More valleys Than Hills: Commodity Prices are Close to the bottom of the cycle

The article More valleys Than Hills: Commodity Prices are Close to the bottom of the cycle criticizes the perception that many international management experts have about the growth of China, the world second largest economy, and America’s highest exporter of products and services (The Economist 1). China is famous as the world’s destination of large exports of metals such as iron ore, copper, and many other metals. Moreover, the country attracts huge amounts of corn and oil. However, many experts are blaming the slow economic growth rate of the country on the low prices of many metals that account for the country’s largest imports. This is noticeable in the decline experienced in the prices of metals especially iron ore in the international market (The Economist 1). The volatile prices of these commodities has decelerated the country’s ability to super cycle commodities, which according to international management experts has led to decreased rate of production and gross domestic product.

However, this argument may be premature, as China has emerged to become an influential player in the management of international exchange of commodities, labor, and resources. Even though the world population is slowing, China’s population increases each year, and this has sustained economic growth in light of falling international metal prices. It is estimated that China’s economy will be 65% bigger in 2014 than six years ago (The Economist 1). Even though the demand of metals such as steel will fall from 3.3% to 3.1% between 2012 and 2018, it is estimated that the amount of steel demanded in 2014 will increase from 45 million tonnes to 50 million tonnes (The Economist 1). However, the prices of metals such as copper, alluminium, zinc, lead, and tin are set to increase in 2014 as many countries in the international market such as America and other emerging Asian economies will increase the demand for metal as they seek to produce commodities for the international market.

The article is related to the discussions made in class about the scope of international management. The article discusses the ongoing debate about the various challenges that face international market players when exchanging commodities, labor, and resources in the global market that have been covered in previous lectures. Many international management experts explain the sluggish growth of many countries such as China on the falling prices of metals such as iron ore, copper, and alluminium as China is the largest importer of the world’s iron ore. However, the article also argues there are various factors whose interplay influences the growth rate of economies. This is because every country exploits its comparative advantage in the global market. Chinas increasing population has sustained its economic growth due to low costs of production, which has balanced the low returns experienced from commodities exchanged in the global market.

In my opinion, China’s large labor supply, which is the country’s comparative advantage over other international players in the global market, has made its economy surmount challenges posed by the global market environment and emerge larger and stronger. The low cost of production due to high labor supply has led to increased production of products and services in the Chinese economy. Many countries that exploit the large labor supply in China provid employment for the country’s large pool of labor, and the declining prices of metals does not affect the country’s rate of production.

Work Cited

S.W. More Valleys than Hill: Prices are close to bottom of the cycle. The Economist, Daily

Chart. January 09 2014. Accessed from

<http://www.economist.com/blogs/graphicdetail/2014/01/daily-chart-4>