2
Figure 1. The maturing OECD economies - growth trends in the OECD area, semilogarithmic scale (figures for 1982 are provisional). Sources: Copper figures from Metallgesellschaft, others from OECD. Note: Steepnesses on triangular inset represent percentage annual growth, vertical distance represents a doubling of volume. - Real GDP ---_ Industrial production -.-.- Consumption of copper _____ _... Consumption of steel Economic maturity, recession and consumption of base materials The extended recession is only one and not the major factor behind the gloomy medium-term market prospects for iron ore, copper and other base materials. A study of the structural change in the mature industrial- ized economies suggests stagnant or even falling raw material con- sumption trends in the longer run. Demand for base materials is therefore likely to remain weak, even after the 1980-83 recession has been overcome. Figure 1 illustrates post-war growth trends in the OECD area. Between 1950 and 1973 the OECD countries experienced an unprecedented rate of GDP expansion. The trend was broken by the first oil crisis. In the decade since 1973, economic growth has been significantly slower. The early 1970s also constitute another im.portant divide. Until this period industrial production regularly grew at higher rates than GDP. The share of industry in national product was gradually expanded. The gap between the two top curves in the graph narrowed over time. Indus- trialization in the OECD countries, measured in this way, peaked around 1973. Since then the trend has reversed. The leading role of industry in economic growth has been taken over by the services sector and the OECD area is on its way into the post-industrial society. The industry sector has not only experienced a reduced significance, it has also undergone an important structural change. Until the mid-196Os, demand for base materials developed more or less in parallel with overall industrial expansion. Since then, the growth of consumption for com- modities like copper or steel has lagged behind. Since 1973, the demand trend for the two products has been completely stagnant. With increasing sophistication and extended value added in industry, the requirements of base materials per unit of final output have gradually contracted. Between 1964 and 1982, industrial output in the OECD area increased by 88%. Consumption of copper and steel expanded, by no more than 40% and 13% respectively, over the same years. In 1982, steel consumption in the area was 310 million tonnes. If demand had grown in line with total industrial output since 1964, then the use of steel would have reached 525 million tonnes in 1982, 215 million tonnes above the factual figure. The structural changes in the industry sector, and not the low growth of industrial production or GDP, are mainly responsible for the current steel and iron ore crisis. The situation may be alleviated slightly by the fact that demand for copper, steel and other materials expands faster in developing countries which are in an earlier phase of industrial development. The mature industrial economies of the OECD area still maintain a very dominant market position, and account for more than 80% of the global consump- tion of these products outside the socialist countries. In summary, then, the crisis of base materials markets has been caused by three factors. The first is the very slow GDP growth since 1974. The second is the gradual contraction of the industrial sector’s share in GDP. RESOURCES POLICY June 1983 75

Economic maturity, recession and consumption of base materials

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Page 1: Economic maturity, recession and consumption of base materials

Figure 1. The maturing OECD economies - growth trends in the OECD area, semilogarithmic scale (figures for 1982 are provisional).

Sources: Copper figures from Metallgesellschaft, others from OECD.

Note: Steepnesses on triangular inset represent percentage annual growth, vertical distance represents a doubling of volume.

- Real GDP ---_ Industrial production -.-.- Consumption of copper _____ _... Consumption of steel

Economic maturity, recession and consumption of base materials

The extended recession is only one and not the major factor behind the gloomy medium-term market prospects for iron ore, copper and other base materials. A study of the structural change in the mature industrial- ized economies suggests stagnant or even falling raw material con- sumption trends in the longer run. Demand for base materials is therefore likely to remain weak, even after the 1980-83 recession has been

overcome. Figure 1 illustrates post-war growth trends in the OECD area. Between

1950 and 1973 the OECD countries experienced an unprecedented rate of GDP expansion. The trend was broken by the first oil crisis. In the decade since 1973, economic growth has been significantly slower.

The early 1970s also constitute another im.portant divide. Until this period industrial production regularly grew at higher rates than GDP. The share of industry in national product was gradually expanded. The gap between the two top curves in the graph narrowed over time. Indus- trialization in the OECD countries, measured in this way, peaked around 1973. Since then the trend has reversed. The leading role of industry in economic growth has been taken over by the services sector and the OECD area is on its way into the post-industrial society.

The industry sector has not only experienced a reduced significance, it has also undergone an important structural change. Until the mid-196Os, demand for base materials developed more or less in parallel with overall industrial expansion. Since then, the growth of consumption for com- modities like copper or steel has lagged behind. Since 1973, the demand trend for the two products has been completely stagnant. With increasing sophistication and extended value added in industry, the requirements of base materials per unit of final output have gradually contracted. Between 1964 and 1982, industrial output in the OECD area increased by 88%. Consumption of copper and steel expanded, by no more than 40% and 13% respectively, over the same years. In 1982, steel consumption in the area was 310 million tonnes. If demand had grown in line with total industrial output since 1964, then the use of steel would have reached 525 million tonnes in 1982, 215 million tonnes above the factual figure. The structural changes in the industry sector, and not the low growth of industrial production or GDP, are mainly responsible for the current steel and iron ore crisis.

The situation may be alleviated slightly by the fact that demand for copper, steel and other materials expands faster in developing countries which are in an earlier phase of industrial development. The mature industrial economies of the OECD area still maintain a very dominant market position, and account for more than 80% of the global consump- tion of these products outside the socialist countries.

In summary, then, the crisis of base materials markets has been caused by three factors. The first is the very slow GDP growth since 1974. The second is the gradual contraction of the industrial sector’s share in GDP.

RESOURCES POLICY June 1983 75

Page 2: Economic maturity, recession and consumption of base materials

76

The third and most important factor, however, is the structural change in industry which has reduced the need for raw materials per unit of final output. The first factor will be ameliorated or may even disappear when the current recession is ended. The other two will remain and could become even more accentuated. For these reasons it may be a long time before the crisis conditions relating to copper, iron ore and other base materials are overcome.

Marian Radetzki Institute for International

Economic Studies Stockholm

RESOURCES POLICY June 1963