 67 70 75 85 100 Total 2,778 2,376 2,335 2,359 2,491 2,685 2,965 Source: ILZSG, CApacitX Changes in Lead_and Zinc Mines and Metallurgical Works in_the1930s, September 1989; World Bank, International Economics Department. -211- Table 4: Zinc Mine Capacities, 1980-2005 1980 1984 1988 1990 1995 2000 2005 -------------------('000 tons)----------------- Industrial countries North America 1,761 1,484 1,450 1,850 1,900 1,850 1,800 Western Europe 1,038 1,086 1,005 970 1,000 1,050 1,100 Australia 524 711 816 920 980 1,100 1,200 Japan 185 192 158 140 100 60 30 Developing countries Latin America 928 1,080 1,181 1,270 1,400 1,450 1,500 Africa 280 293 281 290 370 400 420 Asia 236 377 305 330 430 450 450 Total 4,952 5,223 5,196 5,770 6,180 6,360 6,500 Source: See Table 3. therefore, is likely to turn to a surplus in 1991, the size of the surplus is not expected to be large enough to cause a drastic price collapse. Much of the production increase will go into eliminating the current supply deficit. However, the excess supply situation is likely to be a protracted process, persisting through the early 1990s, pushing prices lower in real terms. Throughout the 1990s, lead prices may fare slightly better than zinc prices because capacity expansions expected in the 1990s, at least those already committed or planned, are geared more towards increasing zinc production than lead production. Thus, the likelihood of a supply shortage is higher for lead than for zinc as long as the industry treats lead as an involuntary by-product. Over the long term, lead and zinc prices are expected to follow roughly the cyclical patterns of other base metals prices--from lows in the mid- 1990s to price recovery in real terms towards the year 2000 and then declines to the year 2005. This cycle is basically driven by investments in mining, smelting, and refining capacity. For the long term, the trends in lead and zinc prices are expected to closely reflect the costs of production. Estimating production costs for joint products is complicated by the difficulty of allocating common costs between the two. One way of analyzing cost trends is to look at common costs separately from individual costs. The period 1981-86 was a period of mining industry restructuring, during which production costs were sharply reduced to cope with low product prices. For lead and zinc, cost reductions were achieved mostly at the mining and milling stage, where ore is mined and turned into lead or zinc concentrates. It is estimated, that between 1981 and 1986, the costs of mining and milling a ton of ore declined by 25%, and the costs of transporting, smelting, and refining dropped by almost 9%, for a 16% reduction in the total cost of producing refined metals contained in the ore. However, because of sharp declines in silver and gold prices and deterioration in the ore grade, lead and zinc production costs, after allowing for by-product credits, have declined much less than the total cost. With the rise in metals prices, mining and milling costs have also increased--by about 10% between 1986 and 1989. In 1989, the costs of producing a ton of lead or zinc metal is estimated at about $570 and $1,050, respectively, in constant 1989 dollars. The price forecasts for 2000 and 2005 are set to average approximately at these levels. Table Al: Lead Ore - Production by Main Countries and Economic Regions Actual Projected Growth Rates/& Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1999 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( P.a.)------ Industrial 1,703 1,613 1,501 1,108 1,407 1,436 1,459 1,472 1,496 1,519 1,549 1,569 1.0 -1.0 0.7 North America 876 841 761 694 650 690 700 710 730 750 770 790 1.8 -1.9 0.8 EEC-10 242 249 168 144 148 147 145 143 142 140 130 110 -0.1 -1.7 -1.7 Industrial Oceania 425 388 457 481 520 510 525 530 535 540 560 580 0.9 0.8 1.2 Australia 424 388 457 481 520 510 525 530 535 540 560 580 0.9 0.9 1.2 Eastern Europe & USSR 681 759 687 672 660 655 665 670 680 685 715 740 1.3 -0.4 0.6 USSR 477 580 510 500 490 490 500 500 510 510 530 550 1.7 0.0 0.6 Eastern Europe 205 179 177 172 170 165 165 170 170 175 185 190 0.1 -1.7 0.6 Developing 1,003 1,159 1,176 1,148 1,174 1,189 1,209 1,232 1,252 1,275 1,360 1,435 1.4 1.0 1.4 Asia 230 318 402 423 432 432 45 445 457 458 490 515 3.5 2.9 1.2 China, People's Rep. 110 158 312 341 350 350 360 360 370 370 400 420 3.8 4.6 1.3 Africa 209 255 202 186 195 197 199 200 198 203 205 210 0.8 1.8 0.8 Morocco 77 115 69 65 70 70 70 70 68 68 65 60 0.6 0.3 -0.5 America 422 432 384 421 427 439 439 460 465 482 537 585 0.5 -0.2 2.1 41 Mexico 165 157 171 163 185 190 190 195 200 210 240 260 0.1 0.3 3.0 Peru 155 187 149 192 175 180 180 195 195 200 220 240 1.2 0.7 1.4 Southern Europe 141 154 131 118 120 121 126 127 132 132 128 125 0.7 -0.5 0.3 Yugoslavia 123 123 95 79 80 80 85 85 90 90 85 80 0.1 -1.2 0.1 World 3,387 3,530 3,364 3,228 3,241 3,280 3,333 3,374 3,428 3,479 3,624 3,744 1.2 -0.2 0.9 Notes Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). lb Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)i World Bank, International Economics Department (projected). Table A2: Lead Ore - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- ----------- ( p.a.) ------ Industrial 360 352 374 366 351 366 366 370 375 380 382 377 1.6 -1.6 0.2 North America 158 179 186 212 178 200 197 203 207 214 219 225 2.5 -2.9 0.4 Canada 153 140 165 155 143 153 155 157 161 166 170 175 1.8 -2.9 0.8 EEC-10 97 99 69 56 59 58 538 57 56 56 52 44 4.8 -2.8 -1.5 Other W. Europe 44 46 42 41 39 40 39 39 39 38 35 30 0.5 -0.9 -1.9 Industrial Oceania 45 21 77 57 74 67 72 71 73 73 76 78 0.0 1.9 2.0 Eastern Europe & USSR 10 0 6 10 8 9 8 9 9 9 9 9 0.0 0.0 -0.3 Developing 399 318 250 236 246 244 249 256 257 263 276 290 -0.9 -2.9 1.3 Asia 132 41 20 16 19 18 19 18 19 19 20 21 -7.0 -12.7 1.9 Africa 50 127 102 115 109 116 114 116 114 118 119 122 0.5 4.6 0.3 Morocco 44 69 29 15 23 20 21 21 20 20 19 18 -2.8 -4.5 1.1 America 152 117 108 90 102 94 99 105 106 108 119 130 0.3 -2.3 2.3 Peru 108 86 108 90 102 94 99 105 106 108 119 130 1.6 -1.0 2.3 Mexico 1 2 0 0 0 0 0 0 0 0 0 0 0.0 0.0 0.0 Southern Europe 65 33 20 15 17 16 17 17 18 18 17 17 2.2 -8.0 0.8 World 769 670 630 612 605 618 624 635 641 652 667 676 0.3 -2.2 0.6 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)o end-point for projected periods (1989-2005). 1b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)l World Bank, International Economics Department (projected). Table A3: Lead Ore - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Ratesia Countries / 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 -------------------------------------------- (000 tons) ---------------------------------------------------- -----------(p.a.)------ Industrial 572 522 641 640 678 667 685 681 690 696 692 694 1.1 0.3 0.5 North America 87 80 31 5 18 12 15 14 15 15 16 16 -6.7 -9.5 7.6 EEC-10 348 305 430 337 365 357 371 368 370 372 364 362 1.0 0.6 0.4 Other W. Europe 4 4 3 3 3 3 3 3 3 4 5 6 -0.8 -5.2 4.4 Industrial Asia 133 134 180 179 176 177 177 178 182 186 186 186 6.8 2.5 0.2 Eastern Europe L USSR 33 47 17 25 20 23 22 23 23 23 25 27 0.0 0.0 0.4 Developing 7 44 37 40 41 41 42 42 43 45 50 57 0.0 2.9 2.2 World 612 613 695 705 739 731 748 747 756 765 767 777 1.2 0.7 0.6 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)s end-point for projected periods (1989-2005). lb Estimate. - Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)s World Bank, International Economics Department (projected). Table A4: Lead Metal - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 2,747 3,338 3,433 3,458 3,366 3,480 3,505 3,556 3,616 3,666 3,757 3,858 2.3 1.1 0.7 North America 1,211 1,389 1,359 1,414 1,375 1,430 1,440 1,465 1,490 1,510 1,600 1,670 1.7 0.1 1.0 United States 1,037 1,148 1,091 1,169 1,175 1,170 1,175 1,185 1,190 1,200 1,240 1,270 1.6 -0.4 0.5 Canada 175 242 266 245 200 260 265 280 300 310 360 400 2.3 2.8 3.1 EEC-10 1,050 1,340 1,421 1,408 1,345 1,400 1,410 1,420 1,420 1,430 1,400 1,390 2.8 1.6 -0.1 Industrial Oceania 209 244 204 209 217 222 226 241 266 276 307 348 0.1 0.0 3.2 Australia 209 244 204 204 212 216 220 235 260 270 300 340 0.1 0.0 3.2 Eastern Europe & USSR 820 1,089 1,095 1,040 1,020 1,060 1,070 1,083 1,090 1,100 1,180 1,260 2.6 1.5 1.2 USSR 578 787 795 750 740 765 770 778 785 790 840 900 2.8 1.7 1.1 Eastern Europe 242 302 300 290 280 295 300 305 305 310 340 360 2.0 0.9 1.4 Developing 759 1,001 1,190 1,318 1,320 1,343 1,359 1,389 1,412 1,479 1,647 1,861 2.2 2.2 2.2 Asia 189 296 492 640 655 665 675 700 710 740 830 950 3.7 4.9 2.5 China, People's Rep. 120 173 241 362 370 375 380 390 390 400 450 510 3.5 4.3 2.2 Africa 139 147 166 159 160 161 162 163 164 166 176 200 2.6 1.3 1.4 1 Morocco 23 44 71 66 67 67 68 68 69 70 75 80 0.0 0.0 1.2 LA' America 310 416 373 379 366 377 380 382 392 418 470 530 1.2 0.6 2.1 Mexico 172 192 179 174 172 175 177 177 180 190 220 250 0.1 0.2 2.3 Peru 73 87 54 74 62 70 70 72 72 78 90 100 -0.5 -0.7 1.9 Southern Europe 121 143 164 140 139 140 142 144 146 155 171 181 1.6 1.4 1.6 Yugoslavia 101 113 131 117 115 116 117 118 120 123 135 140 1.1 1.4 1.1 World 4,326 5,428 5,718 5,816 5,706 5,883 5,934 6,028 6,118 6,245 6,584 6,979 2.3 1.4 1.1 Note: Details may not add to totals because of rounding. a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). lb Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)g World Bank, International Economics Department (projected). Table A5: Lead Metal - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 2,954 3,265 3,311 3,373 3,388 3,405 3,441 3,475 3,525 3,561 3,759 3,944 1.3 0.2 1.0 North America 1,323 1,307 1,313 1,356 1,342 1,333 1,344 1,356 1,378 1,390 1,443 1,490 0.5 -0.7 0.6 United States 1,265 1,189 1,236 1,263 1,250 1,240 1,250 1,260 1,280 1,290 1,336 1,376 0.3 -1 0.5 EEC-10 1,228 1,368 1,396 1,425 1,449 1,470 1,491 1,508 1,527 1,542 1,630 1,709 1.5 0.3 1.1 Germany, Fed. Rep. 339 342 373 375 392 412 420 430 437 443 477 509 1.4 0.4 1.9 United Kingdom 271 298 303 301 302 303 306 308 310 313 323 329 0.1 0 0.6 France 202 211 216 244 260 260 265 265 270 270 284 297 1.1 -0.1 1.2 Italy 189 263 246 259 255 255 258 260 265 268 284 299 4.3 0.7 0.9 Industrial Asia 203 380 406 406 412 415 418 422 430 435 471 505 4.9 4.4 1.4 Eastern Europe & USSR 834 1,201 1,166 994 982 992 1,003 1,013 1,024 1,035 1,103 1,164 3.3 1.7 1.0 USSR 515 793 775 720 706 713 720 727 734 742 787 827 3.7 2.2 0.9 Eastern Europe 319 408 391 274 277 280 283 286 290 293 316 337 2.6 0.9 1.3 Developing 559 951 1,285 1,359 1,350 1,392 1,430 1,466 1,503 1,537 1,704 1,863 5.2 4.1 2.0 Asia 243 406 686 794 820 845 870 892 913 933 1,029 1,118 5.8 4.9 2.2 China, People's Rep. 162 212 240 302 310 320 325 332 338 343 379 418 4.1 2.3 2.1 0 America 172 281 264 260 220 230 235 240 245 250 280 310 3.8 2.3 1.1 Southern Europe 94 169 215 186 190 195 200 207 215 222 250 275 5.6 4.3 2.5 World 4,347 5,417 5,762 5,726 5,720 5,789 5,874 5,954 6,052 6,133 6,566 6,972 2.3 1.2 1.2 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)t end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)$ World Bank, International Economics Department (projected). Table A6t Lead Metal - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 --------------------------------------------'000tons)----------------------------------------------------- -----------( p.O.)------ Industrial 752 958 763 594 619 675 693 714 752 770 832 895 2.8 -0.2 2.6 North America 124 182 197 138 133 192 196 209 227 235 278 311 12.4 0.6 5.2 Canada 120 122 189 113 108 167 171 184 202 210 253 286 0.0 0.8 6.0 EEC-10 306 414 328 279 289 289 296 296 297 299 293 290 3.9 0.8 0.2 Other W. Europe 20 39 63 37 40 40 40 40 40 42 45 48 6.7 5.6 1.6 Industrial Oceania 298 318 159 140 157 155 161 170 188 195 217 246 -0.5 -3.5 3.6 Eastern Europe & USSR 69 14 14 25 20 20 20 20 20 20 20 20 -9.9 -9.2 -1.4 Developing 373 328 238 249 243 250 251 254 258 271 301 340 -1.4 -1.6 2.0 Asia 49 40 28 21 22 23 23 24 24 25 30 35 -3.3 -5.8 3.2 Africa 115 99 79 63 70 67 69 69 70 70 75 as 1.3 0.7 1.9 Morocco 22 35 35 62 47 55 52 54 54 55 59 63 0.0 0.0 0.1 America 151 164 135 141 134 139 140 141 145 154 173 195 -1.5 -0.7 2.1 Peru 68 70 30 48 38 44 43 45 45 49 56 62 -1.8 -2.5 1.7 Mexico 83 95 105 93 96 96 98 98 99 105 121 133 -1.3 0.5 2.5 1 Southern Europe 58 24 13 24 17 21 19 20 20 22 24 25 -5.7 -8.2 0.3 I- world 1,194 1,300 1,015 868 862 945 964 988 1.030 1,061 1,154 1.255 0.7 -0.8 2.3 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)i World Bank, International Economics Department (projected). Table A7: Lead Metal - Gross Imports by Main Countries and Economic Regions Actual Projected Grovth Ratesia Countries/ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.a.)------ Industrial 912 924 634 606 615 578 603 610 647 655 784 892 -0.2 -1.1 2.4 North America 220 131 161 127 111 106 111 111 126 126 132 142 -2.4 -1.3 0.7 United States 218 126 149 116 100 95 100 100 115 115 121 131 -2.6 -1.4 0.8 EEC-10 614 633 355 367 393 359 377 384 404 411 523 609 0.2 -2.1 3.2 Other W. Europe 70 81 66 54 56 56 57 57 58 58 65 71 0.7 0.8 1.7 Industrial Asia 5 74 52 58 56 58 57 58 59 60 65 70 3.9 14.7 1.1 Eastern Europe & USSR 108 145 113 22 20 20 15 15 15 15 10 10 0.8 0.6 -4.8 Developing 175 180 260 114 273 299 322 330 349 329 358 343 4.7 2.5 7.1 World 1,195 1,249 1,007 742 909 - 897 940 955 1,012 999 1,153 1,245 0.6 -0.3 3.3 Note: Details may not add to totals because of rounding, /a Least squares trend for historical periods (1961-88): end-point for projected periods (1989-2005). /b Estimate. Sources! International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual); World Bank, International Economics Department (projected). Table AS: Zinc Ore - Production by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------( p.s.)------ Industrial 3,122 3,092 3,463 3,326 3,315 3,460 3,550 3,605 3,685 3,750 4,115 4,390 1.8 0.6 1.7 North America 1,759 1,448 1,604 1,503 1,460 1,580 1,630 1,690 1,730 1,750 1,950 2,100 1.0 -1.0 2.1 Canada 1,231 1,119 1,348 1,215 1,150 1,180 1,200 1,220 1,240 1,250 1,400 1,500 2.9 0.0 1.3 United States 528 328 256 288 310 400 430 470 490 500 550 600 -3.4 -4.9 4.7 EEC-10 458 648 681 646 640 640 640 630 630 630 600 570 3.3 2.9 -0.8 Other W. Europe 180 277 292 256 240 240 240 220 220 210 195 180 3.3 3.4 -2.2 Industrial Asia 281 241 147 132 125 120 120 115 115 110 70 40 -0.1 -2.2 -7.2 Industrial Oceania 443 479 739 789 850 880 920 950 990 1,050 1,300 1,500 3.2 3.4 4.1 Eastern Europe & USSR 1,023 1,350 1,252 1,228 1,200 1,220 1,230 1,250 1,270 1,300 1,400 1,500 3.0 0.6 1.3 Developing 1,393 1,734 2,402 2,583 2,558 2,605 2,645 2,695 2,765 2,850 3,200 3,550 3.2 2.8 2.0 Asia 305 431 982 1,032 1,020 1,050 1,070 1,090 1,120 1,150 1,270 1,400 5.6 5.4 1.9 Africa 265 255 264 257 265 260 255 255 260 265 290 310 0.5 0.8 1.2 Zaire 102 72 76 75 73 72 70 70 70 70 75 80 -1.6 -1.2 0.4 America 691 901 1,004 1,157 1,138 1,160 1,185 1,210 1,245 1,290 1,480 1,670 3.1 2.3 2.3 N Peru 318 492 485 598 570 580 590 600 620 650 750 850 3.8 3.3 2.2 H Mexico 261 233 288 284 278 280 285 290 295 300 340 370 0.5 0.3 1.7 Southern Europe 132 147 133 137 135 135 135 140 140 145 160 170 2.0 0.0 1.4 World 5,538 6,177 7,117 7,137 7,073 7,285 7,425 7,550 7,720 7,900 8,715 9,440 2.4 1.3 1.8 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)l World Bank, International Economics Department (projected). Table A9: Zinc Ore - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 -------------------------------------------- ('000 tons) ----------------------------------------------------- ----------- (2P.A.) ------ Industrial 1,347 1,347 1,843 1,680 1,733 1,783 1,845 1,867 1,914 1,952 2,174 2,341 3.1 1.4 2.1 North America 762 556 849 688 722 752 790 812 835 843 940 1,012 2.3 -2.0 2.4 Canada 762 516 815 609 639 623 650 652 667 670 752 805 2.0 -2.4 1.8 EEC-10 254 381 357 352 342 345 344 339 339 339 323 307 4.7 3.5 -0.9 Other W. Europe 119 185 191 162 155 153 154 141 141 134 125 115 2.3 4.7 -2.1 Industrial Oceania 211 225 446 478 514 533 557 575 599 635 787 908 4.8 5.6 4.1 Eastern Europe & USSR 0 3 2 1 1 1 1 1 1 1 2 2 0.0 0.0 3.0 Developing 740 680 595 603 567 585 584 597 611 633 713 792 0.1 -0.2 1.7 Africa 125 67 89 80 86 83 82 81 83 85 93 99 -4.1 -1.7 1.4 America 475 512 487 496 454 476 475 489 501 521 593 665 1.0 -0.2 1.9 Peru 262 376 361 340 300 318 317 326 335 352 405 460 2.9 0.5 1.9 Mexico 151 65 71 75 71 73 73 75 76 77 88 96 -4.2 -3.1 1.5 World 2,087 2,030 2,440 2,284 2,301 2,370 2,430 2,465 2,526 2,586 2,889 3,135 1.9 0.9 2.0 -~I~ Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)l World Bank, International Economics Department (projected). Table AlO: Zinc Ore - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------(%p.a.)------ Industrial 1,792 1,876 2,302 1,830 2,071 1,943 2,012 1,987 1,998 1,995 2,014 2,023 2.3 1.0 0.6 North America 445 205 101 75 81 79 86 87 89 88 92 95 -6.5 -6.5 1.5 United States 445 158 63 40 54 46 49 47 47 46 45 44 -8.4 -9.5 0.6 EEC-10 850 1,110 1,420 1,155 1,284 1,210 1,256 1,240 1,248 1,252 1,268 1,282 3.4 2.4 0.7 Other W. Europe 41 129 249 77 164 119 143 132 142 144 158 166 9.6 8.9 4.9 Industrial Asia 457 432 532 523 542 535 527 527 519 511 496 480 5.3 -0.8 -0.5 Eastern Europe & USSR 0 140 113 110 110 111 111 114 115 118 129 142 0.0 0.0 1.6 Developing 68 123 128 130 132 133 136 137 139 142 161 184 0.0 7.1 2.2 World 1,860 2,139 2,543 2,070 2,313 2,187 2,260 2,238 2,253 2,255 2,304 2,349 3.0 1.7 0.8 Note: Details may not add to totals because of rounding. la Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). t lb Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual) I World Bank, International Economics Department (projected). Table All: Zinc Metal - Production by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ 1989- Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('000tons)----------------------------------------------------- -----------"P.a)o------ Industrial 3,519 3,795 4,025 3,980 3,933 3,965 4,040 4,080 4,100 4,140 4,270 4,370 1.6 0.7 0.6 North America 1,284 1,027 1,033 1,028 950 1,000 1,050 1,080 1,090 1,090 1,130 1,170 -1.2 -1.0 0.8 United States 881 430 330 358 360 350 350 350 340 340 330 320 -4.9 -5.1 -0.7 Canada 403 597 703 670 590 650 700 730 750 750 800 850 3.6 2.9 1.5 EEC-10 1,150 1,485 1,709 1,691 1,695 1,680 1,700 1,700 1,700 1,710 1,730 1,750 2.8 2.0 0.2 Other W. Europe 117 246 303 309 308 305 310 310 320 330 360 380 7.5 4.2 1.3 Industrial Asia 706 731 678 664 690 680 670 670 660 650 630 610 3.3 -0.6 -0.5 Industrial Oceania 262 306 302 296 290 300 310 320 330 360 420 460 2.3 0.9 2.8 Eastern Europe & USSR 1,070 1,421 1,388 1,339 1,340 1,350 1,360 1,390 1,410 1,440 1,580 1,730 3.1 0.9 1.6 USSR 722 1,068 1,035 1,020 1,020 1,030 1,030 1,040 1,060 1,080 1,170 1,280 4.0 1.6 1.4 Eastern Europe 348 353 353 319 320 320 330 350 350 360 410 450 1.0 -0.8 2.2 Developing 612 1,056 1,871 1,928 1,940 1,969 2,004 2,026 2,055 2,093 2,375 2,720 6.0 6.1 2.2 Asia 217 413 1,022 1,056 1,080 1,095 1,105 1,110 1,120 1,130 1,240 1,420 7.2 8.2 1.9 Korea, Rep. of 4 79 224 240 250 255 260 260 265 265 290 320 0.0 23.4 1.8 £ Africa 144 191 204 200 200 205 205 206 208 210 225 240 3.4 1.5 1.1 1 America 185 341 488 520 507 515 535 548 561 585 710 830 6.2 6.1 3.0 Mexico 84 144 191 194 205 205 210 213 218 225 270 310 5.3 4.4 3.0 Peru 63 87 125 138 115 120 125 130 133 140 180 230 4.9 6.4 3.2 Southern Europe 66 112 157 152 153 154 159 162 166 168 200 230 5.3 5.2 2.6 Yugoslavia 66 94 129 123 125 125 127 127 128 128 140 150 4.2 3.7 1.2 World 5,201 6,272 7,284 7,255 7,213 7,284 7,404 7,496 7,565 7,673 8,225 8,820 2.6 1.6 1.2 Note: Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual); World Bank, International Economics Department (projected). Table A12: Zinc Metal - Apparent Consumption by Main Countries and Economic Regions Actual Projected Growth Ratesla Countries/ 1989- Economies 1969-71 1979-81 1988 19891b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 2005 --------------------------------------------('00tons)----------------------------------------------------- -----------( p.a.)------ Industrial 3,839 3,522 3,827 3,808 3,776 3,768 3,825 3,869 3,907 3,953 4,181 4,353 1.0 -0.6 0.8 North America 1,625 1,096 1,248 1,210 1,160 1,160 1,185 1,202 1,218 1,230 1,293 1,353 -0.4 -2.4 0.7 United States 1,523 957 1,089 1,059 1,010 1,010 1,030 1,046 1,061 1,072 1,127 1,178 -0.8 -2.9 0.7 EEC-10 1,339 1,438 1,570 1,563 1,576 1,575 1,592 1,609 1,624 1,643 1,741 1,791 1.2 0.3 0.9 Germany, Fed. Rep. 394 399 450 453 465 470 474 479 484 489 519 551 1.3 0.8 1.2 France 228 296 290 279 290 287 290 293 292 295 306 315 1.6 0.5 0.8 United Kingdom 280 203 193 195 190 188 191 193 195 198 206 214 -1.8 -2.8 0.6 Italy 172 225 254 262 260 257 260 260 265 268 284 302 3.3 1.5 0.9 Industrial Asia 631 743 774 768 775 767 783 790 794 806 860 908 3.9 0.8 1.1 Eastern Europe & USSR 988 1,484 1,507 1,474 1,459 1,474 1,514 1,536 1,559 1,585 1,685 1,771 3.8 1.9 1.2 USSR 680 1,023 1,080 1,050 1,040 1,050 1,081 1,098 1,114 1,136 1,206 1,268 4.2 2.1 1.2 Eastern Europe 308 460 427 424 420 424 432 438 445 449 479 503 2.9 1.5 1.1 Developing 597 1,180 1,766 1,909 1,938 1,945 1,995 2,040 2,085 2,130 2,388 2,646 6.5 6.1 2.1 Asia 285 593 1,080 1,134 1,160 1,166 1,207 1,237 1,270 1,302 1,473 1,642 6.9 7.6 2.3 1 America 158 310 425 416 422 424 426 437 443 452 499 546 6.2 5.1 1.7 I> Southern Europe 81 132 202 203 200 198 202 204 206 208 221 232 5.8 4.6 0.8 I World 5,424 6,186 7,100 7,191 7,173 7,186 7,333 7,444 7,550 7,668 8,254 8,771 2.4 1.1 1.2 Note: Details may not add to totals because of rounding. Ia Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual)l World bank, International Economics Department (projected). Table A13: Zinc Metal - Gross Exports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 --------------------------------------------(000tons)----------------------------------------------------- -----------(% p.a.)------ Industrial 863 1,511 1,749 1,650 1,619 1,646 1,711 1,736 1,767 1,798 1,908 1,996 4.9 3.5 1.2 North America 302 452 545 501 450 491 530 552 567 567 604 642 3.4 3.0 1.6 Canada 294 452 539 495 444 485 524 546 561 561 598 636 3.9 3.3 1.6 EEC-10 259 623 750 698 722 704 718 716 717 721 729 738 5.9 5.2 0.3 Belgium-Luxembourg 140 170 200 166 182 173 179 177 178 179 181 183 1.7 0.9 0.6 Netherlands 29 154 180 162 170 165 169 168 168 169 171 173 10.7 10.6 0.4 Other W. Europe 80 189 227 230 230 227 231 231 239 246 269 283 8.3 4.7 1.3 Industrial Oceania 150 204 207 203 199 206 213 219 226 247 288 315 4.5 2.4 2.8 Eastern Europe & USSR 124 82 45 28 30 35 35 37 37 42 55 70 -4.9 -9.5 5.9 USSR 42 45 28 18 20 25 25 25 25 30 40 50 -3.9 -8.5 6.6 Eastern Europe 83 37 17 10 10 10 10 12 12 12 15 20 -6.1 -10.6 4.4 Developing 311 342 428 275 300 290 305 306 313 321 370 417 2.7 1.7 2.6 Africa 111 94 80 13 46 30 39 35 37 36 40 42 0.4 -1.2 7.6 America 99 124 137 161 150 156 160 165 168 176 213 249 4.0 4.4 2.8 M Mexico 40 53 77 85 86 88 89 91 93 96 115 132 4.1 3.4 2.8 Peru 57 70 55 76 57 63 64 68 69 73 93 119 3.5 5.1 2.8 Southern Europe 24 27 22 15 18 17 18 18 19 19 23 26 6.2 -1.3 3.5 World 1,298 1,935 2,223 1,953 1.949 1,971 2,051 2,079 2,117 2,161 2,334 2,483 3.8 2.5 1.5 Note. Details may not add to totals because of rounding. /a Least squares trend for historical periods (1961-88); end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead Zinc Study Group, Lead and Zinc Statistics (Actual)t World Bank, International Economics Department (projected). Table A14: Zinc Metal - Gross Imports by Main Countries and Economic Regions Actual Projected Growth Rates/a Countries/ Economies 1969-71 1979-81 1988 1989/b 1990 1991 1992 1993 1994 1995 2000 2005 1961-88 1970-88 --------------------------------------------('000tons)----------------------------------------------------- -----------(P.a.)------ Industrial 880 1,188 1,510 1,457 1,444 1,438 1,461 1,477 1,494 1,508 1,584 1,639 3.2 1.4 0.7 North America 280 518 751 712 690 686 702 711 722 729 766 801 7.1 3.4 0.7 United States 279 514 749 712 687 683 699 708 719 726 763 798 7.1 3.4 0.7 EEC-10 489 546 566 555 564 561 569 574 580 586 621 639 0.8 -0.6 0.9 Other W. Europe 82 65 57 57 57 57 58 59 59 60 63 65 -0.3 -1.7 0.8 Eastern Europe & USSR 50 103 121 115 116 116 119 121 123 125 133 140 4.4 4.5 1.2 Developing 347 450 464 290 381 340 373 371 385 392 442 489 4.4 2.7 3.3 Asia 212 283 329 267 312 294 315 318 329 336 380 424 6.0 5.1 2.9 America 47 96 45 11 28 20 24 23 24 24 27 29 1.7 0.5 6.3 Southern Europe 69 50 71 12 41 26 34 31 33 32 35 36 5.3 -2.5 7.1 World 1,277 1,742 2,096 1,862 1,941 1,894 1,953 1,968 2,002 2,025 2,159 2,267 3.5 1.9 1.2 Note: Details may not add to totals because of rounding. LUn la Least squares trend for historical periods (1961-88)1 end-point for projected periods (1989-2005). /b Estimate. Sources: International Lead & Zinc Study Group, Lead and Zinc Statistics (Actual): World Bank, International Economics Department (projected). -226- Table A15: Lead - Prices, 1950-89 (Actual) and 1990-2005 (Projected) ---~----($/ton)----------- -------------------------($/ton)--------------------- ----------------------1985 Constant $---------------- --------Current $-------- -----------$ MUV a/---------- -----US GNP b/------ US Producer US Producer US Producer Price c/ LME d/ Price c/ LME d/ Price LME d/ Actual 1950 293 293 1,231 1,231 1,357 1,357 1951 386 446 1,406 1,625 1,706 1,971 1952 363 372 1,262 1,293 1,580 1,620 1953 297 252 1,062 901 1,272 1,080 1954 310 265 1,134 969 1,307 1,118 1955 334 292 1,199 1,048 1,364 1,193 1956 353 321 1,223 1,112 1,395 1,269 1957 323 266 1,096 903 1,232 1,015 1958 267 201 891 671 998 751 1959 269 195 910 660 981 711 1960 263 198 871 656 943 710 1961 240 176 782 573 852 625 1962 212 154 677 492 736 535 1963 245 174 798 567 839 596 1964 300 278 960 890 1,011 937 1965 353 318 1,122 1,010 1,160 1,045 1966 333 262 1,022 804 1,057 831 1967 309 229 938 695 954 707 1968 291 240 892 735 856 706 1969 328 289 953 840 915 806 1970 344 304 941 832 908 803 1971 305 254 791 659 763 635 1972 331 302 788 719 790 721 1973 359 430 738 884 804 963 1974 497 593 839 1,001 1,022 1,219 1975 474 417 719 633 887 780 1976 509 445 762 666 895 783 1977 677 617 922 841 1,116 1,017 1978 742 661 879 783 1,140 1,016 1979 1,160 1,208 1,213 1,263 1,638 1,706 1980 936 906 892 864 1,211 1,173 1981 805 727 764 690 951 858 1982 562 546 542 526 623 606 1983 478 425 472 419 511 454 1984 563 443 568 447 580 456 1985 420 391 420 391 420 391 1986 486 406 412 344 473 395 1987 792 597 612 461 747 563 1988 819 656 589 472 746 598 1989 868 673 627 486 760 589 Projected 1990 810 550 684 1991 640 399 512 1992 630 388 492 1993 580 359 441 1994 600 365 443 1995 750 440 538 2000 950 464 587 2005 930 378 494 a/ Deflated by Manufacturing Unit Value (MUV) Index. b/ Deflated by US GNP deflator, c/ Lead, connon grade, New York. d/ Refined PIG Lead, London Metal Exchange. Sources: Engineering and Mining Journal, Metallgesellschaft, Metal Statistics, and Metals Week; (actual)l World Bank, International Economics Department (projected). -227- Table A16: Zinc - Prices, 1950-89 (Actual) and 1990-2005 (Projected) --------($ton)-------- --------------------------($/ton)----------------------- ---------------------1985 Constant $-------------------- --------Current $------ --------MUV a/------ ----------US GNP b/------------- US Producer US Producer US Producer Price c/ LME d/ Price c/ LME d/ Price c/ LME d/ Actual 1950 306 328 1,285 1,378 1,417 1,519 1951 397 473 1,446 1,723 1,754 2,090 1952 357 412 1,241 1,433 1,554 1,794 1953 239 207 855 740 1,024 887 1954 235 216 860 790 991 911 1955 271 250 973 897 1,107 1,021 1956 297 269 1,029 932 1,174 1,063 1957 251 225 852 763 958 858 1958 227 182 757 607 849 680 1959 252 226 853 765 919 824 1960 285 247 944 818 1,022 886 1961 254 214 828 697 902 760 1962 256 185 818 591 889 643 1963 264 212 860 690 904 726 1964 299 324 957 1,037 1,007 1,092 1965 320 311 1,017 988 1,051 1,022 1966 320 282 982 866 1,016 895 1967 305 273 926 829 941 843 1968 298 262 913 803 876 770 1969 322 287 936 834 898 800 1970 337 295 922 807 890 779 1971 355 309 921 802 888 773 1972 391 377 931 898 933 900 1973 455 851 935 1,749 1,019 1,906 1974 792 1,239 1,336 2,090 1,628 2,547 1975 859 743 1,303 1,127 1,607 1,390 1976 816 712 1,221 1,066 1,435 1,252 1977 758 591 1,033 805 1,250 975 1978 683 593 809 702 1,049 911 1979 822 742 859 776 1,161 1,048 1980 825 761 786 725 1,068 985 1981 982 846 932 803 1,160 999 1982 848 745 818 718 941 826 1983 912 764 900 754 974 816 1984 1,072 922 1,081 929 1,104 949 1985 890 783 890 783 890 783 1986 838 754 711 639 816 734 1987 924 799 713 617 871 753 1988 1,327 1,242 955 894 1,209 1,132 1989 1,808 1,659 1,306 1,198 1,582 1,452 Projected 1990 1,520 1,033 1,283 1991 1,250 779 999 1992 1,200 739 937 1993 1,150 712 875 1994 1,200 730 887 1995 1,300 763 933 2000 1,700 830 1,050 2005 1,800 731 956 a/ Deflated by Manufacturing Unit Value (MUV) Index. bi Deflated by US GNP deflator. c/ Prime Western Zinc, East St. Louis. Beginning January 1971 delivered consumer plant. Beginning September 1980 high grade. According to Engineering and Minini Journal to 1966; Metals Week from 1967 on. Also Metallgesellachaft, Metal Statistics. d/ Metals Week and Metaltgesellachaft, Metal Statistics. Beginning September 1984, high grade, previously GOB. Sources: See footnotes for actualj World Bank, International Economics Department (projected). -228- Lead Prices ($/ton, 1985 constant) 2000. 1800- 1600- 1400-: I A 1200- 800- r- 600- O .. 400- 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index ---- Deflated by US GNP deflator Source: World Bank, International Economics Department. -229- Zinc Prices ($/ton, 1985 constant) 3000 2500- 2000- 1500- 00 . .. ':. 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index - - -- Deflated by US GNP deflator Source: World Bank, International Economics Department. -230- GOLD Summary The outlook for the gold market during the 1990s has slightly improved from that which prevailed in the late 1980s. This assessment is based on the expectation that demand growth will continue at a relatively high rate, although not as high as in the recent past, while the growth of supply will slow down considerably. The market balance, therefore, is expected to improve. The recent Middle East crisis highlights the political and economic vulnerability of the post-Cold War era. However, reduced East-West tensions and the accumulated adjustment experience to oil price shocks could provide a more stable political and economic environment in the 1990s than over the past 15 years. Thus, the attractiveness of gold as an investment asset may not be any better than in the late 1980s. Gold prices are forecast to average around $290/oz in the 1990s in terms of constant 1985 US dollars. Demand Outlook The demand for gold is made up of industrial demand and investment demand. Investment demand is driven by the use of gold as a store of value; industrial demand arises from the use of the unique physical and chemical properties of gold in industrial applications. Fabrication demand absorbs over 90% of annual gold mine production. The balance, along with a sizable portion of the existing stock of gold, goes to satisfy investment demand from the private and public sectors. Gold fabrication has been growing at a faster rate in all countries since 1980 than it did in the 1970s. In 1989, fabrication demand for gold reached an all-time high of 2206.9 tons, an exceptional increase of 18% over the previous year. Europe (mostly Italy) and Far Eastern countries (mainly Thailand) were the main sources of fabrication demand, accounting for roughly 60% of total western world gold fabrication. Table 1 shows that the manufacture of jewelry is the single largest and the fastest growing demand source for fabricated gold, with 82% of the gold offtake and an increase of 30% in 1989. The electronics industry is a far second with 6% of the total offtake, and only a 3% increase during the same period. In 1989, the other end-uses included other industrial and decorative applications, which increased by 6%, and the official coin and dentistry sectors, which declined by 10% and 3%, respectively. The market prospects for fabrication demand are bright. In the official coin sector, a potential source of new demand may arise from the Japanese government's plan to fabricate an estimated 100 tons of gold into commemorative coins for the enthronement of the new Emperor Akihito. However, the dearth of investment interest in gold from the industrial countries is adversely affecting the official coin sector. The electronics industry is also expected to continue to be an expanding source of fabrication demand. This contrasts with the situation in the dental sector, where the position of gold is threatened by the increasing use of ceramic compounds as substitutes. Overall, annual gold fabrication demand is expected to increase to around 2,000 metric tons during the 1990s. Investment demand consists mainly of bar hoarding in countries outside Europe and North America. In 1989, this source of demand increased by 12.4% and absorbed an additional 516 tons of gold. Though their bar hoarding decreased by 5.7% in 1989, Taiwan (China) and Japan still accounted for the largest share of physical investment in gold. Cumulative bar hoarding outside Europe and North America has grown from less than 2,200 tons in 1987 to roughly 3,300 tons in 1989. Other major centers of physical demand are Latin America, the -231- Table 1: Western World Gold Fabrication, by End-Use, 1983-89 1983 1985 1987 1989 -------------------(tons)------------------ Jewelry 638 905 882 1414 Electronics 103 111 120 136 Dentistry 50 52 47 47 Other industrial 53 54 56 61 Medals 34 13 14 16 Official coins 176 109 207 110 Total 1,054 1,244 1,326 1,784 Source: Shearson Lehman Hutton. Middle East, and the Indian subcontinent, which accounted for 18.1%, 8.5%, and 1.7%, respectively, of total investment demand for gold in 1989. Anticipated higher interest rates and the disappointing performance of gold prices in 1989 resulted in a worsening of investor sentiment and a considerable disinvestment of gold in North America and in Europe. This trend is likely to persist, as European financial institutions move towards limiting the issuing of gold-related bonds, warrants, and certificates. On the other hand, the tonnage of gold futures contracts and options increased by 6.25% and 20.6%, respectively, in 1989. Supply Outlook Total Western world gold production has been rapidly expanding since 1968. In 1989, gold supplies increased by 4% to 2,723 tons. Table 2 shows that the contribution of the major sources of supply to the market economies were as follows: mine production (60.7%), net exports of non-market economies (10.9%), net sales of bullion from the official sector (8.3%), old gold scrap recovery (11.2%), bar hoarding and net supplies from gold loans, forward sales, and options (8.9%). Over the past several years, the increasing use of new mining and treatment technologies in Australia, Canada, and the United States resulted in a rapid expansion of gold supplies from mine production. However, in recent years, the growth rate of gold mine production has been leveling off. Gold mine production growth in Australia, Canada, and the United States, which averaged 19.5% p.a. between 1985 and 1989,was down to 6.8% in 1989. -232- Table 2: Market Economies' Gold Supply, by Source, 1970-89. Mine Net Net Gold Bar Net Total Pro- Ex. Offi- Scrap Hoar- Inv- Sup- due- from cial Reco- ding est- ply b/ tion NMEs Sales veries (Dis- ment a/ (Pur.) hoard Dis- ing) Invest ment) -----------------------------(tons)-------------------------- 1970 1,273 (3) (236) n.a. 88 (430) 1,703 1980 962 90 (230) 492 23 346 1,543 1982 1,031 203 (85) 243 294 (181) 1,658 1984 1,167 205 85 291 332 (68) 1,815 1985 1,236 210 (132) 304 306 (175) 1,925 1986 1,296 402 (145) 474 214 126 2,172 1987 1,383 303 (72) 407 258 157 2,093 1988 1,551 263 (285) 328 459 (468) 2,610 1989 1,653 296 225 304 516 (246) 2,723 a/ Net (dis)investment includes the impact of gold loans, forward sales, and options in Europe and North America. b/ Net official sales, bar dishoarding, and net disinvestment are counted as supplies to the private sector and, therefore, included in the total supply. Net official purchases, bar hoarding, and net investment are considered demand items and, thus, do not enter the total supply. Source: Gold Fields Mineral Services, Ltd., Gold 1990. Table 3 shows that further production cutbacks are expected during the 1990s. In Australia, a decline in mine output is anticipated when a newly imposed corporate gold tax becomes effective in 1991. Gold production in South Africa, which is currently caught in the vise of low gold prices and escalating production costs, is also expected to decline drastically. During 1990, 1991, and 1992, the growth rates of mine production are expected to be 3.4%, 2.6%, and 1.9%, respectively. The deceleration of production growth in the major producing countries (Australia, Canada, South Africa, and the United States) will be mitigated somewhat by brighter growth prospects in Pacific Rim countries (Indonesia and Papua New Guinea), Africa (mainly Ghana), and Latin America (Chile and Venezuela). Net exports of the non-market economies rose by a relatively modest 13% (by recent standards) in 1989 due to supply problems in the USSR and to unusually large gold flows into China. Currently, gold is viewed by the USSR as an important factor in the country's economic transformation. There are already speculations about a gold-backed rouble and bond. Though sales at the government level are expected to be larger during the 1990s for China, Eastern Europe, and the USSR, this can be offset by considerable gold inflows from the West. -233- Table 3: Market Economies Mine Production of Gold: Historical (1986-89) and Projected (1990-92) 1986 1987 1988 1989 1990 1991 1992 ------------------------(tons)------------------------- Total Africa 693 672 688 676 680 674 677 South Africa 640 607 621 606 600 590 585 Ghana 12 13 14 17 22 27 28 Zimbabwe 15 15 16 16 16 17 17 Total North America 224 275 334 406 432 458 477 United States 118 155 205 252 274 295 310 Canada 106 120 129 154 158 163 167 Total Latin America 175 191 214 220 229 234 238 Brazil 68 84 100 95 95 95 95 Colombia 27 26 25 25 25 25 25 Chile 19 19 22 28 32 35 39 Ecuador 10 10 10 11 12 13 13 Venezuela 15 16 18 20 21 22 23 Total Asia 187 225 280 320 337 352 363 Australia 75 111 157 203 220 215 210 Papua New Guinea 36 34 33 28 26 38 45 Indonesia 14 17 19 19 20 25 32 Philippines 39 40 40 40 40 41 41 Europe 17 17 19 17 18 19 21 Grand total 1,296 1,381 1,535 1,640 1,695 1,740 1,773 Source: Gold Fields Mineral Services Ltd. In 1989, gold supply from central banks and other government investment institutions experienced a dramatic reversal when, for the first time since 1985, the official sector became a net seller of gold. The major sellers were Belgium, Mexico, and the Philippines. This, however, did not result in an excess supply, since the market was able to absorb much of it. Gold recovery from scrap has been falling steadily since 1987. The contribution of this source to total gold supplies decreased from 328 tons in 1988 to 304 tons in 1989. The contribution of gold loans and forward sales to total supply is also on the decline. Various market and financial forces, such as the volatility of gold prices and the failure of a number of gold loans in 1988, have contributed to the increasing reluctance of central banks to lend gold. Moreover, the relative stability of the equity market is offering a better alternative to gold loans, forward sales, and options. -234- Price Outlook Gold prices reached a peak in 1987 and have fallen substantially since. Prices have increased in recent months, however, and fundamental factors affecting the gold market point to a slight increase in gold prices in real terms during the 1990s. The key factor for this price outlook is the expectation of improved supply/demand balance in the 1990s. The net impact of other factors affecting gold prices, such as exchange rate, and interest and inflation rates, are expected to be positive. The supply of gold is likely to trend downwards during the 1990s, as the growth of mine production, exploration, and development activities slows in Australia, Canada, South Africa, and the United States. A number of gold mines in these countries are no longer profitable, and gold production may be rationalized. However, the rate of gold offtake in most end-use markets has been increasing. This trend is likely to continue through the 1990s. Consequently, the gold market will be in better balance, and prices will increase during the 1990s. Changes in the value of the US dollar and in the level of short-term interest rates are also driving forces behind movements in gold prices. A lower- valued dollar has the propensity to induce a demand-pull inflation that can be hedged by buying more gold. The value of the dollar, which has been trending down since 1985, experienced an upsurge in 1988, but this has been reversed since January 1990. Downward pressure on the US dollar is expected to persist for some time. In July 1990, the Federal Reserve Board announced that it would take measures designed to push down interest rates in order to mitigate the impact of an emerging credit crunch. Its decision could have the effect of pushing up inflation. Political uncertainty is a key factor affecting investor sentiment in the gold market. The current turmoil in the Middle East has highlighted the potential for localized conflicts in the post-Cold War era to make investors turn to gold for security. Recent increases in oil prices and the growing uncertainty of oil supply from the Middle East will contribute to an increase in gold demand in industrial countries and in oil-exporting countries. Moreover, the wave of democracy movements is spreading from Eastern Europe to Asia, Latin America, and Africa, and will continue to do so in the 1990s, spurning political and economic uncertainties on its way. The world is better equipped to deal with these dangers than in the past, however. There is now likely to be East-West cooperation in dealing with global problems; and, in response to Middle-East events, there is the accumulated adjustment experience from previous oil price shocks. These considerations lead us to believe that political factors probably will not feature prominently for gold prices in the 1990s. From the foregoing analysis, the outlook for the main determinants of gold prices leads us to project higher gold prices during the 1990s. Gold supply will rise to around 2,000 tons per year, and fabrication demand will continue to expand. Economic recoveries in China and Eastern Europe and the possibility that the USSR will issue gold-backed bonds may increase physical demand in these countries. Table 4 shows the market economies' supply/demand balance for gold. The figures suggest a relative tightening of the market during the early 1990s. As a result of a lower amount of gold surplus available for physical investment and increasing demand for hoarding and other types of physical investment, the gold market is expected to sustain an average price of around $290/oz in constant 1985 dollars during the 1990s. -235- Table 4: Gold Supply-Demand Balance, 1985-92 1985 1987 1989 1990 1991 1992 ----------------------(tons)---------------------- Mine Production 1,253 1,381 1,640 1,695 1,740 1,773 Net E. Bloc Trade 210 303 360 270 270 270 Net Official -132 -70 141 105 0 0 Total Supply(A) 1,3 1,61 2141 2,07 2,010 2Q43 Jewelry 905 882 1,414 1,350 1,400 1,400 Official Coins 109 207 110 200 200 150 Medallions 13 14 16 16 16 16 Industrial 215 212 244 251 259 266 Total Demand(B) 1242 1 1,784 11 Surplus(C-A-B) 89 299 357 253 235 291 -Stock Increase(D) -6 -8 25 0 0 0 +Forward Sales(E) 100 25 0 0 0 -Hoarding(F) 306 268 400 Balance(C-D+E-F) -211 139 -43 Sources: Gold Fields Mineral Services Ltd.; Shearson Lehman Hutton. -236- Table Al: Gold - Prices, a/ 1963-89 ( Actual ) and 1990-2005 ( Projected -------------------------- ($/troy oz.) ------------------------ Current $ ---------- 1985 Constant $ ----------- MUV b/ GNP c/ Actual 1963 35 114 120 1964 35 112 118 1965 35 111 115 1966 35 107 111 1967 35 106 108 1968 39 118 114 1969 41 119 115 1970 36 98 95 1971 41 106 102 1972 58 139 139 1973 97 200 218 1974 159 269 327 1975 161 244 301 1976 125 187 220 1977 148 201 244 1978 193 229 297 1979 307 321 433 1980 608 579 787 1981 460 436 543 1982 376 362 417 1983 423 417 451 1984 360 363 371 1985 318 318 318 1986 368 312 358 1987 446 345 421 1988 437 315 398 1989 381 275 334 Projected 1990 383 260 323 1991 410 255 328 1992 430 265 336 1993 450 278 342 1994 480 292 355 1995 500 293 359 2000 600 293 371 2005 680 276 361 a/ 99.5% fine, London, afternoon second fixing, or final rate. b/ Deflated by Manufacturing Unit Value (MUV) Index. c/ Deflated by US GNP deflator. Sources: International Monetary Fund, International Financial Statistics to 1983; Shearson Lehman Brothers Metal Market Weekly Review from 1984 to 1988; Metals Week from 1989 onwards (actual); World Bank, International Economics Department (projected). -237- Gold Prices ($/toz, 1985 constant) 800 700- 600- 500- \ 400- 300- *1 I 200- 100- 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 - Deflated by Manufacturing Unit Value (MUV) Index - - - - Deflated by US GNP deflator Source: World Bank, International Economics Department. -238- SILVER Summary The silver market has experienced low and declining prices and persistent oversupply since 1983. In spite of significant growth expected in industrial demand for silver, the market outlook for the 1990s is not bright. Prices are not expected to increase in real terms from their record-low levels of recent months, and should remain in the range of $3.20-3.80/oz in constant 1985 dollars during the 1990s. The main reason for this is the price-inelastic nature of primary silver output, which is increasingly being mined as a by- product of other base metals. Demand Outlook The demand for silver is made up of industrial demand, investment and speculative demand, and coinage demand. Industrial demand arises from the application of the physical and chemical properties of silver in many industrial uses. Investment and speculative demand absorbs a substantial share of the silver available in the market for the same reasons as gold. Coinage demand can be considerable in certain parts of the world. Industrial demand for silver has been growing at a fast rate since 1983. In 1989, total industrial demand increased by 6.35% to 15,095 tons. Japan and the United States accounted for roughly 50% of total industrial consumption. India, where silver is strongly preferred for cultural reasons, is also a major player in total silver demand. In 1989, Indian consumers held an estimated 136,000 tons of silver in the form of jewelry and artifacts. Coinage demand recovered from a 12% decrease in 1988 owing to the minting of coins for the celebration of the bicentenary of the US Congress. Among the areas of faster growth in industrial demand are the jewelry sector and the photographic sector. The amount of silver offtake in these sectors increased by more than 10% in most industrial countries. Demand from other sectors is growing steadily in line with industrial activity. It is expected that the industrial use of silver will continue to grow by 3% p.a. throughout the 1990s if economic growth continues in the industrial countries as assumed. Substitution from sources such as carbon-based chemicals, which are used in some X-ray applications may slow this growth rate. Stocks of silver have been declining in most major commodity exchanges except for the Comex. In early 1989, the low silver prices and high carrying costs forced refiners and major silver traders to release a considerable amount of stock. This adversely affected both silver prices and the investment demand for silver. Although the annual silver supply available for investment demand decreased sharply in 1989, this was offset, in large part, by changes in terminal stocks. Moreover, investors' interests in silver bullion has shifted away as a result of the better performance of the stock and bond markets. Total silver demand is expected to grow at a faster rate in response to low prices and a firmer expected level of industrial demand in industrial countries. Silver use in photography, which accounts for 41% of total silver demand, is expected to rise 20% by 1995. Overall, the 1990s may see annual demand reaching 1.7 billion ounces. Suply Outlook The total supply of silver is made up of primary supply and secondary supply. Primary supply, the largest source of supply, accounted for 73% of the total in 1989. The balance was accounted for by old scrap, Indian dishoarding, government disposals, coin melts, and net exports from Eastern Europe. -239- A peculiar feature of primary silver supply is the fact that 60-70% of mine production comes as a by-product of gold, copper, lead, and zinc. This share is expected to increase further as primary silver mines reach deeper underground and ore grades deteriorate. Thus, primary silver supply may become increasingly price inelastic, since output from new sources will primarily depend on the profitability of the main base metal production. Mine production of silver has been rapidly expanding since 1968; in 1989, total silver mine production amounted to 11,500 tons, an increase of 5% over the 1988 level. Six countries accounted for roughly 73% of world annual silver production. The shares of these countries in total world silver mine production capacity in 1989 were as follows: Mexico (16%), Peru (13%), the United States (12%), the USSR (10%), Canada (9%), and Australia (8%). World primary silver production increased during 1988-89 despite significant supply disruptions. Mexico's production increased slightly in 1989 despite the closure of some low-grade mines; in 1990, however, a 1% production decline is expected. In Peru, the second largest producer, frequent work stoppages and guerilla activities contributed to a 24% decline in mine production in 1988. However, output rose 18% in 1989 and a similar increase is expected in 1990. Silver mine production in the United States and Canada has largely benefited from the gold rush that characterized the gold industry in those two countries during the 1980s, as heap leaching operations yielded far more silver than gold. The reopening of high-cost primary mines in Idaho will contribute to further increases in US mine production. Secondary production is highly sensitive to the market price of the bullion. Secondary supply of silver has been experiencing a dramatic decline since 1980, mainly because of the decline in prices. Silver scrap, the largest source of secondary supply, amounted to 3,800 tons in 1989, down 1.3% from the previous year. At current prices, there is little incentive to recycle silver from old scrap. Secondary supply has been affected by a dramatic 64% decline in Indian scrap flow. However, secondary supply is expected to pick up following the implementation of a US Treasury program designed to dispose of 7.5 million ounces of silver by the end of the 1991 fiscal year. The total supply of silver is expected to continue to grow rapidly, primarily as a result of increased mine production. This will be largely the result of the expected increases in base metal production and, hence, in by- product silver output. However, the growth of primary production is likely to taper off slightly during the second half of the 1990s, when primary silver producers in the United States and Mexico reduce output in response to lower prices and deteriorating ore grade. Price Outlook Silver prices respond to the same fundamental factors as gold prices. However, the fact that silver is more an industrial metal than a store of value makes its price more responsive to the vicissitudes of supply and industrial demand. Although there is no clear relationship between the industrial use of silver and shifts in silver prices, empirical evidence shows that a boost in the photographic and electrical industries has a positive impact on prices. However, a boom in the production of base metals and, hence, by-product silver increases silver supply with an ensuing decline in silver prices. Silver prices have been trending downward since 1983. This explains the upward trend of the gold/silver price ratio over the same period. In recent years, the depressed level of silver prices has led to little interest in the metal as an investment asset. The large commercial stocks on hand, in excess of annual consumption needs, have deterred both speculators and investors. -240- The silver supply/demand balance has tightened in recent years (see Table 1). Further declines in silver prices could well force primary producers to cut back production. This would tighten the supply/demand balance and lead subsequently to higher prices. However, this turnaround is not expected to take place before the mid-1990s, when the growth in base metal production is expected to slow down. Until then, silver prices will be locked in the range of $5.00- 5.50/oz in nominal terms. Significant price recovery in real terms is only expected in the second half of the 1990s. Table 1: Silver Supply/Demand Balance 1985 1986 1987 1988 1989 1990 (est.) ----------------------(tons)----------------------- Mine production 10,325 10,239 10,823 10,630 11,543 12,512 Australia 1,086 1,009 1,025 1,075 1,175 1,265 Canada 1,207 1,088 1,186 1,277 1,300 1,525 Mexico 2,153 2,308 2,461 2,387 2,590 2,655 Peru 1,770 1,926 2,054 1,552 1,565 1,650 United States 1,185 971 1,132 1,477 1,778 2,121 Others 2,924 2,937 2,965 2,862 3,135 3,296 Secondary supply 4,893 4,204 4,667 4,676 5,040 4,895 Total Supply 15,218 1443 1 1 165 L3Q Industrial demand 11,409 12,404 12,969 13,828 14,478 15,004 Europe 3,856 4,538 4,728 5,042 5,321 5,524 Japan 2,291 2,444 2,865 3,240 3,355 3,468 United States 3,688 3,784 3,689 3,731 3,904 4,047 Others 1,574 1,638 1,687 1,815 1,898 1,965 Coinage 396 752 965 982 870 950 Total Fabrication 118Q5 1315 13 14,810 153 48 15,954 Balance 3,413 1,287 1,556 496 1,235 1,453 Changes in Terminal stocks 1,071 -1,210 296 276 816 - Theoretical balance for investment 2,342 2,497 1,260 220 419 1,453 Source: Shearson Lehman Hutton, Annual Review of the World Silver Industry, 1989. -241- Table Al: Silver - Prices, a/ 1950-89 ( Actual ) and 1990-2005 ( Projected --------------------------(/troy oz.) ---------------------- Current $ ---------- 1985 Constant $ ----------- MUV b/ GNP c/ Actual 1950 74 312 344 1951 89 326 395 1952 85 295 370 1953 85 305 365 1954 85 312 360 1955 89 320 364 1956 91 315 359 1957 91 308 346 1958 89 297 333 1959 91 309 332 1960 91 303 328 1961 93 301 328 1962 109 347 377 1963 128 416 438 1964 129 414 436 1965 129 411 425 1966 129 397 410 1967 155 470 478 1968 215 657 631 1969 179 521 499 1970 177 484 468 1971 155 401 387 1972 169 401 402 1973 256 526 573 1974 471 794 968 1975 442 671 827 1976 435 652 766 1977 462 630 762 1978 540 639 830 1979 1,109 1,160 1,567 1980 2,064 1,967 2,671 1981 1,052 998 1,242 1982 795 766 882 1983 1,144 1,129 1,222 1984 814 821 838 1985 614 614 614 1986 547 464 533 1987 701 541 661 1988 653 470 596 1989 550 397 481 Projected 1990 481 327 406 1991 450 280 360 1992 500 308 390 1993 540 334 411 1994 560 341 414 1995 590 346 424 2000 770 376 476 2005 880 357 468 a/ Handy & Harman silver in New York, refined; prior to 1962, unrefined. b/ Deflated by Manufacturing Unit Value (MUV) Index. c/ Deflated by US GNP deflator. Sources: Australian Mineral Economics Pty. Ltd., Silver World Suppl & Demand to 1979 and Metals Week from 1980 onwards (actual); Word Iank, international Ecomics Department (projected). -242- Silver Prices ( /toz, 1985 constant) 3000- 2500- 2000- 1500- 1000- ,. ' 0 \, ' 500- ... .. .. .......---.----------- 1960 1946 197 1975 19680 19685 19690 195 200 2005 - Deflated by Manufacturing Unit Value (MUV Index - - -- Deflated by US GNP deflator Source: World Bank, International Economics DepaMent