https://www.worldbank.org/commodities

SPECIAL FOCUS
Causes and consequencesof metal price shocks

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S P EC IAL FO CU S

Causes and consequencesof metal price shocks
The 2020 global recession triggered by the COVID-19 pandemic delivered a major shock to commodity markets. Although
they have since rebounded, oil prices fell by 60 percent between pre-pandemic levels and their trough in April and metal
prices fell by 16 percent. These sharp moves in prices can have significant macroeconomic impacts for commodity exporters,with many emerging market and developing economies highly reliant on metals, especially copper and aluminum, for export
revenue. Metal price shocks appear to have asymmetric impacts, with price increases associated with small, temporary
expansions in activity, but price declines associated with more pronounced growth slowdowns and fiscal and export revenue
losses. These results highlight the importance of counter-cyclical policy measures when responding to commodity price changes.

Sometimes, however, oil and metals react
differently to a common shock or are buffeted bycommodity-specific shocks, including shocks to
supply and technological change (Baffes and
Kabundi, forthcoming). The COVID-19 pandemic is one example, with oil being significantly

Oil

150

Base metals

90

90

60

60

30

30

0

0

Sources: Bloomberg, World Bank.
Note: Both price series are taken from the World Bank’s Pink Sheets. Oil refers to an average ofBrent, WTI, and Dubai. Base metals index includes aluminum, copper, lead, nickel tin, and zinc.

more affected than metals due to lockdown
measures that disproportionately impacted travel.
Commodity price movements are a key source ofmacroeconomic volatility in EMDEs (Jacks,
O’Rourke, and Williamson 2011). Terms-of-trade
shocks can account for up to half of business cycle
fluctuations, and the impact of shocks can beasymmetric, with export price shocks having amuch larger impact than import price shocks (DiPace, Juvenal, and Petrella 2020; Kose 2002;
Richaud et al. 2019).
Energy and metal commodities are critical sourcesof export and fiscal revenue for almost two-thirds

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2020

2015

2010

2005

2000

120

1995

1990

Index, 2010 = 100
180

1985

Index, 2010 = 100
180
Oil
150
Base metals
120

1980

B. Oil and metal prices–last decade

1975

A. Oil and metal prices–long run

1970

Oil and metal prices can be affected by common
shocks, such as global recessions and theirsubsequent recoveries, such that prices move intandem (figure SF.1; Bilgin and Ellwanger, 2017;
Chiaie, Ferrara, and Giannone, 2017). For
example, both energy and metal prices declined
during the 2009 global recession and rose during
the subsequent recovery. These periods ofsynchronized price movements can occur both in
the short-run and in the long-run—the pricecycles of oil and metals coincided in the early
1970s to mid-1980s, and the early 2000s to late
2010s, although metal prices went through an
additional cycle in the mid-1990s (Helbling 2012;
World Bank 2020b).

Oil and metal prices have similar drivers, notably economic growth. As
such, they tend to follow one another closely, particularly around major
economic events like global recessions and recoveries. However, they canalso vary significantly as they are affected by other factors, including
supply shocks. Notable periods of deviation include the mid-1980s, 20112014, and most recently the COVID-19 pandemic.

1965

The COVID-19 pandemic had divergent impacts
on different commodity groups (World Bank
2020a). Energy prices, particularly crude oil,plunged at the start of the pandemic, with theprice of Brent crude oil declining by more than 60
percent from $64/bbl in January 2020 to a low of$23/bbl in April 2020. In contrast, metal prices
declined by only 16 percent over the same period
and quickly regained their pre-pandemic peak. By
March 2021, several metal prices had reachedtheir highest level in a decade.

FIGURE SF.1 Oil and metal prices

1960

Introduction

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FIGURE SF.2 The importance of energy and metals
Global crude oil consumption is six time larger than global base metal
consumption. Among base metals, aluminum and copper account for thelargest share of global commodity consumption. Metal exporters tend to beless reliant on metal exports than oil exporters are on oil exports. However,a number of countries are nonetheless heavily dependent on metal exports,
especially some copper and aluminum exporters.
A. Share of global commodity
consumption

Energy

12

4
Tin

Lead

0

C. Commodity share of exports, top
25 EMDE countries

D. Share of EMDE exports for oil andmetalsPercent of exports
100

Percent
50

Interquartile range

MedianMetals

80

40

60

30

40

20

20
10
0
1 3

5

7 9 11 13 15 17 19 21 23 25
Number of EMDEs

ii. What are the drivers of metal price shocks?

8

Metals (RHS)Oil

How important are metals for the global
economy and EMDEs compared to energy
commodities?

iii. What are the implications of movements inmetal prices for economic activity in EMDEs?

16

Nickel

Tin

Zinc

0
Lead

0
Nickel1
Copper2

10
N. Gas20

Aluminum

3

Oil

30

Coal

4

Zinc

2019

40

i.

NumberAluminum

2000

Percent
5

Copper

Percent
50

B. Number of EMDE metal exporters

and analyzes the impact of metal price shocks on
metal exporters and importers. It addresses thefollowing questions:0
Oil

CopperAluminum

NickelSources: BP Statistical Review, Observatory of Economic Complexity, UN Comtrade; World Bank,World Bureau of Metal Statistics.
A. Value of commodity consumption calculated as the product of energy and metals consumption
multiplied by their respective prices. Metals refers to the value of refined metals only.
B.D. An EMDE is defined as an exporter if exports of a given commodity are 5 percent of more of
total exports in a single year between 2018-19.
B. Number of exporters among EMDEs of a given metal.
C. Chart shows the share of crude oil in total goods exports for 25 oil exporters, sorted by those withthe highest share of oil in total exports in blue, and the equivalent for metals in red. Metals include
both metal ores and refined metals.
D. Chart shows the median and interquartile range of the share of exports accounted for by oil,copper, aluminum, and nickel, for EMDE exporters of that commodity. Oil includes 62 EMDEs, copper
14, aluminum 10, and nickel 5. Lead, tin, and zinc are not shown due to small sample size.

of emerging market and developing economies(EMDEs). Prospects for these economies can varysignificantly depending on the type ofcommodities they export, given the divergence inprices. Yet while a significant body of research has
examined the impact of oil price shocks on the
global economy, oil exporters, and oil importers,
the literature on the impact of metal price shocks
is much smaller, particularly for EMDEs.
Against this background, this Special Focus
examines the importance of metals for EMDEs

Definition of commodity exporter. For thisSpecial
Focus,
exportersofindividualcommodities (oil, aluminum, copper, tin, nickel,
lead, and zinc) are defined as countries in which
the individual commodity accounts for 5 percent
or more of goods exports (annex SF). This yields
62 EMDE oil exporters and 58 EMDE metal
exporters. For the individual base metals, copper
has the largest number of exporters (14), followedby aluminum (10), zinc (5), nickel (3), and leadand tin (1 each; figure SF.2). Although many ofthese EMDEs export multiple metals, almost all
do not export enough for more than one metal toreach the exporter threshold. Tajikistan is anotable exception, exporting aluminum, copper,lead, and zinc. For four of the six base metals, thelargest exporter of the metal was not classified as ametal exporter either because its economy was
highly diversified, or because the value of theexported metal was small compared to its otherexports. For example, Indonesia accounted for one-third of global tin exports in 2019, but thesemade up less than 1 percent of the country’s total
goods exports that year. Similarly, Russia
accounted for around one-quarter of global nickel
exports in 2019 but these accounted for just over
1 percent of Russia’s total exports.

The importance of metals
for EMDEs
While base metals may not currently play as large
a role in global economic activity as oil—at least as
measured in terms of global commodity consumption—they play an important role in economic
activity in about one-third of EMDEs. In
addition, as the energy transition away from fossil

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fuels unfolds, base metals’ role in the global
economy is expected to increase considerably sincebase metals are heavily used in both renewableelectricity generation and in electric vehicles.
Metals’ role in global commodity consumption.
Globally, base metals account for 7 percent of
global commodity demand in value terms, about
one-sixth of crude oil, which accounts for 42
percent of global commodity demand (BP 2020).
Of this, copper and aluminum accounted for 3
percent and 2 percent of global commodity
consumption, respectively (World Bureau ofMetal Statistics 2021).1 Since 2000, the share ofcopper, lead, nickel, and tin in global commodity
consumption has increased, while that ofaluminum remained broadly constant reflecting a
sharp rise in volumes but relatively stagnant prices.
Some base metals play an outsized role in global
economic activity, notwithstanding their small
share of global commodity consumption. For
example, tin accounts for less than 0.1 percent of
global commodity consumption but is an essential
input into the electronics industry (Baffes,
Kabundi, and Nagle 2020).
Commodity reliance of EMDE commodity
exporters. In general, oil exporters tend to be
more reliant on oil than metal exporters are reliant
on metals. On average, oil exports accounted for
32 percent of total goods exports among oil
exporters in 2019—considerably more than the 20
percent average for metal exporters overall. In theten most-oil-reliant EMDEs, oil exports accountfor 84 percent of total goods exports, on average,
compared with metals accounting for 49 percent
for the ten most metal-reliant EMDEs, on
average. Among base metal exporters, the mostcommodity-dependent exporters were copper
exporters, with a median share of 22 percent ofgoods exports and a maximum share of 73 percent
of goods exports for the most concentrated
exporter, Zambia. Aluminum exporters were thesecond most concentrated, with a median share of
15 percent of exports and a maximum share of 48
percent of exports for Guinea.

1 This value only includes refined base metals and does notinclude the value of metal ore production.

S P EC IAL FO CU S

Concentration of metal ore reserves. Global ore
reserves, ore production, and refined production
are highly concentrated in a limited number ofcountries and are significantly less diversified than,say, global oil production (figure SF.3).2 For eachof the six base metals, the top four countries withthe largest share of reserves account for 50-75
percent of total reserves (USGS 2020a-f). Chileaccounts for 23 percent of known copper reserves,
while Australia and Peru have 10 percent each
(USGS 2020a). Guinea has the world’s largest
reserves of bauxite, which is used in aluminumproduction (25 percent of the world’s total);Indonesia the world’s largest nickel ore reserves(24 percent); Australia the world’s largest lead ore
reserves (40 percent) and zinc ore deposits (27percent); and China the world’s largest tin ore
reserves (23 percent).
In general, reserves of metal ores do not “run out”.
Instead, higher-grade supplies that contain ahigher concentration of the metal are graduallydepleted, but substantial lower-grade, currently
uneconomical, ores remain. In the case ofaluminum, bauxite is currently the preferredsource of alumina, the intermediate product fromwhich aluminum is derived. However, there arevast sources of other, currently uneconomic
sources of alumina. The U.S. Geological Survey
estimates that the world has an essentiallyinexhaustible supply of subeconomic resources ofaluminum in materials other than bauxite (USGS
2020a). Some argue that innovation in extraction
technology exploits a geological law where greater
quantities of a resource are found in progressively
lower-grade deposits (Schwerhoff and Stuermer
2019). The result is increasing resource production to meet growing global demand.
Concentration of metal ore production. Whilethe concentration of ore reserves and production isdue in large part to the nature of geographicaldeposits, refined production is less anchored toresource endowments. Although not the locationof the world’s largest reserves of all metals, China
is now the largest producer of lead, tin, and zinc

2 If counting OPEC as a single producer, the concentration of theoil market would increase significantly.

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it accounts for 20-47 percent of global productionof bauxite, lead, tin, and zinc ores.

FIGURE SF.3 Global market concentration of metalreserves, production, and consumption
The global concentration of ore reserves is high, given geographicaldeposits, and has changed little since 2000. In contrast, the concentrationof refined metal production and consumption has increased sharply. Thischange has been driven by China, which now accounts for around half ofconsumption of base metals.
A. Concentration of metal ore
reserves

B. Concentration of metal ore andcrude oil production

HHI
4,000

HHI
4,000

Zinc

Tin

Lead

CopperAluminum

Oil

0

Zinc

1,000

0

2020

Tin

2,000

1,000

Lead

2,000

Aluminum

3,000

Nickel

3,000

2000

Nickel

2020

Copper2000

C. Concentration of refined metal
production

D. Concentration of refined metal andcrude oil consumption

HHI
4,000

HHI
4,000

Zinc

Tin

Lead

NickelAluminum

Oil

0

Zinc

1,000

0

2020

Tin

1,000

Lead

2,000

Aluminum

3,000

2,000

Copper

3,000

2000

Nickel

2020

Copper2000

E. Share of top 3 countries in global
ore reserves and production

F. Share of top 3 countries in global
refined metal production andconsumption

Percent
80

Percent
80

First

Second

Third

First

Second

40

40

20

20

Tin

Zinc

Alum. Copper Lead Nickel

Tin

Consumption

Production

Production

Consumption

Production

Consumption

Consumption

Production

Consumption

Production

Production

Production

Reserves

Production

Reserves

Production

Reserves

Production

Reserves

Production

Reserves

Reserves

Production

Alum. Copper Lead Nickel

Consumption

00

Evolution of concentration over the 2000s. The
concentration of global production of all refined
metals and some metal ores has risen sharply overthe past two decades, largely because of rapid
production growth in China. Since 2000, China’s
share of global production of refined nickel has
risen nearly eight-fold, its share of refinedaluminum and copper production has risen fourfold, while its share of global production of refinedlead has tripled and zinc has doubled. Among themetal ores, China’s share of global production has
tripled in bauxite, and nearly doubled for copper,lead, and zinc.

Third

60

60

Concentration of refined metal production.
Global refined metal production is also highly
concentrated. China is the world’s largest
producer of all refined base metals, accounting for
between 35-55 percent of global production.
Aluminum is the most concentrated metal, with
China accounting for 55 percent of global
production, despite only accounting for 3 percent
of bauxite reserves and 20 percent of bauxite
production. Nickel is the least concentrated metal,
with China accounting for 35 percent of
production, followed by Indonesia with 12
percent.

Zinc

Sources: BP Statistical Review, World Bank, World Bureau of Metal Statistics
A.D. HHI stands for Herfindahl–Hirschman Index, and is a measure of market concentration. It is
calculated by squaring the market share of each country and then summing the resulting numbers.
The HHI can range in value between 0 and 10,000, where low scores indicate widespread production
or consumption, while a value of 10,000 would indicate a single country accounted for all of global
production or consumption. The higher the number, the more concentrated the market.

ores, and the second-largest producer of bauxite.
China has around 3 percent of the world’s known
reserves for bauxite/aluminum, copper, and nickel,
and roughly one-fifth of known reserves of lead,tin, and zinc. However, it is mining these ores at amuch faster pace than other countries. As a result,

Concentration of global metal consumption.
Global consumption of refined base metals has
also been transformed over the past two decades
by growth in China. In 2000, the United States
was the single largest consumer of most metals(except zinc where China was the largest
consumer) but only accounted for 15-25 percent
of base metal consumption. However, China’s
commodity consumption has risen dramaticallyover the past two decades such that it is now the
single largest consumer of all refined base metals,
accounting for 45-57 percent of global
consumption (figure SF.4). For lead, and to alesser extent tin and zinc, China’s demand canlargely be met with domestic production. For
copper and nickel, China relies heavily on
imports, accounting for around one-third andone-fifth of global imports respectively. For
aluminum, China’s consumption far outstrips

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These factors have been explored in a large
literature that splits into two branches. The firstconsiders price cycles, typically decomposing these
into transitory and permanent components, but
without determining the drivers of prices. In
general, this literature confirms the existence of
price cycles that affect all commodities, whiletransitory shocks affect individual commodities
differently. Metal prices are typically the mostaffected by short-term, business cycle shocks. The
second branch of the literature focuses on thedrivers of commodity prices, decomposing pricechanges into aggregate demand, commodityspecific demand, and commodity-specific supply
shocks. Most of this literature has focused on oil
prices. The literature on the drivers of metal prices
is smaller, but there is greater consensus within theliterature that aggregate demand is the main driverof metal price shocks.
Price cycles. While much of the early literature oncommodity price movements focused on the roleof long-term trends in prices, subsequent researchin the aftermath of the 2000s commodity priceboom investigated the existence of common pricecycles across many commodity groups (annex
table SF.1). This literature typically decomposed
price movements into transitory and permanent
components or trends. This includes short-term orbusiness cycles, medium-term cycles (of between 8-20 years), and “supercycles,” which span many
commodities and last for several decades. For

A. China’s share of global metal ore
production and global reserves

B. China’s share of global metal production and consumption

Percent
50

60

Production (ore)Production (refined)
Consumption (refined)

Percent

Production
Reserves

50
40

40
30

Source: USGS, World Bank, World Bureau of Metal Statistics.
B. Calculated as current known metal ore reserves divided by current production levels (2019).

metals, in particular, the price cycle literature findsthat the business cycle component of shocks
accounts for a much greater share of theirvariability than for other commodities—about
twice as much of the variance in metal prices
compared to energy and agriculture (Baffes and
Kabundi, forthcoming).
The short- and medium-term cycles are driven bytransitory shocks, which can originate from several
sources, including recessions, such as the 2007-09
global financial crisis, as well as accidents (e.g., the2019 Vale accident in Brazil which disrupted ironore supplies), conflicts (such as the first Gulf war,
when Iraq/Kuwait oil production was halted), or
terrorist attacks (e.g., the attacks on Saudi Arabianoil facilities in 2019, which temporarily disrupted
oil exports). In contrast, permanent shocks, suchas technology and policies, can exert a lasting
impact on commodity markets—and prices. The
development of shale technology in the natural gas
and crude oil industries rendered the UnitedStates a net energy exporter in 2019 and theworld’s largest oil producer, for the first time since1952 (EIA 2020).
Determinants of commodity price shocks. In
general, the literature investigating the drivers ofcommodity price shocks builds on the study by
Kilian (2009), which uses a structural vector
autoregression (SVAR) model with sign

Zinc

Tin

NickelLead

Copper

0

Zinc

0

Tin

20
10

Nickel10

Aluminum

30
20

Lead

With almost two-thirds of EMDEs heavily reliant
on commodities for fiscal and export revenues,
their macroeconomic and financial stability has attimes been threatened by large commodity priceswings. Lasting commodity price changes havesometimes required wrenching macroeconomic
adjustments, but even temporary price changes
have also at times caused severe downturns (Baffes
et al. 2015).

To meet its rapid increase in metal demand, China has sharply boosted its
production of metal ores and refined metals. China is the single largest
consumer of global metals and accounts for a large share of global refinedlead, tin, and zin production.

Copper

Literature review: Drivers ofmetal price shocks

FIGURE SF.4 China’s impact on metal markets

Bauxitewhat can be produced from its bauxite reserves. It
therefore relies heavily on imports of bauxite andalumina to produce aluminum, and accounts forabout 70 percent of global imports of bauxite.

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12S P EC IAL FO CU S

restrictions to identify the relative importance ofdifferent drivers of oil price shocks. Utilizing dataon commodity prices, demand, and supply (andoccasionally inventories), price shocks aredecomposed into aggregate global demand shocks,
commodity-specific supply shocks, and commodity-specific demand shocks. Aggregate global
demand shocks include global recessions (such as
the one associated with the 2008-09 global
financial crisis), as well as pronounced expansions,which typically result from industrialization or
urbanization (such as China’s expansion in the
2000s). Commodity-specific supply shocks
include accidents, strikes, conflicts, cartel
production decisions, government policies, andweather events.3 Commodity-specific demand
shocks are typically captured as the residualcomponent of the SVAR model, and incorporate
the role of inventories (resulting from government
stockpiling, producer inventories, and marketdriven purchases), as well as that of technologicalchanges, shifts in consumer preferences, and theimpact of government policies (for example, acarbon tax).
While there is now an ample literature for oil
prices, the literature is scarcer for metal prices.
Two notable exceptions in this regard are
Stuermer (2018), and Jacks and Stuermer (2020),
which utilize a dataset of commodity supply anddemand (and prices) for six and twelve
commodities, respectively, from 1870-2013. Their
analysis finds that for metals, aggregate demand
shocks and commodity-specific demand shocks
play a larger role than supply shocks and that theirimpact has increased over time. Supply shocks
were found to have an impact for copper and tin
only. The greater role for aggregate demand foundby these two studies is consistent with otherstudies that find a strong response of metal
consumption to industrial activity (Roberts 2009;
Stuermer 2017; Marañon and Kumral 2019).

3 Weather supply shocks mostly affect agriculture, such as therecurring El Niño and La Niña episodes, as well as droughts, andfloods. However, industrial commodities can also be affected. For
example, the oil facilities off the Gulf of Mexico are periodicallydisrupted by hurricanes. For metals, flooding can lead to temporary
closures of open-pit mining facilities.

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Macroeconomic impact
of metal price shocks
Commodity price shocks can have majorrepercussions for the global economy or forindividual countries.4 For some commodities, suchas crude oil, sharp price movements can cause
business cycle fluctuations both globally and at thecountry-level, although effects have generally beenfound to be short-lived (Baumeister, Peersman,and Robays 2010; Kilian 2009). Other
commodities, such as tin, may not cause global
business cycle fluctuations but are critical inputs
for some sectors (e.g. tin, in the electronics
industry), and are important for the small numberof countries that produce or export them.
Methodology. To assess the impact of metal priceshocks on EMDEs, a local projections model isestimated for 153 EMDEs, of which 58 are metal
exporters, 14 are copper exporters, and 10 are
aluminum exporters (annex SF). The model
examines the impact of metal price changes on real
output over the period 1970-2019 under two
different specifications.
•Symmetric impact. The model is first estimatedto examine the impact of a change in metal
prices (in aggregate) on both metal exporters
and importers assuming that the impact issymmetric for price increases and decreases.
The model is then repeated for aluminum andcopper price shocks separately.

•

Asymmetric impact. The model is extended by
identifying large price shocks as an increase or
decrease of 20 percent or more (“price jump”
for increases, and “price collapse” fordecreases). The model is estimated for theseshocks separately, allowing an investigation ofwhether price increases and decreases haveasymmetric impacts. This specification isrepeated for aluminum and copper.

4 Conversely, metals prices, especially copper, are also often
considered barometers and leading indicators of global economic
activity (Bernanke 2016; Hamilton 2015).

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FIGURE SF.5 Metal price shocks
In general, metal price jumps occurred in the years prior to global
recessions and slowdowns (such as 1973, 1980, and 2006), and in theyears following these when global recoveries were underway (such as in1983, 1999, and 2009). In contrast, price collapses tended to occur in the
global recessions and slowdowns (such as in 1974, 1991, and 2008). Thisis consistent with the greater role of aggregate demand for metals prices
than oil prices found in the literature. In general, metal price shocks are
more frequent but smaller than oil price shocks.
A. Metal price jumps

B. Metal price collapses

Price jumps

Events1

0

5 These results are consistent with Di Pace, Juvenal, and Petrella(2020) who find evidence of a positive and statistically significant
effect of export price shocks on output growth in EMDEs but find asmaller impact of import price shocks on output.

1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018

0

C. Number of oil and metal priceshocksD. Magnitude of oil and metal priceshocksNumber of events
20

Trough to peak change, absolute average
200

15

150

60
40

100

Price collapses

Price jumps

CopperAluminum

Oil

Metal

Aluminum

0
Metal

20

0
CopperCopperAluminum

Oil

Metal

CopperPrice jumps

Aluminum

Metal

Oil

0

50
Oil

10
5

Impact of metal price shocks. For EMDE metal
exporters, a positive metal price shock resulted in a
gradual rise in output that became statisticallysignificant after two years, declined gradually, andbecame statistically insignificant after four years(figure SF.6). The results indicate that a 20
percent increase in metal prices was followed by a0.32 percent rise in economic activity two years
after the shock. For EMDE metal importers, there
was no statistically significant impact.5 For metal
importers, metal imports are typically a relatively
small share of total goods imports (around 5
percent, on average in the sample) which may
account for the lack of a statistically significant
impact of metal price shocks. The shares ofindividual base metals are even smaller, at 0.6
percent for copper and 0.4 percent for aluminum.
Even for China, the largest consumer of all metals
considered here, metals accounted for a small
share of imports, with copper the largest of thePrice collapses

Events
1

1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018

Features of large metal price jumps and collapses.
The metal price jumps and collapses are clusteredaround major economic events, notably the fourglobal recessions (1974-75, 1981-82, 1990-91,
and 2008-09), and three global slowdowns (1998,
2001, and 2012) which have occurred since 1970
(figure SF.5; Kose, Sugawara, and Terrones 2020).
A global recession also occurred in 2020 but is notincluded here. In general, the metal price jumps
occurred in the years prior to global recessions andslowdowns (such as 1973, 1980, and 2006), andin the years following these when global recoveries
were underway (such as in 1983, 1999, and2009). In contrast, price collapses tended to occur
during global recessions and slowdowns (such as
in 1974, 1991, and 2008). This is consistent withearlier findings about the considerable role ofaggregate demand in driving prices. Metal pricejumps were fairly synchronized before and after
recessions and slowdowns, as were price collapses
during recessions and slowdowns. In general,
metal price shocks are more frequent, but ofsmaller magnitude, than oil price shocks.

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Price collapses(RHS)

Source: World Bank.
A.B. Lines show the dates of a metal price jump or collapse, defined as an increase or decrease in
prices over a 6-month period of 20 percent or more. Shaded areas indicate period of global
recessions or slowdowns.
D. Figure shows the average peak-to-trough price change for price jumps and collapses. Pricecollapses are shown in absolute averages, so a reading of 50 percent would indicate a 50 percent fallin prices.

base metals at around 3 percent of total goods
imports. This is a significant difference to oil,which accounts for a much larger share of EMDE
imports, for example, it accounts for around 14
percent of China’s imports.
Asymmetric impacts of metal price shocks. The
aggregate results mask asymmetric impacts ofmetal price jumps and metal price collapses,
defined as price changes of more than 20 percent.
While price jumps resulted in an increase ineconomic activity in metal exporters, the effects
were small and short-lived (0.1 percent increase in
output after two years). Price collapses, however,
had much bigger effects—eight times more than

14

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C O M M O D I T Y M A R K E T S O U T LO O K | A P R I L 2 0 2 1

FIGURE SF.6 Metal price shocks to EMDE metal
exporters and importers
Metal price shocks have an asymmetric impact on metal-dependent
EMDEs. Price jumps are associated with temporarily higher output in metal
exporters, however the response is small and short-lived. However, output
tends to fall more strongly after price collapses than it raises after pricejumps, and these effects last longer. There is little impact for metal
importers.
A. EMDE exporters

B. EMDE importers

Percent
0.6

Percent
0.4
0.2

0.4

0

0.2

-0.2

0

-0.4

-0.2
0

1

2

3

4

0

5

1

2

3

4

5

Years

Years

C. EMDE exporters price jump

D. EMDE exporters price collapse

Percent
0.2

Percent
0.2

0.1

-0.2

0
-0.4

0

-0.6
-0.8

-0.1

-1.0
-0.2

-1.2
0

1

2

3

4

5

0

1

2

Years

3

4

5

Years

E. EMDE importers price jump

F. EMDE importers price collapse

Percent
0.6

Percent
0.6

0.4

0.4

0.2

0.2

0

0

-0.2

fiscal policy in EMDEs (Alesina, Campante, andTabellini 2008; Frankel 2010). Increased fiscal
spending during booms can go toward
unproductive purposes such as higher public
sector wages, while fiscal consolidation during
price collapses can exacerbate the depth of arecession (Frankel 2011; Medas and Zakharova
2009). This can also have lasting negative effects
on growth, as public investment, such as
infrastructure spending, is typically the firstelement of public spending to be cut (Richaud etal. 2019). For example, in the aftermath of the
2014-16 oil price collapse the sharp decline ingovernment revenues forced abrupt cuts ingovernment spending that exacerbated theeconomic slowdown (Stocker et al. 2018).
Impact of copper price shocks. When the model
was estimated for individual metals, results werebroadly similar for copper. In copper EMDE
exporters, economic activity increased statisticallysignificantly after a copper price increase; incopper importers, no significant effect was found,in line with the finding for metals more broadly(figure SF.7). Asymmetric responses were also
observed in copper exporters: a copper price jumpincreased output in copper exporting EMDEs by
0.07 percent after two years, but then the effectdissipated; a copper price collapse lowered output
by more than three times as much (0.22 percent)
two years after the shock and the effect remained
significant for three years.

-0.2

-0.4
-0.6

-0.4

-0.8

-0.6
0

1

2

3
Years

4

5

0

1

2

3

4

5

Years

Source: World Bank.
Note: Cumulative impulse responses to a 20 percent price shock for 153 EMDEs, of which 58 aremetal exporters, from a local projections model. Dependent variable is output growth after changes inmetal prices. Solid lines are coefficient estimates and dotted lines are 95 percent confidence bands.

in the case of price jumps, reaching 0.76 percent
in the second year, and lasting twice as long. The
effects for metal importers remained insignificant.
Potential reasons for asymmetric impacts. This
disproportionately larger impact of price collapses
than price jumps may reflect the procyclicality of

Impact of aluminum price shocks. In contrast to
copper, aluminum price shocks were not followed
by statistically significant output changes, neither
in EMDE exporters nor importers. These
differences may reflect the lower reliance on
aluminum exports for aluminum exporters thanthe copper reliance for copper exporters. In the
average aluminum exporter in the sample,
aluminum accounted for 15 percent of exports,
almost one-third less than the 22 percent export
share of copper in copper exporters. In eight of thecopper exporters, copper accounted for 20 percent
of exporters or more, compared to just three of thealuminum exporters in which aluminum accounted for the same share.

C O M M O D I T Y M A R K E T S O U T LO O K | A P R I L 2 0 2 1Conclusion and policy
implications
Base metals may not (yet) play as big a role for the
global economy as oil, at least in terms of theirshare of global commodity demand. The average
metal exporter is also less reliant on metal exports
than the average oil exporter is on oil exports.
However, in about one-third of EMDEs basemetals account for a significant share of totalexports. As such, their macroeconomic stability isvulnerable to metal price shocks. Since metal
prices are mainly driven by global demand shocks,
metal price swings can amplify the impact of
global downturns and recessions—or conversely,
upturns—for metal exporters. Empirically, this has
been particularly the case for copper exporters,
which tend to be more reliant on copper forexports than other metal exporters. In copper
exporters, copper price collapses have sizable andlasting adverse economic consequences—andcopper price jumps had smaller and more fleeting
benefits—whereas other metal price jumps orcollapses have had largely insignificant effects.
For policymakers in metal exporters, these results
indicate the need for counter-cyclical policies toshield the economy from metal price volatility.
The temporary nature of price increases suggeststhat any surplus revenue should be saved such that
resources are available to support activity during
price collapses. Stronger fiscal frameworks,
including fiscal rules, and structural budget rules
can help resist pressures to spend revenue
windfalls, or reduce non-resource taxes. Making
the assumptions behind these rules independent is
critical to their success (Frankel 2011). Sovereign
wealth funds, including stabilization funds, canalso be a useful instrument. Reforms to monetary
policy and exchange rate frameworks could help
foster resilience to oil price fluctuations and ensuresmoother exchange rate adjustments (Frankel
2018; Torvik 2018).
The empirical exercises suggests that greater export
diversification may blunt some of the impact ofcommodity price shocks. Copper exporters are, on
average, the most resource reliant of metal
exporters and saw large economic impacts from15

S P EC IAL FO CU S

FIGURE SF.7 Copper price shocks to EMDE copper
exporters and importers
Similar to aggregate metals, copper price shocks have an asymmetricimpact on copper-dependent EMDEs. Price jumps are associated with asmall and temporary increase in output, while price collapses have a larger
and longer impact. There is again little impact for metal importers.
A. EMDE exporters

B. EMDE importers

Percent
0.2

Percent
0.10
0.05

0.1

0
0.0
-0.05
-0.1
0

1

2

3

4

5

-0.10
0

Years

1

2

3

4

5

Years

C. EMDE exporters price jump

D. EMDE exporters price collapse

Percent

Percent
0.1

0.15
0.10

0

0.05
0

-0.1

-0.05

-0.2

-0.10

-0.3

-0.15
-0.20

-0.4
0

1

2

3

4

5

0

1

2

Years

3

4

5

Years

E. EMDE importers price jump

F. EMDE importers price collapse

Percent
0.3

Percent
0.3

0.2

0.2

0.1

0.1

0

0

-0.1

-0.1

-0.2

-0.2
-0.3

-0.3
0

1

2

3
Years

4

5

0

1

2

3

4

5

Years

Source: World Bank.
Note: Cumulative impulse responses to a 20 percent price shock for 153 EMDEs, of which 14 arecopper exporters, from a local projections model. Dependent variable is output growth after changes
in copper prices. Solid lines are coefficient estimates and dotted lines are 95 percent confidence
bands.

copper price swings, while the impacts of priceshocks on other metal exporters were statisticallyinsignificant. For resource-reliant economies, thisunderscores the need for diversification. Policies topromote human capital accumulation, improve
institutions, as well as measures to move intohigher value-added activities in resource sectors,
can support diversification (World Bank 2015).

16

S P EC IAL FO CU S

ANNEX SF Data
The dataset includes annual data for 153 EMDEs
for 1970-2019. Comtrade and the Observatory of
Economic Complexity were used as the source ofcommodity import and export data. Annual dataon real GDP and the world per capita GDP areavailable from the World Bank’s World
Development Indicators. Metal prices data aretaken from the World Bank’s Commodity Pricedatabase (see Appendix A). Nominal Price Indexes
are calculated by taking a weighted average ofaluminum, copper, lead, nickel, tin, and zinc. The
real price is obtained by deflating the nominal
metal price with the U.S. consumer price index(CPI) from the Federal Reserve Economic Data
(FRED) database maintained by the St. Louis Fed.
The real metal price was converted into annual
growth rates. The control variables are comprisedof global demand and domestic inflation
computed as the annual growth rate of CPI for
each country. Data on domestic CPI are takenfrom the IMF World Economic Outlook.
For the purposes of this Special Focus an EMDE
is defined as a commodity exporter if its exports ofa given commodity are 5 percent or more of total
goods exports. Note that this results in a larger
number of exporters than the definition in WorldBank 2020b, which sets a threshold of 20 percent
of total exports. For the identification of metal
exporters, all exports of industrial metal ores andrefined metal exports were included. Precious
metal exports were not included. This identification provides 58 metal exporters, 14 copper
exporters, and 10 aluminum exporters.
EMDEs used in this sample are deemed metalimporters if their imports of the specific metal
accounted for 0.1 percent or more of total
imports. This provided 50 metal importers, 31
copper importers, and 38 aluminum importers.

C O M M O D I T Y M A R K E T S O U T LO O K | A P R I L 2 0 2 1The average concentration of metal imports as ashare of total imports is an order of magnitude
smaller than that of exporters.
Metal price jumps and collapses were identified
using monthly price data. An event was identified
as an increase or decrease in prices of 20 percent ormore over a 6-month period. For years wheremultiple events occurred, the largest event was
included. Events could not overlap within a 12month period. Separate events were identified for
aggregate metal, copper, and aluminum prices.
Metal price data limitations prevent estimating the
local projections model for metal ore exporters
and refined metal exporters separately. This is alimitation of the research since metal exporters canpursue different export strategies: export of metal
ores; export of refined metals; or production ofrefined metals used in domestic manufacturing
and exported via finished goods. As such, a shock
affecting the supply of a metal ore could affectmetal ore exporters and refined metal exporters
differently.
For example, for the Democratic Republic ofCongo, exports of refined copper account for
more than 50 percent of total exports while
exports of copper ore were around 7 percent. In
contrast, for Guinea, exports of bauxite(aluminum ore) accounted for nearly 50 percent
of total exports, while exports of alumina (anintermediate product in the refining process)accounted for just under 2 percent of exports, andexports of refined aluminum were negligible.
Finally, China’s production of lead ore accounts
for nearly half of global lead ore production but
only a negligible amount of China’s exports sincemost of this ore is used in domestic manufacturing
for export (and China accounts for around 0.4
percent of global lead ore exports).

C O M M O D I T Y M A R K E T S O U T LO O K | A P R I L 2 0 2 1

S P EC IAL FO CU S

17

ANNEX TABLE SF.1 Summary of empirical research on supercycles
Author(s)DataMain finding

Cuddington and Jerrett (2008)

Six base metals, 1850-2006, deflated by the U.S.
CPI and PPIFour supercycles (the last was ongoing): 1890-1930,
1930-1962, 1962-1998, 1998-

Jerrett and Cuddington (2008)

Three metals, 1850-2006, deflated by the U.S. CPI

Three supercycles: 1850-1925, 1925-1998, 1998-

Cuddington and Zellou (2012)

Crude oil, 1861-2010, deflated by the U.S. CPI and
PPI

Three supercycles after WWII which comove with metals:
1861-1884, 1966-1996, 1996-

Erten and Ocampo (2013)

Prices of 24 commodities and indices, 1865-2010,
deflated by the U.S. CPI and MUV index

Four supercycles consistent with the Prebisch-Singer
hypothesis: 1890-1930, 1930-1965, 1970-1998, 1998-

Rossen (2015)

Prices of 20 metals, 1910-2011, monthly, deflated by Four supercycles: 1910-1930, 1930-1965, 1970-1998,
the U.S. CPI
1998-

Erdem and Ünalmı (2016)

Crude oil, 1861-2014, deflated by the U.S. CPI

Three supercycles: 1861-1882, 1966-1996, 1996-

Buyuksahin, Mo, and Zmitrowicz(2016)

Bank of Canada commodity index, 1899-2015,
deflated by the U.S. PPIFour supercycles: 1899-1932, 1933-1961, 1962-1995,
1996-

McGregor, Spinola, andVerspagen (2018)

Five price indices, 1960-2016, deflated by the MUVTwo supercycles: 1960-1995, 1996-

Ojeda-Joya, Jaulin-Mendez, andBustos-Pelaez (2019)

Index, 1865-2013 and 24 commodities, 1962-2010,
deflated by the MUV index

Supercycles are synchronized and demand-driven: Oil:
1885-1950, 1965-1995, 1996-; Metals: 1877-1920, 19201945, 1945-1995, 1995-; Non-oil: 1895-1937, 1937-1996,
1996-

Jacks (2019)

Three or four medium-term cycles (depending on the
Indices and 40 commodities, 1900-2015, deflated bycommodity) and modestly increasing trend: 1903-1932,
the U.S. CPI
1965-1996, 1996-

Cordano and Zellou (2020)

Natural gas prices, 1922-2015, deflated by the U.S.
CPI

Three supercycles, strongly correlated with oil supercycles:
1948-1970, 1970-1994, 1994-2017

Source: World Bank.
Note: All papers (except Rossen 2015) use annual data and are based on the HP filter, except Erdem and Ünalmiş (2016) who use BP and HP filters. The MUV index (Manufacturing Unit
Value) is a measure of dollar-based global manufacturing inflation monitored by the World Bank.

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