Global Economis - Written assignment (3).pdf - Global...

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Global Economics14th. November 2021By Eivind KristensenWord count: 2311
A2: Post Course Written AssignmentGlobal EconomicsDue to its widespread use in different industries such as power generation, car manufacturingand construction, copper is nicknamed “Dr. Copper” because the price of the metal often isseen as an indicator of the general health of the world economy (Chen, 2020). Recent decadeshave seen drastic fluctuations in copper prices, characterised by extreme upward anddownwards swings (Chen, 2010). The first part of this assignment will discuss differentfactors affecting the price of copper. Additionally, it will provide a closer look into theimpacts of changing copper prices on the economy of the copper exporting countries,focusing on Chile and Zambia.Factors affecting the price of copperCopper prices are primarily affected by global supply and demand. Factors influencing thedemand side and factors influencing the supply side are the two main influences on the coppermarket. The factors that influence copper prices cannot be seen independently since they workas part of a larger system that is continually influencing one another (Banda, 2011).According to Northwire (2017), the case of copper is not different from most commodities;prices fall when there is a surplus of copper and supply exceeds demand, while prices risewhen there is a shortage.Because copper prices are settled in US dollars, like other commodities traded worldwide,movements in the US dollar exchange rate index has significant impact in determining copperprices. Commodity prices tend to fall as the dollar strengthens against other major currencies.Similarly, when the value of the dollar falls versus other major currencies, commodity pricesoften rise (Adachi & Koitsiwe, 2018).When discussing the factors that affect the price of copper, the impact of China has to bementioned. The Chinese economy is growing rapidly, and so is the infrastructuredevelopment. Today, more than 50% of global copper demand is accounted for by Chinaalone (Patel, 2020). Increasing demand for copper in developing countries like China andIndia drives the copper prices up (Jerret & Cuddington, 2008).
Impact on copper-exporting countries’ economyChile is a country rich in natural resources, and the mining sector has historically been crucialto the country’s economy. Today, Chile is thelargest producer of copper, producing one-thirdof the global production (Gregorio & Labbe, 2011). According to EITI (2021), Zambia is thesecond largest producer of copper in Africa. 77% of the country’s total export value, and 27%of government revenues comes from mining. As these economies are largely dependent oncopper, it makes it vulnerable to changes of copper prices. The performance of commodityexporting countries’ domestic economies is generally affected by commodity pricemovementsimproving during upswings and deteriorating during downswings (InternationalMonetary Fund, 2012).

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