RL34695
Minerals Price Increases and Volatility: Causes and Consequences
October 03, 2008
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Summary
A rise in the prices of minerals has had a major impact on U.S. manufacturers and consumers. Mineral prices have risen while the economy as a whole has entered a period of slowing growth. This has created serious difficulties for consuming industries and concern in Congress. This report reviews the increases in price across a wide range of metals commodities. Prices have at least nearly doubled between 2001 and 2008. In the case of steel, the most widely used industrial metal, the rise in price appears largely driven by the high prices of iron ore and steel scrap. Weak demand and increasing supply may reduce metals prices, but it is also widely believed that prices will not fall to the levels seen earlier in this decade. The longterm trend of declining real prices for metals inputs, which boosted the competitiveness of the U.S. industrial economy throughout the 20th century, may be over. Fundamental changes in commodity markets may explain why a rise in metals prices is not simply a cyclical or temporary phenomenon. Consolidation of ownership of minerals companies has given them increased pricing power. Market speculation may have driven up the prices of mineral commodities. The 2000 Commodity Futures Modernization Act (P.L. 106-554) exempted both energy commodities and metals from regulation by the Commodity Futures Trading Commission (CFTC). The 2008 Farm Bill (P.L. 110-246) partially closed this exemption, and other bills have been introduced to extend CFTC regulation. Another often-heard explanation for higher minerals prices is the ongoing and rapid industrial development of lower-income countries. This report discusses China's efforts to improve and increase its access to foreign mineral resources, which may have the effect of raising prices for U.S. domestic industrial users. The report examines in detail the relationship between prices, production, and availability of selected metal minerals essential to the U.S. economy. It focuses on:
