Drivers of Commodity Price Rallies and their Impact on Korean Manufacturing

Bawoo Kim (), Jeong-Hyun Kim () and Sungwoo Kang ()
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Bawoo Kim: Korea Institute for Industrial Economics and Trade, Postal: Sejong National Research Complex, Korea Institute for Industrial Economics and Trade, 370 Sicheong Dae-ro C-dong 8-12F 30147, Republic of Korea, http://www.kiet.re.kr
Jeong-Hyun Kim: Korea Institute for Industrial Economics and Trade, Postal: Sejong National Research Complex, Korea Institute for Industrial Economics and Trade, 370 Sicheong Dae-ro C-dong 8-12F 30147, Republic of Korea, http://www.kiet.re.kr
Sungwoo Kang: Korea Institute for Industrial Economics and Trade, Postal: Sejong National Research Complex, Korea Institute for Industrial Economics and Trade, 370 Sicheong Dae-ro C-dong 8-12F 30147, Republic of Korea, http://www.kiet.re.kr

No 21/1, Research Papers from Korea Institute for Industrial Economics and Trade

Abstract: The prices of major commodities since May 2020 have increased, with their initial rally attributable to a low base effect created by sharp price declines in the wake of the pandemic. Such prices, however, have since steadily increased and exceeded pre-pandemic levels due to pressure from market forces, such as rapid demand growth and material disruptions on the supply side. The drivers of the recent hikes in commodity prices include a supply-demand imbalance caused by asymmetrical responses to external shocks such as the coronavirus by economies. Both supply and demand fell early in the pandemic, but advanced economies have since rapidly rebounded thanks to vaccine rollouts, while major commodity-producing countries are scrambling to expand production. Using an input-output model based on recent hikes in major commodities, this paper analyzes the commodity price rally, the key drivers behind it, and import trends in Korea to assess the impact of commodity prices on domestic production. The findings show that the rally was driven by supply-side factors such as production cuts rather than demand-side pressure, which had accounted for previous hikes. This rally also differs from precedent in that a series of events affecting supply-and-demand dynamics were triggered by asymmetrical responses to a major external shock.

Keywords: commodity prices; commodities; manufacturing; COVID-19; supply chains; input-output analysis; manufacturing policy; competition; competitiveness; competition policy; inflation; Korea (search for similar items in EconPapers)
JEL-codes: C67 G34 G38 L16 Q11 Q32 Q41 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2021-11-29
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