Aluminum

Forest Products 

Ferrous Scrap

Petroleum

STAFF RESEARCH

STUDY

 28 

OFFICE OF INDUSTRIES

U.S. INTERNATIONAL TRADE COMMISSION

The Effects of Increasing Chinese Demand on Global

Commodity Markets

June 2006

Publication 3864

The views expressed in this staff study are those of the Office of Industries, U.S. International

Trade Commission. They are not necessarily the views of the U.S. International Trade 

Commission or any of the Commissioners.
U.S. International Trade Commission

COMMISSIONERS

Daniel R. Pearson, Chairman

Shara L. Aranoff, Vice Chairman

Jennifer A. Hillman

Stephen Koplan

Deanna Tanner Okun

Charlotte R. Lane

Robert A. Rogowsky

Director of Operations

Karen Laney-Cummings

Director of Industries

Address all communications to

Secretary to the Commission

U.S. International Trade Commission

Washington, DC 20436

www.usitc.gov
U.S. International Trade Commission

The Effects of Increasing Chinese Demand on Global

Commodity Markets

Publication 3864

June 2006
This report was prepared principally by the following:

Project Leader

Laura Bloodgood (202) 708-4726

Office of Industries

John Davitt (202) 205-3407

Dennis Fravel (202) 205-3404

Crude Petroleum:

Cynthia Foreso (202) 205-3348

Heather Sykes (202) 205-3436 

Alan Treat (202) 205-3426

Unwrought Aluminum:

Karl Tsuji (202) 205-3434

Judith-Anne Webster (202) 205-3489

Forest Products:

Fred Forstall (202) 205-3443

Ferrous Scrap:

Gerald Houck (202) 205-3392 

Office of Economics

James Fetzer (202) 708-5403

Steven Trost (202) 205-3220

Administrative Assistance:

Monica Reed and Wanda Tolson

Office of Publishing
i

Abstract

China’s stunning economic growth in recent years has increased the country’s demand for

energy and other commodities used by a wide range of industries. This study examines the

effects of China’s rising demand for commodities on global markets, focusing on crude

petroleum, aluminum, forest products, and ferrous scrap. The study explores the factors

behind the shifts in trade and prices for each of the four commodities, and finds that the

“China impact” on global markets is complex and varies across products. We find that

increasing Chinese demand is one factor contributing to the price increases for crude

petroleum in recent years, but that global production over the 1995-2004 period more than

kept pace with the increased demand from China, mitigating the impact of Chinese demand

on global prices. China’s expansion of its aluminum and forest products industries has led

to increased imports of input products such as wood pulp and alumina. This shift in trade

patterns has led to increased global prices for aluminum, while paper prices have remained

generally stable. Global market prices for ferrous scrap have increased sharply, reflecting

increased demand from China and other countries.

iii

TABLE OF CONTENTS

Page

Abstract .............................................................. i

Executive Summary .............................................. vii

Chapter 1 Introduction ......................................... 1-1

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1

Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-6

Chapter 2 Crude Petroleum ................................... 2-1

Summary of Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2

Factors broadly affecting demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2

Demand for crude petroleum in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2

China’s demand in global context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3

Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-4

Factors broadly affecting supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-4

Supply of crude petroleum in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-4

China’s supply in global context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-10

Price trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-12

Trade trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-14

Chapter 3 Unwrought Aluminum ........................... 3-1

Summary of conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1

Demand issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1

Factors broadly affecting demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-1

Demand for aluminum in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-2

China’s supply in global context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4

Supply issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4

Factors broadly affecting supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4

Supply of aluminum in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6

China’s supply in global context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10

Price trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-11

Trade trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-12

Chapter 4 Forest Products ..................................... 4-1

Summary of conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-1

Pulp and paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-2

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-2

Factors broadly affecting demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-2

Demand for pulp and paper in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-4

Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-7

Factors broadly affecting supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-7
iv

TABLE OF CONTENTS—Continued

Page

Chapter 4 Forest Products—Continued

Supply of pulp and paper in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-7

China’s supply in global context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-10

Price trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-11

Trade trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-13

Wood Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16

Factors broadly affecting demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16

Demand for wood products in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16

China’s demand in global context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-17

Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-18

Supply of wood products in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-18

China’s supply in global context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-19

Price trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-20

Trade trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-22

Chapter 5 Ferrous Scrap ...................................... 5-1

Summary of conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1

Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1

Factors broadly affecting demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1

Demand for ferrous scrap in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1

Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3

Factors broadly affecting supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-3

Supply of ferrous scrap in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-4

Price trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5

Trade trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5

Chapter 6 Next steps and suggestions for future 

research ........................................................ 6-1

Appendix ........................................................... A-1

Economic Analysis of the Effects of China’s Increase in Demand on Global 

Commodity Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

Overview of commodity market research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3

Petroleum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-5

Aluminum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8

Forest products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10

Ferrous scrap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-11

Bibliography ....................................................... B-1
v

TABLE OF CONTENTS—Continued

Page

Tables

1-1. Select indicators of Chinese economic growth, 1999-2004 . . . . . . . . . . . . . . . . . . . . . . . 1-2

1-2. Chinese imports of selected commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-4

2-1. Crude petroleum consumption, by major sources: 1995, 1999, and 2004 . . . . . . . . . . . . 2-3

2-2. China’s investment in overseas crude petroleum assets: selected joint venture and

other arrangements, 2004-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-7

2-3. Foreign investment in Chinese crude petroleum assets: Selected joint ventures with

CNOOC, 2002-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-9

2-4. Selected international agreements associated with China’s crude petroleum sector . . . . 2-10

2-5. World crude petroleum production and market shares, by major sources: 1995,

 1999, and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-11

2-6. Top U.S. general import sources of crude petroleum, by country and volume, 1995,

1999, and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-15

2-7. Volume, market shares, and rank for China’s top import sources of crude petroleum:

1995 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-16

3-1. China: Mine production of bauxite; production of unwrought alumina; and primary

and secondary production, primary capacity of unwrought aluminum, 1995-2005

(1,000 metric tons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6

3-2. Chinese outbound foreign direct investment to secure unwrought aluminum resources . 3-8

3-3. Chinese outbound foreign direct investment to secure alumina resources . . . . . . . . . . . . 3-9

3-4. Alumina, unwrought aluminum, and scrap aluminum: Import duty and export 

rebate/tax rates, 2001-05 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-10

4-1. Wood pulp: Top five countries ranked by consumption and global market share, 1995 

and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-3

4-2. Waste paper: Top five countries ranked by waste paper recovery and consumption, 

1995 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-3

4-3. Paper: Top five countries ranked by consumption and global market share, 1995 and 

2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5

4-4. Chinese forest products imports by segment, 1995-2004 . . . . . . . . . . . . . . . . . . . . . . . . . 4-6

4-5. Wood pulp: Top five countries ranked by production, 1995 and 2004 . . . . . . . . . . . . . . 4-10

4-6. Paper: Top five countries ranked by production, 1995 and 2004 . . . . . . . . . . . . . . . . . . 4-10

4-7. Lumber: Top five countries ranked by consumption, 1995 and 2004 . . . . . . . . . . . . . . . 4-17

4-8. Sawlogs and veneer logs: Top five countries ranked by production, 1995 and 2004 . . . 4-20

4-9. Lumber: Top five countries ranked by production, 1995 and 2004 . . . . . . . . . . . . . . . . . 4-20

5-1. Metallics balance for China (thousand metric tons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-2

5-2. Annual consumption, production, and trade of ferrous scrap . . . . . . . . . . . . . . . . . . . . . . 5-4

5-3. Major destinations of U.S. exports of ferrous scrap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
vi

TABLE OF CONTENTS—Continued

Page

Figures

1-1. Chinese imports of commodities and total imports, 1995-2005 . . . . . . . . . . . . . . . . . . . . 1-3

2-1. World crude petroleum spot price FOB weighted by export volume, 1995-2004 . . . . . . 2-12

2-2 Crude petroleum: average spot price for West Texas Intermediate, Saudi Light, and 

China Daqing, FOB weighted by export volume: 1995-2005 and January–April 2006 2-13

2-3. Geographic distribution of Chinese imports of crude petroleum by region: 1995, 1999,

and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-15

3-1. Consumption shares of aluminum in all forms, by end-use consuming sectors, 2004 . . . 3-3

3-2. Unwrought primary aluminum: consumption by country, 1995, 2004 . . . . . . . . . . . . . . 3-4

3-3. Aluminum manufacturing process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5

3-4. Aluminum, nonalloyed, high-grade: London Metal Exchange yearly average spot 

prices, 1999-2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-11

3-5. Unwrought aluminum: imports from all sources, by importer, 1999-2004 . . . . . . . . . . . 3-13

3-6. Unwrought aluminum: exports to all destinations, by exporter, 1999-2004 . . . . . . . . . . 3-13

3-7. Unwrought aluminum: Chinese domestic apparent consumption, domestic production,

and net import reliance, 1995-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-14

4-1. Forest products production process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-2

4-2. North American and European prices for wood pulp, midwest U.S. price for waste 

paper, 1995-2005, dollar per metric ton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-12

4-3. Packaging and printing papers, Chinese imports by country, 1995 and 2004 . . . . . . . . . 4-15

4-4. Wood pulp and waste paper products, Chinese imports by country, 1995 and 2004 . . . . 4-15

4-5. Chinese production of logs and lumber, 1995-2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-18

4-6. Average U.S. mill prices for kiln-dried hardwood lumber, 2995-2005 . . . . . . . . . . . . . . 4-21

4-7. Logs and lumber: Chinese imports by country, 1995-2004 . . . . . . . . . . . . . . . . . . . . . . . 4-23

5-1. Ferrous scrap prices in the United States and China, monthly, 2001-2005 . . . . . . . . . . . 5-6

5-2. Ferrous scrap imports by major importing countries, 1994-2004 . . . . . . . . . . . . . . . . . . . 5-8

5-3. Major sources of Chinese imports of ferrous scrap, 2004 . . . . . . . . . . . . . . . . . . . . . . . . 5-8
vii

Executive Summary

China’s stunning economic growth in recent years has increased the country’s demand for

energy and other commodities. The reasons for China’s rapidly rising demand and its impact

on wider global commodity markets are complex and vary across sectors and products. This

study investigates the impact of increasing Chinese demand during the past decade on the

global markets for four selected commodities: crude petroleum; unwrought aluminum; forest

products, including both paper and lumber; and ferrous scrap. We find that the impact of

China on these global markets is more nuanced than generally expected. Rather than sharp

price increases for each commodity, we find different effects for the different commodities,

depending on the circumstances surrounding each product and market.

Crude Petroleum

• Increasing Chinese demand is one factor contributing to global price increases for crude

petroleum in recent years. However, the impact of Chinese demand on prices has been

mitigated by the fact that global production over the 1995–2004 period more than kept pace

with the increased demand.

• While the petroleum data do not extend beyond 2004, anecdotal evidence suggests that the

sharp spikes in crude petroleum prices seen during 2005 and 2006 owe more to one-time,

unexpected factors such as the threat of U.N. sanctions on Iran and the supply disruptions

related to the hurricanes of 2005 than to the fairly steady, predictable increase in China’s

demand for petroleum.

Aluminum

• China has increased imports of alumina, the primary input to unwrought aluminum, over the

past decade, and has expanded domestic production of unwrought aluminum so much that

the country has become a net exporter of the more finished product. 

• However, China’s increased imports and consumption of alumina have contributed to price

increases for that commodity, increasing global prices for unwrought aluminum, and

changing the dynamics of the global aluminum market in important ways. 

Forest Products

• No central, global market exists for forest products, as it does for aluminum or crude

petroleum. However, prices for forest products generally have remained stable even as

China’s demand for both paper and lumber has increased.

• China has increased its production of wood and paper products and become a net exporter

of paper products, through intensive foreign and domestic investment in new sawmills and

paper mills. However, since forest resources are not abundant in China, Chinese mills are

largely dependent on imports of logs and wood pulp.
viii

• A processing industry dependent on imports of wood pulp and logs is unusual by historical

standards, as high transport costs have traditionally encouraged both paper and lumber

production in areas close to abundant forest resources. The change is made possible, in part,

by the atypical freight transport situation created by the United States’ large goods-related

trade deficit with China, which has freed up abundant westbound, cross-Pacific freight

transport capacity.

Ferrous Scrap

• China’s imports of ferrous scrap have increased rapidly over the last decade and particularly

since 1999, as a result of strong growth in China’s steel mill and ferrous castings industries,

and of slower growth in China’s production of primary iron and domestic scrap. 

• Global market prices for ferrous scrap have also increased strongly, reflecting the growth in

global demand, particularly from China, Turkey, and other Asian steel-producing countries.
 1

 See Emergency Steel Scrap Coalition, “Emergency Steel Scrap Coalition Calls for Immediate Action as

Scrap Prices Reach New Highs.” See also Hearing before the Committee on Small Business, U.S. House of

Representatives, 108th Congress, Spike in Metal Prices: What Does It Mean for Small Manufacturers? and

Spike in Metal Prices, Part II.

 2

 Compiled from International Monetary Fund, World Economic Outlook 2005: Globalization and

Inflation, April 2006, 177, 183, and other editions of the World Economic Outlook.

 3

 International Monetary Fund, World Economic Outlook Database, April 2006.

1-1

CHAPTER 1

Introduction

Overview

China’s rapid economic growth since its opening to the world in 1978 has resulted in strong

demand for a wide variety of commodities. This paper analyzes the effects of increasing

Chinese demand on global markets for four selected commodities from 1995 to 2004: crude

petroleum, unwrought aluminum, forest products (wood pulp, waste paper, and logs and

lumber), and ferrous scrap metal. We find that the effects of China’s changing demand have

varied significantly, depending on the commodity. In some cases, the effects have been quite

different from the global price increases that might be assumed. Growing Chinese demand

principally affects global commodity markets through increased Chinese imports, as China’s

manufacturing capacity has outstripped its domestic supplies of most commodity inputs.

Observers have expressed concerns that further increases in Chinese imports may constrict

global supplies, leading to higher prices. 

Because China has emerged as a key purchaser in many global commodity markets, an

examination of China’s demand is important to the United States, which competes with

China for the same commodities. U.S. firms that rely on imported commodities may be

affected by changes in the price and availability of supply. Such market changes will also

affect U.S. commodity exports. For example, China’s demand for U.S. scrap metal has

resulted in rising U.S. exports to China. At the same time, such exports drive up U.S.

domestic prices and reduce the availability of some scrap inputs for U.S. producers,

potentially leading to higher prices for some U.S. products.1

China’s increased demand for commodities takes place in the context of the country’s rapid

economic growth. China’s real GDP growth averaged 8.9 percent per year during 1995-

2004, and an even faster 12.2 percent during the more recent 1999-2004 period, compared

to 4.1 percent for the world and 2.6 percent for the United States during 1995-2004.2

 During

1995-2004, China’s GDP as a share of the global total rose from 2.5 percent to 5.0 percent.

In contrast, U.S. GDP as a share of the global total rose from 25.2 percent in 1995 to

32.2 percent in 2001, before falling to 28.1 percent in 2005.3

 As illustrated in table 1-1, 
 4

 For the purposes of this study, commodities encompass the products identified by the International

Monetary Fund as either commodities or ores and concentrates for metals, as well as packing and printing

papers, coke, raw hides, poultry, pork, cement, and uranium. 

 5

 Areddy, James T. “China, Worried About Resources, To Build Up Its Mineral Reserves,” The Wall

Street Journal.

1-2

Table 1-1 Select indicators of Chinese economic growth, 1999-2004

Indicator 1999 2004

Compound annual

growth rate

percent

Real GDP (billion dollars) 1,085 1,931 12.2

Real GDP per capita, PPP (actual dollars) 4,141 6,529 9.5

Urban population, share of total (percent) 31 42 6.3

Rural population, share of total (percent) 69 58 -3.4

Petroleum consumption, share of world demand (percent) 6 8 5.9

World imports from China (i.e., China’s exports) (billion dollars) 311 751 19.3

Motor vehicle (except motorcycle) production (units) 452,697 5,079,356 62.2

Source: CEIC Database; International Monetary Fund World Economic Outlook Database April 2006; Global

Trade Information Services, Inc., Global Trade Atlas.

China’s economic expansion in recent years has been accompanied by rapid growth in its

manufacturing sector, as illustrated by the automobile industry, which has helped drive its

increasing demand for commodities. 

China’s total imports and imports of commodities4

 rose rapidly beginning in 2000, in the

period leading up to its entry into the World Trade Organization in December 2001 (figure 1-

1). Imports of commodities accounted for 19 percent of China’s total imports in 1995, falling

to 16 percent in 1999, before rising to 22 percent, or $135.4 billion in 2005. Energy

commodity imports (crude petroleum, natural gas, and coal) as a share of total commodity

imports, by value, rose from 10 percent to 34 percent between 1995 and 2000, fell to

28 percent in 2002, then rose to a peak of 36 percent in 2005. This trend is likely to continue

to follow the path of China’s economic growth and rising global petroleum prices. In May

2005, the Chinese Government announced its intention to build strategic reserves of minerals

such as copper, uranium, and aluminum, in addition to filling strategic reserves of crude

petroleum, which may add to China’s demand for these commodities.5

At first glance, increased demand from China would be expected to contribute to increased

global market prices. However, such price increases also depend on the interplay of other

market forces, including demand trends in other regions and global supply trends. For

instance, the analyses of aluminum and forest products demonstrate that rapid increases in

production capacity within China may have outstripped China’s domestic demand for those

commodities, leading to significant Chinese exports of these downstream products 
 6

 “From Accelerator to Brake,” The Economist, October 6, 2005. Also, in December 2005, an official of

China’s State Development and Reform Commission stated that 11 sectors were facing, or will face surplus

production capacity; the sectors were cement, aluminum, ferralloys, calcium carbide, steel, automobiles,

electric power, coal, copper, charcoal, and textiles. Xinhua Online, “China Faces Overproduction in 11

Sectors.”

 7

 CEIC database.

1-3

and placing downward pressure on global prices.6 For aluminum in particular, China

continues to import alumina, the primary input in aluminum, while its exports of finished

aluminum have increased. A similar process is occurring in the Chinese forest products

sector, where China has rapidly increased its paper production capacity, and in turn its paper

exports. However, this new capacity depends on imported paper feedstocks of waste paper

or wood pulp. 

The four commodities discussed in this study were selected to illustrate the effects of China’s

increasing demand across a varied set of commodities which reflect a wide range of market

conditions. Chinese demand for crude petroleum has attracted widespread interest in the

press and in policy circles in recent years. China’s share of world crude petroleum

consumption has risen from 4 percent in 1999 to 8 percent in 2004, and total Chinese imports

of crude petroleum increased by 931 percent from 1999 to 2005, to $47.9 billion (table 1-2).7

As the world’s largest consumer of crude petroleum, the United States is significantly

affected by market factors that determine the price of petroleum. U.S. policymakers thus

have a keen interest in the effects of China’s rising share in world crude petroleum

consumption and the resulting effects on global prices and overall supply. For the other

commodities discussed in this study, Chinese imports from the United States and from 

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Billions of dollars

Total imports Commodity imports

Source: China Customs import data from Global Trade Information Services, Inc., World Trade Atlas.

Figure 1-1 Chinese imports of commodities and total imports, 1995–2005
 8

 Zweig, David and Bi Jianhi, “China’s Global Hunt for Energy.” 

1-4

Table 1-2 Chinese imports of selected commodities

China's Imports From the World

China's Imports From the

 United States

Commodity HS Heading 1999 2005

Growth,

1999-2005 1999 2005

Growth,

1999-2005

(Million dollars) (Percent) (Million dollars) (Percent)

Crude petroleum1 2709 4,641.2 47,860.5 931.2 (2) 39.4 0.0 -100.0

Aluminum

 Unwrought 

 aluminum 7601 675.7 1,018.5 50.7 6.8 5.4 -20.6

Aluminum waste

 and scrap 7602 268.8 1,368.5 409.1 73.1 336.8 360.7

Subtotal NA 944.5 2,387.0 152.7 79.9 342.2 328.3

Forest products

Pulp and waste 

 paper

4703, 4707

1,344.2 5,516.5 310.4 248.2 1,489.2 499.9

Logs and lumber 4403, 4407 1,908.0 4,745.0 148.7 103.1 373.6 262.5

Packaging and 

 printing papers

4804, 4805,

4810, 4811 2,816.7 2,948.6 4.7 519.9 460.2 -11.5

Subtotal 6,069.0 12,310.1 117.7 871.2 2,323.0 166.6

Ferrous scrap 7204 316.7 2,607.8 723.4 35.3 829.2 2,249.0

Source: China Customs, from Global Trade Information Services, Inc., World Trade Atlas.

 1

 Both the quantity and value of China’s imports of crude petroleum increased significantly during the period.

However, because of the fluctuations in the world price of crude petroleum, China’s imports increased 931 percent

by value, but only 600 percent by quantity (see chapter 2 for further detail).

 2

 These data reflect official Chinese import statistics. However, the United States does not supply crude

petroleum to China. U.S. exports of crude petroleum to any country have been prohibited since 1973, except as

approved by the U.S. Government. Canada has been the only consistent market for these exports. In May 1996,

the President determined that allowing exports of Alaskan North Slope (ANS) crude to certain Pacific Rim nations

(Japan, Taiwan, South Korea) was in the national interest, thus ending the 23-year ban on ANS crude exports.

However, the President can impose new export restrictions in the event of severe crude petroleum supply

shortages. 

the world have increased rapidly for the segments of each commodity market that are used

as manufacturing inputs. For instance, Chinese imports of aluminum scrap from the United

States increased 361 percent during 1999-2005, while imports of unwrought aluminum, the

more finished product, declined by 21 percent. Similarly, Chinese imports of wood pulp and

waste paper from the United States increased by 500 percent over the same period, while

imports of finished paper declined by 12 percent.

In an effort to secure access to important raw materials and commodities, the Chinese

Government and Chinese state-owned enterprises (SOEs) are increasing their presence in

foreign policy, diplomacy, economic policy, and trade matters in a host of foreign countries.8

The Chinese Government implemented its “Go Out” policy in 2003 to promote outbound
 9

 China Ministry of Commerce (MOFCOM), China’s 2004 Outbound FDI Statistical Report. 

 10 The firms have invested in Chile, Ecuador, Kazakhstan, Syria, Azerbaijan, Sudan, Iran, and a wide

range of other developing countries. UNCTAD, “China: An Emerging FDI Outward Investor.” Xinhua,

“Chinese, Indian Oil Firms Agree to Buy Syrian Assets of Petro-Canada.”

 11 U.S. Dept. of State telegram, “China Shaping its “Go Out” Policy,” U.S. Embassy Beijing, message

reference No. 03327, March 2, 2005.

 12 Official Chinese investment data is presented in terms of approved investment, which is licensed but

has not necessarily taken place, and realized investment, for which capital has been transferred out of China.

 13 China Ministry of Commerce (MOFCOM), China’s 2004 Outbound FDI Statistical Report. 

 14 Congressional Research Service (CRS) Report for Congress, “China’s Growing Interest in Latin

America.”

 15 China Ministry of Commerce (MOFCOM), China’s 2004 Outbound FDI Statistical Report.

 16 U.S. Dept. of State telegram, “South Africa: De Beers Comments on Chinese, Russian Minerals

Interests.”

 17 China Ministry of Commerce (MOFCOM), China’s 2004 Outbound FDI Statistical Report. 

1-5

foreign direct investment (FDI), with a particular interest in the acquisition of commodities.

The “Go Out” policy has, for the most part, resulted in the acquisition of petroleum and other

mining sector resources. In 2004, more than half of Chinese outbound direct investment went

to the mining sector, primarily into exploration for oil and natural gas resources.9

The three large state-owned oil firms, China National Petrochemical Corporation (Sinopec),

China National Petroleum Corporation (CNPC/Petrochina), and China National Offshore Oil

Corporation (CNOOC), have invested in at least fourteen countries, with the goal of ensuring

China’s supplies of energy and mineral resources.10 In the non-oil resource sector, SOEs such

as China Minmetals, Aluminum Corporation of China (Chalco), and Baoshan Iron and Steel

Co. (Baosteel) are central to the country’s strategy of acquiring non-energy resources and

safeguarding supplies. Aside from direct ownership of many Chinese-based multinational

corporations, the Chinese government also supports overseas investment by Chinese firms

through its Export-Import Bank, which devoted more than one-third of its resources to such

investment projects in 2005, a significant shift from previous years.11

In 2004, China’s realized investment stock in Latin America12 totaled $448.5 million, with

investment in Mexico accounting for the majority, followed by Brazil.13 In a speech to the

Brazilian Congress in November 2004, President Hu of China stated that China would invest

$100 billion in Latin America over the next decade, including $20 billion in Argentina.14

Energy concerns have been notable in China’s investment plans for Latin America.

China’s realized investment stock in Africa totaled $899.6 million in 2004, with Sudan

representing the majority of this investment, followed by Zambia.15 According to press

reports and industry analyses, Chinese firms in pursuit of natural resources, particularly

metals, are increasing their presence across Africa, even in remote and politically unstable

locations that have previously attracted little foreign direct investment from other countries,

including Gabon, the Central African Republic, and the Democratic Republic of the Congo.

According to observers, Chinese firms in Africa often have been willing to barter for access

to minerals, building community facilities such as football fields and infrastructure in return

for access.16

Russia is China’s leading investment destination in Europe, with China’s realized investment

totaling $77.3 million in 2004. Chinese investment totaled $5.3 million in Kyrgyzstan, $5.0

million in Tajikistan, $2.3 million in Kazakhstan, $1.1 million in Uzbekistan, and $200,000

in Azerbaijan, in 2004.17
1-6

Organization

For each of the four commodities discussed in this study, the analyses in chapters 2 through

5 present an overview of supply and demand factors, both globally and within China, and

a discussion of price and trade trends between 1995 and 2004. China’s role in global supply

and demand is also discussed in detail. For each commodity, the study assesses the effects

of increasing shipments to China on global market prices, trade and production patterns, and

overall supply, including the role of Chinese and major foreign direct investments.

For two of the commodities, forest products and aluminum, the analysis has additional

complexity. Global trade and prices for these commodities are dependent upon the mix of

basic inputs versus semi-finished inputs needed by producers. For aluminum, for example,

Chinese producers may import bauxite (the base ore from which aluminum is made), alumina

(ore that is more refined), scrap aluminum (to be remelted), or unwrought aluminum

(aluminum metal that has been smelted and is ready for subsequent processing into more

finished products) or all of those inputs. Demand for each of these is dependent upon

countries’ natural endowments in minerals and energy production, as well as global prices.

Likewise in forest products, forest resources and scrap paper recycling are factors in global

demand and supply. The analyses of these commodities includes the effects of these input

factors on the respective markets. 

As a further attempt to broaden the analyses of these commodity markets, the appendix

presents a review of the existing economic literature related to supply and demand for each

commodity. There is little existing literature directly addressing the role of China in each

market. Instead, the review assesses the existing estimates of supply elasticities and other

supply and demand factors for the four commodities, in an effort to determine the potential

effects of China’s demand changes on the market prices for each commodity.

The study concludes by offering suggestions for further research related to China’s demand

for commodities. Possibilities include constructing forecasts of China’s commodity demand,

and analyzing the effects of macroeconomic and global political conditions or of foreign

direct investment. Further insight may also be gained by examining the effects of China’s

currency regime and China’s free trade agreements on global demand for commodities.
 1 Worldwide Report, Oil and Gas Journal, December 19, 2005 and March 16, 2006.

 2

 U.S. Department of Energy, Energy Policy Act 2005.

 3

 U.S. Department of Energy, International Energy Outlook 2005, July 2005.

2-1

CHAPTER 2

Crude Petroleum

Summary of Conclusions

China’s growing prominence as an energy consumer has generated concerns that China’s

rising domestic demand could decrease crude petroleum availability on the world market,

thereby constricting supply and further raising prices. However, our research indicates that

while China’s overall demand is rising, global production is keeping pace, as world reserves

and supplies of crude petroleum are sufficient at current prices to absorb this increase.

During 2004, China accounted for 8 percent of the world’s consumption of crude petroleum

compared with the more than 25 percent consistently accounted for by the United States, the

world’s leading consumer of crude.

China’s large population and rapid economic development are placing greater demands on

its scarce crude petroleum reserves and under-invested production and refining capacity. As

of January 1, 2006, China accounted for about 1 percent of the world’s proven reserves of

crude petroleum, 5 percent of the world’s production of crude petroleum, and 5 percent of

the world’s total refining capacity.1

 China’s growing presence as an energy consumer and

its aggressive FDI strategy have generated concerns about the effects on global supply and

price.2

 Although China’s increasing demand (stemming from strong economic growth, a shift

toward non-coal sources of energy, and increased need for transportation fuels) does play

a role in the world crude petroleum market, experts disagree as to how long this increase in

demand from China will continue. It is likely that continued rising demand from the United

States will have a stronger impact on the world market than demand growth from China. 

China’s dependence on imported crude petroleum is expected to increase from 45 percent

of total domestic demand in 2004 to 80 percent by 2030.3

 In its attempts to lessen

dependence on imported crude petroleum, China is developing its offshore reserves and

investing abroad. China has been willing to invest in politically unstable countries, such as

Sudan, Kazakhstan, and Angola, that are generally avoided by the large multinational

petroleum companies. To date, China’s total investment in overseas crude petroleum

operations is relatively small, amounting to about 400,000 barrels per day (b/d) in 2004,

which accounts for only about 10 percent of China’s total imports of crude petroleum and

less than 0.5 percent of global crude petroleum production. In contrast, outward investment

by the top three U.S. companies alone accounts for 35 percent of total U.S. imports.
 4

 Distillate fuel oils are petroleum fractions used as diesel fuels and fuel oils. Products known as No. 1,

No. 2, and No. 4 diesel fuel are used in on-highway diesel engines, such as those in trucks and automobiles,

and off-highway engines, such as those in railroad locomotives and agricultural machinery. Distillate fuel

oils are also used for space heating and electric power generation. Residual fuel oils are the heavier oils that

remain after the distillate fuel oils and lighter hydrocarbons are distilled away in refinery operations.

Products known as No. 5 are Navy Special, for use in steam-powered vessels in government service and

onshore power plants; No. 6 includes Bunker C fuel oil used for commercial and industrial heating, for

electricity generation, and to power ships.

 5

 Motor fuels are gasolines, jet fuels, and blending stocks.

 6

 Liquefied petroleum gases include ethane, ethylene, propane, propylene, normal butane, butylene, and

isobutane produced at refineries or natural gas processing plants, including plants that fractionate new natural

gas plant liquids.

 7

 Naphtha is a petroleum fraction containing aliphatic hydrocarbons (organic chemical compounds of

hydrocarbon and carbon) with an approximate boiling range between 122 and 140 degrees Fahrenheit; it is

the intermediate product produced between gasoline and kerosene and contains components of both. 

 8

 Gasoil is a mixture of gas, oil, and water that has yet to be separated by further refinery processes.

 9

 U.S. Department of Energy, Energy Policy Act 2005, 1; and Daniel Yergin, “Ensuring Energy Security.” 

 10 U.S. Department of Energy, Energy Information Administration, International Energy Outlook 2005,

26. In contrast, recessions can result in declining demand. For example, consumption declined in Eastern

European and former Soviet Union countries following the collapse of the Soviet Union in the early 1990s,

from 10 million b/d to 5.3 million b/d in 1997, as the region’s gross domestic product (GDP) contracted by

almost one-third. Ibid., 27. 

 11 Ibid., 9.

 12 Coal is the largest component of China’s energy consumption, accounting for about 63 percent of all

energy consumed. Coal consumption has remained roughly unchanged during the period. The Chinese

government is attempting to move China’s energy mix toward greater reliance on non-coal sources of

energy, mostly due to environmental concerns. Energy Information Administration, China Environmental

Issues.

2-2

Demand

Factors Broadly Affecting Demand

Crude petroleum has limited uses in its natural state but is critical as the feedstock for refined

petroleum products including distillate and residual fuel oils,4

 motor fuels,5 liquefied

petroleum gas,6

 naphtha,7 kerosene, and gasoil.8 Economic growth and increasing global

population in emerging economies, including China, will reportedly drive increasing demand

for crude petroleum in the coming years.9

 As discussed in chapter 1, increased consumption

of petroleum products is projected in emerging economies that experience strong sustained

economic growth, as such growth increases demand for petroleum products in expanding

transportation sectors, as well as in the industrial sectors of the economy.10 The

transportation sector accounts for approximately 60 percent of the projected increases in

global crude petroleum consumption between 2002 and 2025.11 The industrial sector

accounts for approximately 28 percent of the projected increases in world crude petroleum

consumption, for use primarily as feedstock for petrochemical production.

Demand for Crude Petroleum in China

Since 1978, China’s economy has grown at approximately 9 percent annually. Much of the

increased demand for petroleum products is attributable to the high energy intensity (energy

consumption per unit of GDP) of China’s relatively inefficient industrial sector, attempts by

the government to shift toward non-coal sources of energy,12 and China’s increased need for
 13 U.S. Department of Energy, International Energy Outlook 2005, 25 and Country Analysis Briefs:

China, (August 2003): 7–8 and U.S. Department of Energy, Energy Policy Act 2005, 7. 

 14 U.S. Department of Energy, Energy Policy Act 2005, 7.

 15 International Energy Agency, Oil Market Report. 

 16 “Made for Each Other,” 19–20; and Peter S. Goodman, “Oil Exports Leave China.”

 17 U.S. Department of Energy, Energy Policy Act 2005, 2.

2-3

transportation fuels.13 Moreover, in the past 20 years per capita incomes in China have

increased, and the country has experienced a significant rise in its middle class, furthering

China’s energy needs as individuals increase automobile usage and air travel.14

During 2006, Chinese demand for crude petroleum is expected to grow by 6.5 percent,15 with

expected annual growth of 3 percent over the next 25 years. It is forecasted that petroleum

will account for 35 percent of the increase in China’s primary energy demand, as factories

expand and automobiles become more prevalent.16 The number of vehicles in China is

expected to increase from 24 million to as many as 140 million by 2020, with demand for

motor fuels expected to grow by 8 to 10 percent in 2006 alone.

China’s Demand in Global Context

Between 1995 and 2004, China increased its share of global crude petroleum consumption

from 4.8 percent to 7.8 percent of total world petroleum consumption, bypassing Japan to

become the second largest consumer of crude petroleum in 2004, 2005, and during JanuaryMarch 2006. Although China is the second-largest overall energy consumer after the United

States, Chinese per capita energy consumption is only one-eighth of that in the United

States.17 The top industrialized crude petroleum consuming countries experienced marginal

declines in their market shares of total consumption, while developing countries’ market

shares increased during the 1995-2004 period (table 2-1). 

Table 2-1 Crude petroleum consumption by major sources: 1995, 1999, and 20041

Country 1995 1999 2004

1,000 b/d Percent 1,000 b/d Percent 1,000 b/d Percent

United States 17,725 25.3 19,519 25.7 20,815 25.1

China 3,363 4.8 4,364 5.8 6,427 7.8

Japan 5,676 8.1 5,698 7.5 5,411 6.5

Russia 2,976 4.3 2,538 3.3 2,758 3.3

Germany 2,882 4.1 2,838 3.7 2,645 3.2

India 1,575 2.2 2,031 2.7 2,448 3.0

Canada 1,819 2.6 2,027 2.7 2,279 2.8

Brazil 1,788 2.6 2,130 2.8 2,157 2.6

South Korea 2,008 2.9 2,084 2.7 2,151 2.6

France 1,919 2.7 2,029 2.7 2,078 2.5

All other countries 28,287 40.4 30,572 40.3 33,654 40.6

 World Total 70,018 100.0 75,830 100.0 82,822 100.0

Source: Energy Information Administration, International Energy Annual 2003.

1

 2004 production data and corresponding market shares are derived from 2003-2004 growth rates as

published in BP Statistical Review, 2005.
 18 BP Statistical Review 2005.

 19 Energy Information Administration, International Energy Annual 2003. Distillation capacities include

refining capacities for other petroleum-based downstream products.

 20 For world crude petroleum production for 1995-2003, see Energy Information Administration,

International Energy Annual 2003. Crude petroleum production figures include lease condensate, which is

recovered as a liquid from natural gas wells in lease or field separation facilities and later mixed into the

crude stream. 

 21 Data for crude petroleum consumption reflect additional inputs compared to crude petroleum

production data, so consumption is always larger. Consumption data include certain refined petroleum

products (such as liquefied petroleum gases and bunker fuels) and inherent refinery losses and gains. 

 22 2004 world crude petroleum production figures are estimates based on the annual change in production

between 2003 and 2004 as published in BP Statistical Review 2005. Crude petroleum production figures as

published in BP Statistical Review 2005 include crude oil, shale oil, oil sands, and natural gas liquids. 

 23 Shut-in production refers to a well that has been closed down temporarily for repair, cleaning out,

building up reservoir pressure, or because of a lack of market demand.

 24 Minerals Management Service, “Hurricane Katrina/Hurricane Rita Evacuation and Production Shut-in

Statistics Report as of Thursday, December 29, 2005”; “Hurricane Katrina/Hurricane Rita Evacuation and

Production Shut-in Statistics Report as of May 1, 2006,” found at http://www.mms.gov.

2-4

Supply

Factors Broadly Affecting Supply

During the 1995-2004 period, world proved reserves of crude petroleum increased by almost

16 percent to nearly 1.2 billion barrels.18 World refinery capacity increased by almost

11 percent during the 1995-2004 period to 82.3 million b/d.19 The global market for crude

petroleum exhibited strong growth during 1995-2004. Global production and consumption

of crude petroleum20 both exhibited similarly increasing trends, although consumption

slightly outpaced production during the 1995-2004 period.21 Global production of crude

petroleum increased 16 percent to 72.3 million b/d in 2004 from 1995 production levels.22

During the same period, global consumption of crude petroleum increased to 82.8 million

b/d in 2004, an increase of approximately 18 percent from 1995 consumption levels.

Compound annual growth rates (CAGR) of worldwide production and consumption of crude

petroleum over 1995-2004 were 1.49 and 1.69 percent, respectively, and indicate

approximately even production growth relative to consumption growth over the period.

A number of factors can affect the supply of crude petroleum and associated downstream

petroleum products, including upstream and downstream capacity and capabilities, as well

as any disruption in production caused by war, natural disasters, labor disputes, or accidents.

For example, shut-in23 crude petroleum production was equivalent to over 27 percent of the

daily crude petroleum production in the Gulf of Mexico (GOM) in early 2005, but declined

to approximately 22 percent or about 1.5 million b/d immediately following hurricanes

Katrina and Rita.24

Supply of Crude Petroleum in China

China’s petroleum sector historically consisted entirely of a few state-owned firms. Private

Chinese companies were permitted into the market in 2001, and Chinese-foreign joint

ventures have been permitted since 1995. The petroleum industry in China is majorityowned and operated by the Chinese government, which also sets the price that the domestic

industry pays for crude petroleum. Responsibility for the energy sector in China is divided

among several different agencies, but is led by the National Development and Reform
 25 U.S. Department of Energy, Energy Policy Act 2005.

 26 Guth and Ginsberg, “Energy Use in China.”

 27 U.S. Department of Energy, China.

 28 International Energy Agency, Oil Market Report.

 29 U.S. Department of Energy, China.

 30 “Chinese Wells,” Petroleum Economist 71, no. 12, (December 2004): 16–17.

 31 Energy Information Administration, International Energy Outlook, 2005, 33.

 32 U.S. Department of Energy, An Energy Overview.

 33 PennWell Corp., International Petroleum Encyclopedia, 153; McCreary and Loose, China’s Energy

Resources and Supply and Daniel Yergin, “Ensuring Energy Security” Foreign Affairs, March/April 2006.

 34 U.S. Department of Energy, An Energy Overview; and International Energy Agency, China’s

Worldwide Quest for Energy Security, 2000.

 35 “Bohai Bay Bonanza,” 14; and Office of Fossil Energy, An Energy Overview.

2-5

Commission (NDRC).25 The Department of Price, housed within the NDRC, sets artificially

low prices in an effort to build its industrial base.26 While the Department of Price has

recently raised crude petroleum prices, such increases have not kept pace with world market

prices.27 The Chinese government policy of keeping crude petroleum prices below the market

level has encouraged crude petroleum exports and has led to domestic energy shortages.28

Regulatory oversight of the industry is the responsibility of the State Energy Administration

(SEA), which was created in early 2003. Two new Chinese government bodies were created

during 2005 to enhance national coordination of strategic energy matters: the National

Energy Leading Group (NELG) and the National Energy Office (NEO). The NEO will be

housed within the NELG.29

China’s petroleum industry has undergone major changes over the last decade. In 1998, the

Chinese government reorganized most state-owned crude petroleum and natural gas assets

into 2 vertically integrated firms – CNPC, operating in the north and west, and Sinopec,

concentrated in the south and east.30 CNPC has a greater focus on crude petroleum

production while Sinopec focuses more heavily on refining; however, both companies

perform both functions. Other major state sector firms in China include CNOOC, China

National Oil & Gas Exploration & Development Corp. (CNODC), and China National Star

Petroleum (Star). CNOOC handles offshore exploration and production and accounts for

more than 10 percent of China’s domestic crude petroleum production.

Crude petroleum production within China is expected to decline slightly through 2025, to

about 3.5 million b/d.31 Onshore fields currently account for about 85 to 90 percent of

China’s known reserves, with the largest fields located in the northeast.32 Daqing, the largest

field in China, has produced more than 1 million b/d for more than 20 years; this level is

expected to drop by 2010. Reserves at Daqing are already 50 percent extracted.33 Most new

onshore exploration is taking place in the western part of the country. The Chinese expect

to explore and develop the Tarim Basin in the northwest.34 Geologists believe that the Basin

contains several small-and-medium size crude petroleum deposits.

As Chinese onshore oilfields have slowly declined and prospects for future exploration and

development are not strong, offshore crude petroleum development has increased. Offshore

crude petroleum now accounts for a half million b/d in China, an increase of more than

200 percent since 1995. CNOOC is exploring Bohai Bay, the South China Sea, and the East

China Sea for possible development; the majority of offshore crude petroleum exploration

is concentrated on the Bohai Bay and in the Pearl River area in southeastern China.35

The Chinese government and the national petroleum companies have set priorities to achieve

high levels of domestic crude petroleum production and distribution and build a strategic
 36 Energy Information Administration, China; Central Intelligence Agency, “China;” and Office of Fossil

Energy, An Energy Overview.

 37 Energy Information Administration, China; and Logan, Annual Energy Outlook for 2005.

 38 U.S. Department of Energy, Energy Policy Act 2005, 28; and American Enterprise Institute, CNOOC’s

Bid for UNOCAL.

 39 Zweig and Jianhai, “China’s Global Hunt for Energy,” 32.

 40 Logan, EIA’s Annual Energy Outlook for 2005.

 41 Energy Information Administration, China.

 42 Energy Information Administration, China.

 43 “Opportunity NOCs,” 21-22.

 44 “China Makes a Huge Bid for Oil.”

2-6

petroleum reserve. The Chinese government hopes to stabilize production in the eastern part

of the country at current levels, increase production offshore and at new fields in the west,

and develop the infrastructure required to deliver western crude petroleum and gas to

consumers in the east. Success will depend on doubling China’s existing 14,478 kilometers

of pipeline, planned for 2015.36 China National Star and CNOOC began construction on a

national strategic petroleum reserve in 2005. The reserve will be located near major

refineries and will consist of 3 tank farms, to be built and filled in phases, beginning with

100 million barrels of storage filled by 2008.37

Due to China’s growing dependence on crude petroleum imports to meet its energy needs,

Chinese state-owned oil companies have actively invested in exploration and production

abroad since the mid-1990s. By 2004, China’s total investment in overseas crude petroleum

operations amounted to about 400,000 b/d, in 44 countries.38 China has traditionally been

willing to invest in unstable countries, such as Sudan, Kazakhstan, and Angola, where

Western oil companies do not yet dominate investment. China has reportedly stationed four

thousand nonuniformed troops in Sudan to protect its crude petroleum interests.39 China’s

total investment in overseas crude petroleum operations is expected to rise to 1.4 million b/d

by 2020.40 Although there is much attention given to Chinese firms’ investments in overseas

crude petroleum, these investments accounted for less than 10 percent of China’s total crude

petroleum imports as of mid-year 2005.41

Among other transactions (see table 2-2), CNPC acquired a 60-percent stake in the Kazakh

crude petroleum firm Aktobemunaigaz, which came with a pledge from CNPC to invest

significantly in the company’s future development over the next twenty years.42 CNPC has

also acquired crude petroleum assets in Angola, Azerbaijan, Cambodia, Canada, Indonesia,

Iran, Iraq, Myanmar, Oman, Peru, Russia, Sudan, Syria, Thailand, Turkmenistan, and

Venezuela.43 CNPC’s 2005 purchase of PetroKazakhstan will help to meet demand in

western China, through a pipeline to western China that CNPC is building with Kazakhowned KazMunaiGaz.44 CNPC is also hoping to win a joint bid with India’s Oil and Natural

Gas Corporation (ONGC) to purchase a 38-percent share of Syria’s largest petroleum 
2-7

Table 2-2 China’s investment in overseas crude petroleum assets: Selected joint ventures and other arrangements,

2004–2005

Date Chinese Company Overseas Company Country Other Details of Transaction

January 2004 Shengli Oilfield

Junwei Petroleum

-Tech

Development Co.

Ltd.

Big Sky Energy

Kazakhstan Ltd.

Kazakhstan 50 percent acquisition of crude

petroleum and natural gas

extraction services

April 2004 CNPC Enbridge Canada $2 billion pipeline to carry crude

petroleum to the western coast of

Canada for shipment to China

June 2004 CNPC Uzbekneftegaz Uzbekistan UzCNPC Petroleum formed, a

joint venture of petroleum and

natural gas field services

August 2004 Sinopec Petroleo Brasileiro

SA

Brazil Crude petroleum exploration joint

venture

October 2004 Sinopec National Iranian Oil

Company

Iran Liquefied natural gas purchases

for the next 30 years and oilfield

development in exchange for

150,000 b/d of crude petroleum at

market prices for twenty-five

years. This transaction is valued

at $70 billion.

January 2005 Shengli Oilfield

Junwei Petroleum -

Tech Development

Co. Ltd.

Big Sky Energy

Kazakhstan Ltd

Kazakhstan Joint venture for crude petroleum

production in three blocks in the

Caspian region of Kazakhstan

February 2005 CNPC, CNODC State Oil Company

of the Azerbaijani

Republic

Azerbaijan Salyan Oil Operating Company

formed, a joint venture of crude

petroleum extraction services.

Ownership share was raised to 25

percent in November 2005.

April 2005 CNOOC MEG Energy Corp. Canada 17 percent share in oil sands

project in Alberta

May 2005 Sinopec Synenco Energy Canada 40-percent stake in Northern

Lights oil sands project

August 2005 CNPC PetroKazakhstan

Inc.

Canada

(assets in

Kazakhstan)

500 million barrels in crude

petroleum reserves valued at

$4.18 billion

September

2005

Andes Petroleum

Co. (joint venture

that includes

CNPC)

EnCana Corp. Ecuador Crude petroleum and pipeline

assets with 75,000 b/d valued at

$1.42 billion

December 2005 CNOOC Yuganskneftegaz Russia Minority stake in crude petroleum

and natural gas extraction

services firm

Sources: Compiled with information obtained from Zephyr Mergers and Acquisitions database and interviews

with industry officials, November–December 2005.
 45 “China’s CNPC, India’s ONG.” 

 46 “Opportunity NOCs,” 21-22.

 47 Ibid.

 48 Perez, Who Wins.

 49 In June 2005, CNOOC launched an $18.5 billion cash bid for the U.S.-based Unocal Corp. rivaling the

bid from U.S.-based ChevronTexaco by more than $1 billion. As a result, of CNOOC’s bid, the U.S. House

of Representatives voted 398 to 15 against the proposed deal, calling it a risk to the U.S. national security. In

August 2005, CNOOC dropped its bid and Unocal was taken over by ChevronTexaco.

 50 Office of Fossil Energy, An Energy Overview.

 51 Ibid.

 52 “Bohai Bay Bonanza,” 14.

 53 PennWell Corp., International Petroleum Encyclopedia, 154.

 54 “Chinese Wells,” 16-17.

2-8

producer, Al Furat Production Company.45 Sinopec has begun seeking to purchase overseas

upstream assets and now has assets in Algeria, Azerbaijan, Indonesia, Libya, Oman, Nigeria,

Tunisia, and Yemen.46 CNOOC has overseas investments in Australia and Indonesia.47

China’s current focus for securing new reserves is on Southeast Asia and Russia.48 49

Growing Chinese energy demand, coupled with its entrance into the World Trade

Organization (WTO) in 2001, has accelerated foreign investment in China’s crude petroleum

sector, aimed at increasing domestic supplies. For domestic onshore crude petroleum, China

opened exploration and development to joint ventures involving foreign firms in 1995.

Foreign companies were permitted to operate only in specific regions approved by the State

Council in conjunction with CNPC. When China entered the WTO in December 2001, crude

petroleum tariffs dropped to zero, and 10 percent of the crude petroleum sector was opened

up to competition. Foreign petroleum companies are now allowed to sell crude petroleum

to Chinese refineries and large companies, bypassing state-run companies.50 However, all

foreign investments within China that produce crude petroleum are required to be joint

ventures with state-owned Chinese companies. 

CNPC, Sinopec, and CNOOC each successfully carried out initial public offerings (IPOs)

between 2000 and 2002. In early 2000, CNPC formed a subsidiary, PetroChina, and sold a

minority share of the company on both the New York and Hong Kong stock exchanges. BP

was the largest purchaser, gaining 20 percent of the offered shares. Sinopec raised $3.5

billion from its IPO in October 2000, with most shares purchased by ExxonMobil, BP, and

Shell. Shell bought the largest block of shares in CNOOC, which offered a minority of

shares in a February 2001 IPO. However, the Chinese government still holds a majority

interest in the three largest petroleum and gas firms, and foreign investors have not received

any seats on the firms’ Boards of Directors.51

Sixteen international petroleum companies have production activities in China, including

ConocoPhillips, ChevronTexaco, and Shell.52 Ten foreign companies are licensed to operate

in the East China Sea under production-sharing contracts with Chinese state-owned

companies.53 Production-sharing is used in the exploration, development and production, and

enhancement of recovery phases.54 China often uses foreign investment as a means to access

the technology and the capital it needs to develop the country’s natural resources. CNPC,

Sinopec, and CNOOC are the 3 national petroleum companies approved to manage

production-sharing contracts with foreign businesses (table 2-3).
 55 These companies are China National Chemical Import and Export Co., China International United

Petroleum and Chemicals Co., China National United Oil Co., and Zhuhai Zhenrong Co. PennWell Corp.,

International Petroleum Encyclopedia, 149.

 56 PennWell Corp., International Petroleum Encyclopedia, 149.

 57 Office of Fossil Energy, An Energy Overview.

2-9

Table 2-3 Foreign investment in Chinese crude petroleum assets: Selected joint ventures with CNOOC, 2002–2005

Foreign Company Chinese Company Location

Crude Petroleum Yield

(barrels/day)

Conoco-Phillips (U.S.) CNOOC Bohai Bay 19,000

Kerr-McGee (U.S.) CNOOC and

Sino-American Energy (U.S.-

Chinese joint venture)

Bohai Bay 45,000

ConocoPhillips (U.S.) and 

Shell (Netherlands)

CNOOC South China Sea 11,000

 Sources: “Bohai Bay Bonanza,” 14; and Energy Information Administration, China.

Prior to China’s entry into the WTO, it allowed only 4 state-owned operations to import

crude petroleum.55 Applications from private Chinese businesses to import petroleum began

to be accepted in December 2001.56 In February 2005, China liberalized regulations on

private investment in the domestic petroleum sector. Foreign investment in China is required

to take the form of joint ventures, and foreign investment in a company is limited to less than

50 percent of total equity.57 Foreign investors also may not be represented on the companies’

Boards of Directors. 

China’s accession to the WTO brought many changes within China’s petroleum market,

including the elimination of tariffs on crude petroleum and the further opening of the market

to foreign investment. China has also signed various bilateral and multilateral agreements

during the past 5 years as a means to ensure its access to crude petroleum supplies. These

agreements allow for Chinese offshore exploration and help to ensure its supply of imported

crude petroleum (table 2-4). 
 58 Member countries of OPEC are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi

Arabia, the United Arab Emirates, and Venezuela.

 59 Energy Information Administration, International Energy Outlook 2005, 3.

2-10

Table 2-4 Selected international agreements associated with China’s crude petroleum sector

Type of Agreement Date Countries Involved Details of Agreement

Bilateral offshore

exploration agreements

December 2000 Vietnam The agreement determined the boundary

of each country’s economic area in the

Gulf of Tonkin, opening the way for crude

petroleum and natural gas exploration in

that area.

November 2002 Association of Southeast

Asian Nations (ASEAN) 

Joint Declaration on the Conduct of the

Parties, which pledged to "undertake to

resolve their territorial and jurisdictional

disputes by peaceful means" without

"resorting to the threat or use of force."

This declaration aims to allow ASEAN

members to devise a method of

determining which parts of the seas belong

to which member countries. 

March 2005 Philippines and Vietnam Joint accord on marine seismic activities in

the Spratly Islands.

Bilateral agreements to

ensure import supply

January 2004 Venezuela Trade and petroleum-supply agreements

May 2005 Uzbekistan Joint exploration agreement

June 2005 Russia Chinese company CNPC signed a

long-term agreement with Russia's

state-owned OAO Rosneft to increase

exports of Russian crude petroleum to

China. As a result, Russian exports of

crude petroleum to China are expected to

increase by 5 million metric tons in 2006,

to 9 million metric tons.

July 2005 Iran and India The Shanghai Cooperation Organization

(SCO), an intergovernmental organization

formed by China, Russia, Kazakhstan,

Kyrgystan, Tajikistan and Uzbekistan, has

tabled a proposal to run a pipeline from

Iran to India and possibly extend it to the

Chinese border.

Source: U.S. Department of Energy, Energy Information Administration, South China Sea Region September

2003; Central Intelligence Agency, “China”; Zweig and Jianhai, “China’s Global Hunt for Energy,” 29; Watkins,

“Russia, China Sign Energy Agreements”; and Bustelo, “China and the Geopolitics of Oil,” 22.

China’s Supply in Global Context

The long-term supply of crude petroleum is dependent on the successful exploration,

development, and production of economically or commercially viable on- or offshore fields.

Organization of Petroleum Export Countries (OPEC)58 member countries are expected to

continue to be the world’s dominant suppliers of crude petroleum, accounting for 60 percent

of the projected increase in world crude petroleum production capacity through 2025.59

Several OPEC members have undertaken or have planned substantial investments to expand
 60 For a description of OPEC upstream investment plans by country, see “OPEC Upstream Investment

Plans for 2005–2010,” at http://www.opec.org/home/PowerPoint/Supply%20and%20Capacity/

OPECUpInvestplan.htm. For a description of downstream investment plans by country, see “OPEC

Downstream Expansion Plans 2005–2012,” at http://www.opec.org/home/PowerPoint/

Downstream%20Constraints/OPECDownstreamexpplans.htm

 61 Energy Information Administration, International Energy Outlook 2005, 3.

2-11

production to ensure future crude petroleum supplies.60 Increases in non-OPEC crude

petroleum production are also expected in Russia, the North Sea, the Caspian Basin, Western

Africa, and Central and South America.61

OPEC holds the largest share of global crude petroleum production. In 1995, OPEC

members Saudi Arabia, Iran, Venezuela, Nigeria, and the United Arab Emirates (UAE)

together accounted for more than 30 percent of the total market share of crude petroleum,

although most of these countries experienced a modest decline in total market shares

between 1995 and 2004 (table 2-5). While Saudi Arabia remains the world’s largest

producer, Russia has overtaken the United States as the second-largest crude petroleum

producer in the world. China’s market share changed little between 1995 and 2004, and

averaged slightly less than 5 percent of total production over the period.

Table 2-5 World crude petroleum production and market shares, by major sources: 1995, 1999, and 20041

Country 1995 1999 2004

1,000 b/d percent 1,000 b/d percent 1,000 b/d percent

Saudi Arabia 8,231 13.2 7,833 11.9 9,176 12.7

Russia 5,995 9.8 6,079 9.2 8,856 12.3

United States 6,560 10.8 5,881 8.9 5,539 7.7

Iran 3,643 6.0 3,557 5.4 3,829 5.3

China 2,990 4.9 3,195 4.9 3,508 4.9

Mexico 2,618 4.3 2,906 4.4 3,405 4.7

Norway 2,768 4.5 3,018 4.6 2,786 3.9

Venezuela 2,750 4.5 2,826 4.3 2,657 3.7

Nigeria 1,993 3.3 2,130 3.2 2,483 3.4

United Arab Emirates 2,230 3.7 2,169 3.3 2,470 3.4

All other countries 22,557 36.2 26,253 39.9 27,558 38.1

 World Total 62,335 100.0 65,848 100.0 72,266 100.0

Source: Energy Information Administration, International Energy Annual 2003; BP Statistical Review, 2005.

1

 2004 production data and corresponding market shares are derived from 2003-2004 growth rates as

published in BP Statistical Review, 2005.
 62 Generally, crude petroleum is sold based on spot market prices. Supply contracts always contain

clauses relating to the delivery price determined when a contract is signed. Such a clause is usually a fixed or

base price escalated according to a given formula that corresponds to increases and/or decreases in the spot

market price for benchmark crudes. The primary benchmark prices used worldwide for crudes sold out of

New York or Rotterdam are based on West Texas Intermediate (WTI) crude, which is a sweet, light crude

petroleum and is the premier crude type; Brent, which refers to crude that is not as sweet or light as WTI but

still a high-grade crude priced about $1 to $2 less than WTI; and OPEC basket, which is a heavier, sour

crude. In addition to each type, a benchmark price can be a combination of these primary benchmarks. 

2-12

Price Trends

Crude petroleum prices have been highly volatile at times over the past 25 years, and periods

of price volatility can be expected in the future principally because of unforeseen political

and economic circumstances (figure 2-1). The price fluctuations reflect increased Saudi

Arabian production during 1997-98, as well as supply disruptions during 1999-2004 (e.g.,

civil and labor unrest in Nigeria and Venezuela, and the war in Iraq).62

During this period, the average world crude petroleum spot prices, based on the benchmark

crudes West Texas Intermediate and Saudi Light, roughly tripled; spot prices for China’s

Daqing crude also increased and were slightly higher than the benchmarks as China exported

crude petroleum for hard currency (figure 2-2). During late 2005 and January-April 2006,

crude petroleum prices topped $65 per barrel as a result of several factors including

continued tight supplies on the world market, reductions in spare production capacity, labor

unrest in Venezuela and Nigeria, and the war in Iraq. More recently, during late April 2006,

prices have skyrocketed over $70 per barrel because of fears of a confrontation with Iran

over its nuclear program (a major crude exporter), which has resulted in a significant

geopolitical risk premium to the price of crude petroleum. Iran has been at the forefront in

recent weeks due to its disagreement with the West over its nuclear program. 

0

10

20

30

40

50

1/6/1995

6/6/1995

11/6/1995

4/6/1996

9/6/19962/6/19977/6/1997

12/6/1997

5/6/1998

10/6/1998

3/6/1999

8/6/19991/6/2000

6/6/2000

11/6/2000

4/6/2001

9/6/2001

2/6/20027/6/2002

12/6/2002

5/6/2003

10/6/2003

3/6/20048/6/2004

Figure 2-1 World crude petroleum spot price FOB weighted by export volume: 1995-2004

Source: U.S. Department of Energy, Energy Information Administration.

Note: Data for 1995 collected by the Energy Information Administration are for January 6 and February 24, 1995. Data for 

1996 are from January 5 and April 12, 1995. Beginning in January 1997, world crude petroleum prices as published by the 

Energy Information Administration are collected on a weekly basis.

Dollars per barrel
 63 For further detail, see the appendix.

2-13

In general, crude petroleum prices will likely continue to be impacted by short term factors

including tensions in the Middle East and labor unrest in major producing countries, and

long-term factors including increased demand by emerging economies including China and

India, and continued high demand for crude petroleum from the world’s dominant consumer,

the United States. Continued high crude petroleum prices could act to deter consumption and

encourage the emergence of significant new petroleum and non-petroleum energy sources.

Limits to long-term price escalation include substitution of other fuels (such as natural gas),

marginal sources of conventional oil that become reserves (i.e., economically viable sources)

when prices rise, and nonconventional sources of crude (such as oil shales) that become

reserves at still higher prices. Advances in exploration and production technologies are also

likely to bring prices down when such additional resources become part of the reserve base.

Recent economic studies suggest that, if all other factors were held constant, the increase in

China’s demand for crude petroleum during 1995-2004 was large enough to cause an

increase in global prices. The price elasticities of supply estimated in the literature suggest

that increases in China’s demand alone (as measured by changes in Chinese consumption)

would have raised global prices of crude petroleum by 12 percent to 37 percent between

1995 and 2004. Using the same assumptions, China’s projected demand would result in an

additional increase in global prices of anywhere from 4 percent to 20 percent by 2010. These

estimates, however, do not take into consideration the supply increases that have taken place

in the last ten years, or those projected to take place over the next five years, that might

mitigate or eliminate these demand effects.63

0

10

20

30

40

50

60

70

1997 1998 1999 2000 2001 2002 2003 2004 2005 Jan-Apr.

2006

Dollars per barrel

West Texas Intermediate Saudi Light China Daqing Spot Price

Figure 2-2 Crude petroleum: Average spot price for West Texas Intermediate, Saudi Light, and 

China Daqing, FOB weighted by export volume: 1995–2005 and January–April 2006

Source: Official statistics of the U.S. Department of Energy.
 64 American Petroleum Institute, Basic Petroleum Data Book: Petroleum Industry Statistics XXV, no. 2

(August 2005): section IX, table 9.

 65 Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, and Yemen.

 66 International Energy Agency, China’s Worldwide Quest, 50. IEA notes that the Asia-Pacific region

remains a principal source for refined petroleum products due to China’s shortage of refinery capacity

relative to domestic demand.

 67 Global Trade Atlas, China import statistics for HTS subheading 2709.00.

2-14

Trade Trends

Global trade of crude petroleum increased by almost one-third between 1995 and 2004,64 a

reflection of increased production and consumption of crude petroleum and petroleum

products. OPEC and Middle East region producers65 remained the most significant source

of supplies. The United States has remained heavily reliant on OPEC and Middle East

sources (table 2-6), while the European Union and China, in contrast, have diversified import

sources. U.S. imports of crude petroleum increased by approximately 45 percent from 1995

to 2004. In contrast, China became a net importer of crude petroleum in 1993, with the

Middle East overtaking the Asia-Pacific region as the principal supplier of crude petroleum

to China.66

Between 1995 and 2004, Chinese imports of crude petroleum increased more than six-fold.

The Middle East remains an important source of crude petroleum for China. On a volume

basis, China’s imports from the Middle East more than quadrupled between 1996 and 2004;

however, the Middle East’s market share in China has remained unchanged (figure 2-3).67

Africa figures among China’s fastest growing import sources of crude petroleum, increasing

from 8.5 percent of China’s total imports in 1995 to nearly 29 percent in 2004. China’s

interest in diversifying its sources of crude petroleum is evident in the geographic

distribution of China’s top import sources by country and volume imported in 2004

(table 2-7).
2-15

Table 2-6 Top U.S. general import sources of crude petroleum, by country and volume: 1995, 1999, and 2004

 Partner Country 1995 1999 2004

1,000

Barrels Percent

1,000

Barrels Percent

1,000

Barrels Percent

Canada 379,399 14.0 424,008 13.2 581,272 14.8

Venezuela 424,716 15.7 461,115 14.3 577,140 14.7

Mexico 345,710 12.8 447,781 13.9 566,600 14.4

Saudi Arabia 474,251 17.5 489,511 15.2 552,005 14.0

Nigeria 264,037 9.8 230,595 7.2 393,785 10.0

Iraq (1

) (1) 263,399 8.2 247,079 6.3

Algeria 8,628 0.3 7,059 0.2 123,323 3.1

Angola 130,062 4.8 141,289 4.4 116,943 3.0

United Kingdom 140,991 5.2 99,551 3.1 98,884 2.5

Norway 91,070 3.4 111,445 3.5 91,886 2.3

Other 445,403 16.5 548,003 17.0 580,473 14.8

Total 2,704,267 100 3,223,755 100 3,929,391 100

Source: Compiled from official statistics of the Department of Commerce.

Note: U.S. general imports are measured as the total physical arrivals of merchandise from foreign countries,

whether such merchandise enters consumption channels immediately or is entered into bonded warehouses or

Foreign Trade Zones under Customs custody. U.S. general imports include U.S. imports for consumption.

1

 No imports reported.

45.4% 46.2% 45.4%

10.8%

19.8%

28.7%

38.8% 15.6%

10.2%

8.8%

4.8%

16.9%

6.9%

1.6%

0.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1995 1999 2004

Middle East Africa Asia Pacific Russia Other

Figure 2-3 Geographic distribution of Chinese imports of crude petroleum by region: 1995, 1999, 

and 2004

Source: Global Trade Atlas.
 68 This import reliance figure differs slightly among sources. For example, the World Energy Outlook

2004 forecast Chinese petroleum import dependence to be 75 percent in 2030. Energy Information

Administration, China; “Chinese Wells,” 16-17; Logan, Annual Energy Outlook for 2005; and Office of

Fossil Energy, An Energy Overview.

 69 International Energy Agency, China’s Worldwide Quest.

 70 International Energy Agency, Oil Market Report.

2-16

Table 2-7 Volume, market shares, and rank for China's top import sources of crude petroleum: 1995 and 2004

Partner country 1995 2004

Import Volume

(1,000 Barrels)

Market Share

(Percent) Rank

Import Volume

(1,000 Barrels)

Market Share

(Percent) Rank

Saudi Arabia 2,481 2.0 6 126,401 14.0 1

Oman 26,777 21.4 1 119,829 13.3 2

Angola 7,321 5.8 3 118,806 13.2 3

Iran 6,825 5.4 4 97,030 10.8 4

Russia 267 0.2 7 78,992 8.8 5

Sudan (1) 0.0 9 42,297 4.7 6

Vietnam 5,578 4.5 5 39,202 4.4 7

Yemen 18,128 14.5 2 36,006 4.0 8

Congo 187 0.1 8 34,988 3.9 9

Equatorial Guinea (1

) 0.0 10 25,543 2.8 10

Total 125,269 100.0 900,237 100.0

Source: Global Trade Atlas.

1

 None reported.

China’s dependence on imported crude petroleum is expected to increase from 45 percent

of total domestic demand in 2004 to 80 percent by 2030.68 In response, as discussed above,

China is working to rapidly develop its domestic supplies and further secure international

petroleum sources.69 The Chinese government established its State Energy Office in 2004,

which is tasked with lowering China’s petroleum import dependence. To that end, the

Chinese government has implemented policies limiting crude petroleum exports by stateowned companies.70
 1

 Alumina is the primary material input to unwrought aluminum. Alumina is refined from bauxite ore.

 2

 The Aluminum Association.

3-1

CHAPTER 3

Unwrought Aluminum

Summary of Conclusions

While Chinese demand for unwrought aluminum has had an impact on global prices, the

magnitude of the price effect is not clear. Increased global demand, rising input costs,

production declines in the United States and Europe, along with significant consolidation and

restructuring of leading market participants have also contributed to the increased global

price for aluminum. However, China’s role in the aluminum marketplace is not insignificant.

Increased Chinese demand and production have contributed to higher input costs for

aluminum smelting worldwide, industry restructuring and consolidation, and changes in

global trade flows for unwrought aluminum. 

China’s impact on the global market has been significant in three principal ways. First,

China’s need for alumina1

 to fuel its expanding aluminum production has driven alumina

prices to record highs, narrowing profit margins for producers of unwrought aluminum and

contributing to restructuring throughout the industry. Second, anticipation of growth in

China’s demand for aluminum has increased production capacity worldwide. New countries

have emerged as leading players in world markets as firms look to streamline operations and

take advantage of low-cost electric power. Finally, China’s role in the global marketplace

has expanded significantly as state-owned Aluminum Corporation of China (Chalco) has

emerged as one of the world’s leading aluminum producers and China has moved from a net

importer of aluminum to a net exporter.

Looking forward, it is uncertain whether Chinese aluminum output can keep pace with

anticipated growth in domestic consumption from its rapidly urbanizing economy and

expanding industrial production. Despite having abundant bauxite deposits, China will

continue to rely on imported alumina, due to insufficient refining capacity and the low

quality of Chinese bauxite. Such imports will likely be increasingly sourced from Chinese

investments in bauxite and alumina projects located abroad. Future prospects for growth in

China’s production of unwrought aluminum depend on progress in addressing high-cost and

inadequate supplies of alumina and electric power, upgrading outdated smelting

technologies, and complying with potentially strict government measures to rein in

production overcapacity in the aluminum industry.

Demand issues

Factors Broadly Affecting Demand

The principal end uses for aluminum are the transportation, packaging, and construction

markets.2

 Global demand for unwrought aluminum has been robust since 2002, as the U.S.

economy recovered from the 2001 recession and as airlines recovered from the adverse
 3

 “Alcan Forecasts Growth of Auto Business.”

 4

 Stutovich, “Counter Intelligence: Engine Parts.” 

 5

 Larkin.

 6

 Pinkham, “Demand for Aircraft Aluminum Reaches New Levels.”

 7 U.S. Aircraft Production–Civil, Aerospace, Fact & Figures 2005-2006, 28. 

 8

 Anselmo, Velocci Jr., Wall, and Mecham, “Supply and Demand,” and Pinkham,“Demand for Aircraft

Aluminum Reaches New Levels.”

 9

 “Aluminum Applications and Society– Construction,”

 10 Kassakovich, “Future is Bright as Aluminum Demand is Set to Soar,” 28-29.

 11 Compiled from official statistics of the U.S. Census Bureau.

 12 “Aluminum Bottles Rival Popularity of Plastic.”

 13 “Recent Developments Reviewed in European Rolling Sector.”

3-2

impacts of the September 11 terrorist attacks on passenger air travel. Demand growth is

especially evident in the transportation sector, which accounts for approximately one-third

of worldwide aluminum consumption. A major driver has been the shift from iron castings

to aluminum castings for automotive components3

 and increased demand from the aerospace

industry, a major consumer of sheet and plate. Aluminum’s light weight is ideal for

automobile manufacturers seeking to reduce vehicle weight to improve fuel efficiency and

reduce emissions.4

 Accordingly, the aluminum content in passenger vehicles and light trucks

has grown more than 40 percent and 68 percent, respectively, since 1991.5

 In the aerospace

market, increased build rates for both military and civil aircraft have led to increased demand

for aluminum.6

 For example, between 1995 and 2004, U.S. production increased from 1,625

to 3,440 aircraft per year, despite a significant drop-off in production after the September 11

attacks.7

 A new surge of aircraft orders in 2005 should sustain aerospace industry demand

for aluminum through 2008.8

In the construction market, leading uses of aluminum are for window frames, doors, and

facades, closely followed by support framing for roofs and walls.9

 The construction market

has been particularly strong in the United States, Russia and industrializing economies,

especially China and India.10 Housing starts in the United States for privately owned units

grew by 34 percent between 1994 to 2004.11

Demand for aluminum packaging, consisting mostly of flat-rolled aluminum sheet for

beverage cans and foils for food packaging, also grew strongly from 1994 through 2004.

During the period, many new applications for aluminum beverage cans were introduced,

particularly for energy drinks and beer.12 Additionally, the packaging market reflected

increasing trends for prepared meals and blister-packaging for pharmaceutical products.13

Demand for Aluminum in China

Chinese demand, as measured by Chinese consumption of unwrought aluminum, grew

almost every year during the 1995-2004 period, nearly doubling between 1995 and 1999,

and subsequently more than doubling between 1999 and 2004. Over the full 10-year period,

Chinese consumption rose nearly three-fold (up 4.0 million metric tons) to reach 5.9 million

metric tons by 2004, equal to 20.1 percent of global consumption in that year.

In contrast to developed countries where the transportation sector dominates, building and

construction is the largest aluminum consuming sector in China (figure 3-1), a reflection of

ongoing building construction and infrastructure development and significantly lower per-
 In 2003, there were only 16.2 automobiles per 1,000 persons in China, compared to 800 automobiles 14

per 1,000 persons in the United States, and 600 automobiles per 1,000 persons across all developed

countries. Hunt Jr., “The China Factor, Aluminum Industry Impact.”

 Evans, 13; and Aluminum in China, Industry Profile, DataMonitor, and “Aluminum Demand Soars.” 15

 Leung and Czachorski, “The Global Competitiveness– a Perspective View of a Chinese Extruder.” 16

 “From Accelerator to Brake, the Chinese Economy has Driven a Boom in Commodity Markets, It May 17

Be Turning Into a Drag.”

 “Aluminum Demand Soars.” 18

3-3

capita automobile ownership. In addition, the share of Chinese aluminum consumption 14

accounted for by electrical products and consumer durables exceeds that of many

industrialized nations, a reflection of both the country’s growing export-oriented

manufacturing sector and its rising domestic consumer markets.

China’s relatively low per-capita consumption rate for unwrought aluminum, coupled with

its expanding industrial activity and government housing programs, suggest that Chinese

demand for aluminum will continue to grow, particularly in the construction and automotive

sectors. An estimated 3.3 million apartments are being built every year in China, averaging 15

approximately 240 million square meters of new housing each year. Further, as discussed 16

in chapter 4, Chinese builders and home buyers do not use wood frame construction,

increasing builders’ demand for aluminum compared to equivalent new housing construction

in other markets. Moreover, major construction projects for the 2008 Olympics will also

commence shortly. Finally, ownership of private automobiles in China is expected to 17

increase. According to the Central Government, vehicle sales in China may rise to

9.4 million units in 2010 (from 5.1 million in 2004). By 2010, Chinese aluminum usage in

automobiles is anticipated to approach 2.5 million metric tons.18
 In 2004, China consumed 20.1 percent of unwrought aluminum compared to 19.6 percent for the United 19

States.

3-4

China’s Demand in Global Context

Between 1995 and 2004, China’s strong demand growth was a key factor in increased global

consumption, accounting for almost 45 percent of this increase. China’s share of global

consumption expanded significantly, from 9.4 percent to 20.1 percent (figure 3-2). In fact,

China surpassed the United States in 2004 as the world’s leading consumer of aluminum.

Worldwide consumption of unwrought aluminum grew steadily from 1995 through 2004,19

increasing 44 percent to 29.5 million metric tons, largely resulting from increased demand

from the transportation, packaging, and construction markets, particularly in the latter half

of the period.

Supply issues

Factors Broadly Affecting Supply

The global supply of unwrought aluminum is constrained by the complicated process by

which aluminum is produced and the high costs associated with this process. While

aluminum is the most abundant metallic element in the earth’s crust, it does not occur
 A small percent of unwrought aluminum is produced by secondary smelters that melt down recycled 20

aluminum scrap.

 Forty-five percent of the global alumina supply is traded. “Alumina Prices: What Should We Expect?” 21

 “Aluminum Production– a Chinese Puzzle.”

22

3-5

naturally in a metallic state. Therefore, a majority of unwrought aluminum is produced

through a two-step process (figure 3-3). First, bauxite, an aluminum bearing ore, is refined 20

into alumina, a white powder of aluminum oxide. Then, alumina is converted into

aluminum in a smelting process. Two to three tons of bauxite are required to produce one

ton of alumina and two tons of alumina are required to produce one ton of aluminum metal.

Aluminum smelting is very expensive due to the high capital costs associated with building

and maintaining a smelter and high input costs, primarily for electricity and alumina. The

average industry business operating cost in 2004 was $1,124/ton of unwrought aluminum.

Input costs have escalated in recent years, particularly for energy (29 percent of input costs

in 2004) and alumina (38 percent). Energy costs, particularly in the United States, have

increased significantly and these rising costs have affected the viability of many smelters.

Further complicating the production process is that most aluminum smelters are not located

in proximity to producers of alumina. Bauxite tends to be found in sub-tropical areas

principally in developing countries, including Brazil, Jamaica, and Suriname. Leading

smelting countries, such as the United States, import all the alumina necessary to produce

unwrought aluminum. In recent years, alumina has become more commoditized, and it can

be bought and sold on the spot market. In the past 5 years, alumina prices have risen 21

significantly, driven by Chinese import demand, as its alumina refineries lack the capacity

to meet its smelter needs.22

A final component of supply is the availability of aluminum produced from secondary

sources in the marketplace. Secondary aluminum metal can be recovered by melting down

recycled aluminum scrap in a process that is significantly less expensive than smelting

alumina into aluminum. Because of this cost savings, many aluminum producers have

expanded their involvement in this type of secondary smelting. However, unwrought
 23 Yu and Yuan, “Alliance is Forged to Cut Alumina Prices.; and “Chinese Aluminum Companies Form

Alliance to Negotiate Prices.”

 24 Foster, “Self Sufficiency Still a Ways Off for China Aluminum Scrap.”

 25 Teo, “NDRC, Up to a Quarter of China’s Aluminum Smelting Capacity Idle.”

3-6

aluminum produced from secondary smelters currently represents a small share of the global

unwrought aluminum supply.

Supply of Aluminum in China

China has played a central role in the changing global supply of aluminum. Annual

production of aluminum in China increased at an average annual rate of 12.4 percent during

1995-2001, accelerating to 25.0 percent during 2001-2004 (table 3-1). In 2001, China

surpassed the United States, Russia, and Canada to become the world’s top producer of

unwrought aluminum. China has continued to increase its production level each successive

year, accounting for 22.1 percent of total production in 2004. As noted above, another

component of supply is secondary recovery from scrap.23 Currently, China generates about

21 percent of its unwrought aluminum from remelted scrap, 55 percent of which must be

imported.24

Table 3-1 China: Mine production of bauxite; production of alumina; and production of unwrought aluminum, and

primary capacity of unwrought aluminum, 1995-2005 (1,000 metric tons)

Bauxite Alumina Unwrought aluminum Capacity

2005e 17,000 (1

) 8,000 9,250

2004e 15,000 6,990 7,470 8,260

2003 12,500 6,140 5,970 5,700

2002 12,000 5,450 4,510 5,300

2001 9,500 4,650 3,500 4,250

2000 9,000 4,330 2,990 2,640

1999 8,500 3,840 2,810 2,640

1998 8,200 3,330 2,440 2,580

1997 8,000 2,940 2,180 2,380

1996 6,200 2,550 1,900 1,750

1995 5,000 2,200 1,870 (1

)

 Source: Plunkert; and Tse, “The Mineral Industry of China.”

 “e” estimated.

 1

 Not available.

Despite strong production growth in recent years, the Chinese aluminum industry faces

considerable constraints. In the short term, the high market price of alumina has increased

production costs for aluminum. In 2005, 40 percent of the country’s smelters were operating

at a loss and an estimated one-quarter of Chinese capacity was idle.25 Additionally, the

Chinese aluminum industry’s rapid expansion risks overwhelming the world market, leading

to sharp declines in the global market price for unwrought aluminum. 

In the longer term, inadequate electricity supply and the lack of high-quality bauxite

constrain further expansion of Chinese aluminum production. For example, inadequate and

uncertain electric power supplies have prevented expansions of several primary smelting
 26 Sanmenxia Tianyuan Aluminum Group Co. Ltd. (Henen), Lanzhou Aluminum Co. (Lianhai, Gansu

Province), and Alcoa-Chalco (Beijing) delayed smelting expansions in 2003 due to power supply problems.

Wong, “Asian Juggernaut Looks to Gently Cool Down Growth Engine.”

 27 “Aluminum Demand Soars.”

 28 Wong, “Asian Juggernaut Looks to Gently Cool Down Growth Engine.” Key government agencies

involved in the alumina and aluminum sectors in China include the National Development and Reform

Commission (NDRC), the State Development and Reform Commission (SDRC), Ministry of Commerce

(MOC), the General Administration of Customs (GAC), and the Ministry of Finance and State

Administration of Taxation. 

 29 Pratt, 14.

 30 “Aluminum Production, a Chinese Puzzle,” 8.

 31 Wong, “Asian Juggernaut Looks to Gently Cool Down Growth Engine,” and “China Imposes New

Guidelines on Investments.”

 32 According to Liu Zhi, head of the NDRC’s Industry Policy Bureau, “blind” investments have caused

overcapacity in the aluminum sector, and new electrolytic smelting projects need to be restricted and phased

out as they are resource intensive, energy intensive, and environmentally unfriendly. Teo, “China Bans More

Projects in Wider Crackdown on Metals,”and “China Readies New Aluminum, Copper Rules.”

 33 All 20 smelters currently holding alumina import licenses, and another 3 that do not, were represented

at the meeting. Teo, “Doubts Surface Over Plan to Cut China Aluminum Output.”

3-7

operations.26 Additionally, China currently relies on imports for an estimated one-half of the

alumina necessary to meet its aluminum smelting needs, as the mineral content of the

Chinese bauxite renders it more expensive and difficult to refine than bauxite available

elsewhere.27 The only major supplier of alumina from domestic sources in China is Chalco,

which has traditionally supplied many Chinese aluminum smelters with alumina through

contracts priced below the cost of imports. Imported alumina usually reflects the spot market

price. However, as Chalco has expanded its production of domestic unwrought aluminum,

the firm has reduced sales of alumina in order to supply its own smelters and has raised the

price at which it sells alumina to other firms. Chalco’s action, along with increased

production of aluminum worldwide, has increased market demand for alumina, causing

worldwide prices for alumina to rise significantly. 

 In accord with China’s Industrial Development Policy (IDP), Chinese government agencies

imposed a variety of measures in recent years to limit demand for alumina, reduce exports

of unwrought aluminum, and forestall potential smelter overcapacity.28 However, due to the

numerous agencies involved, there is no comprehensive Chinese government policy toward

the aluminum industry and at times the varying measures seem at cross purposes. Policies

implemented to streamline the industry by eliminating small, inefficient smelters have

actually stimulated expansion of modern, large-scale smelters.29 Industry response to the

government measures has been mixed, and legislation reportedly has accomplished little to

slow the ongoing expansion of the Chinese aluminum industry.30

The most significant new government measures aimed at reducing aluminum smelter

expansions have curbed bank loans and halted construction of new production facilities in

the aluminum smelting sector.31 NDRC initiated further constraints against apparent

overcapacity by withholding land approvals and bank loans for aluminum smelters.

Additionally, measures such as minimum production thresholds and industry entrance

standards were instituted for 2006. Most significant, recent regulations require that new

smelter projects be located in regions with adequate power supplies. However, projects

utilizing advanced technologies that meet energy, resource utilization, and environmental

standards will still be encouraged.32

Unwrought aluminum producers reportedly have agreed to form an alliance to cut output by

delaying new capacity startups, but it is unclear whether this will have any significant

effects.33 No time frame was provided for these cutbacks and details of the agreement were
 34 Ibid.

 35 Shanghai-based metals analyst, cited in Teo, “Doubts Surface Over Plan to Cut China Aluminum

Output.”

 36 No new permits were to be forthcoming for firms that currently rely on the outdated Solderberg

smelting technology or on low-current (less than 160 kA) prebake smelting technology.

 37 Teo, “China Planning to Trim Alumina Import Tax.”

3-8

not revealed.34 Market participants have expressed doubts as to whether the majority of

aluminum producers will follow through with their agreed cuts to output given currently

strong domestic aluminum prices.35 Further, to avoid recent government controls imposed

on smelting in China, Chinese and Hong Kong entities have also begun to seek foreign direct

investment opportunities for developing aluminum smelters abroad (table 3-2).

Table 3-2 Chinese outbound foreign direct investment to secure unwrought aluminum resources

Investor

Target

(country)

Month/

year Details

Henan Hong

Kong

Longquan

Aluminum

Trading Co.

Ltd.

Gebeng

aluminum

smelter

(Malaysia)

May

2005

Henan and the Pahang State Development Corp. are the partners that

requested approval from the Malaysian Industrial Development Authority

to construct an aluminum smelter in Gebeng, Pahang State, Malaysia.1

Luneng

Group Ltd.

Co.; and

Sinohydro

Corp. 

Sarawak

aluminum

smelter

(Malaysia)

May

2005

Cahya Mata Sarawak Bhd (CMS) reached an agreement with Luneng

Group and Sinohydro Corp. to jointly investigate the feasibility of

constructing and operating an aluminum smelter in Sarawak State,

Malaysia. This project was approved in late 2005, and in early 2006; the

partners reportedly proposed to Malaysian authorities to double the

smelter’s capacity to 2 million metric tons per year.2

Chinese and

Hong Kong

investors

Manjung

aluminum

smelter

(Malaysia)

July

2003

An investor consortium is to develop an 820,000 metric tons per year

aluminum smelter project in the Manjung district. The project is

anticipated to be completed in 2006, pending approval by the Malaysia

Department of the Environment.3

1

 “Pahang Seeks Approval for Aluminum Project.”

2

 “CMS and Chinese Sign MoU,” and “Cahya Mata and Partners May Double Capacity at Proposed Al Smelter.” 3

 “Malaysia Smelter Plans Gather Pace.”

Measures have also been taken to try to slow the aluminum industry’s expansion by

managing alumina imports, particularly for those smelters that are export oriented. For

example, in 2004, China’s Ministry of Commerce (MOC) and the General Administration

of Customs (GAC) announced an immediate prohibition on imports of alumina by smelters

with capacity below 100,000 metric tons per year that export unwrought aluminum. Also

introduced were more stringent controls on official approvals of permits for construction of

new smelters that intend to import alumina and export aluminum.36 Finally, aluminum

smelters and trading firms are required to possess a permit for importing alumina, with only

20 firms holding such permits, including Chalco.37

Further, Chinese aluminum entities are increasingly looking abroad for additional supplies

of alumina in order to meet demand at home (table 3-3). The Chinese Government has 
3-9

Table 3-3 Chinese outbound foreign direct investment to secure alumina resources

Investor Target (country) Date Details

China

Minmetals

Corp.

(Minmetals)

Bauxite mine

and alumina

refinery

(Jamaica)

July 2005 Minmetals reached agreement with the Jamaican Government to

proceed with the next phase of feasibility studies for developing

a bauxite mine and a 1.4 million metric tons per year alumina

refinery, now that the due diligence studies and site visits have

been completed.1

Chinese

Aluminum

Group

(CAG)

Boke alumina

refinery

(Guinea)

May 2005 CAG signed an offtake agreement, in May 2005, with Global

Alumina Ltd. that plans to construct an alumina refinery in the

Boke region of Guinea. CAG will receive long-term purchase

rights to 25 percent of the output from the 2.8 million metric tons

per year refinery and the possibility of purchasing a stake in

Global.2

Minmetals Sherwin

Alumina Co.

(U.S.)

April 2004 Minmetals acquired the second-largest North American alumina

refinery and requested that the management of Sherwin

consider boosting the refinery’s annual capacity from the current

1.6 million metric tons level. Sherwin has supply contracts with

Minmetals, dating back to January 2004, and with several other

Chinese customers. Sherwin sent initial major alumina

shipments to China in late February-early March 2004. Sherwin

will supply about 35 percent of its output under contract to

Chinese customers.3

Aluminum

Corp. of

China

(Chalco)

Dac Nong

bauxite mine

and alumina

refinery

(Vietnam)

December

2005 

A joint venture concluded with the Vietnam Coal Group

(Vinacoal) for the joint development of the Dac Nong bauxite

mining and alumina refining project. The current plan is for the

alumina refinery to be developed in two phases, with an initial

1.9 million metric tons per year capacity, rising to 4.0 million

metric tons per year in the latter phase. The feasibility study for

this project is currently underway and it is too early to announce

Chalco’s anticipated stake or when production would

commence.4

Chalco Alumina do

Norte do Brasil

(Alunorte)

alumina refinery

(Brazil)

Chalco reportedly discussed with Companhia Vale do Rio Doce

(CVRD), in February 2004, the possibility of assuming a stake in

the Alunorte alumina refinery. Chalco could partake in the

currently approved and ongoing expansion of Alunorte’s annual

capacity from the current 2.4 million metric tons to 4.2 million

metric tons. CVRD may also acquire in a minority share of a

Chalco aluminum smelter in China.5

1

 U.S. Department of State, and “China Said Eyeing Jamaican Alumina Refinery.” 2

 “Guinea Ratifies Global Alumina Project,” and Brooks, “Chinese Group, Global Alumina Ink Offtake Pact.” 3

 Brooks, “Minmetals Asks Sherwin to Hike Alumina Output,” and “Sherwin Gearing Up for China Alumina

Shipments,” and “China Metals Company Buys Equity Interest in Sherwin Alumina,” and Compiled from Zephyr

Mergers and Acquisitions database, Zephus Ltd., Bureau van Dijk Electronic Publishing. 4

 “Chalco Signs MOU for Joint Development of Vietnam Alumina Project.” and “Alumina Project at Dac Nong of

Vietnam to be Approved.” and “Chalco Signs MoU for Vietnam Bauxite and Alumina Project.” 5

 Kinch, “Chinese Committed to Brazil Refinery Project,” and “Expansion of Alunorte Plant is Near, Brazilian

Miner Says” and “Producers Hot, Analysts Not On Brazilian Alumina Project,; “China Gives Backing to CVRD

Alumina JV,” Metal Bulletin, January 18, 2006. 
 38 “Guinea Ratifies Global Alumina Project.”

 39 Chen, “China Aluminum Group Calls for Policy Changes.”

 40 “China Set to Cut Export Tax Rebates, U.S. Thrust for Stronger Yuan,” and McCulloch, “China Set to

Abolish Export Tax Rebates January 1.

3-10

encouraged exploration and development of natural resources abroad by Chinese entities. In

addition, the NDRC and the Import & Export Bank of China are providing credit support for

investment projects in both domestic and offshore natural resources projects. The Chinese

Aluminum Group (CAG), formed in 2003 as an international alumina sourcing consortium

consisting of Minmetals, Chalco, and a group of integrated coal-electricity-aluminum

producers,38 are actively developing bauxite deposits around the world.39 Chinese aluminum

producers are also seeking foreign joint-venture partners as sources for securing steady

supplies of alumina from abroad.

Finally, the Chinese Government has significantly reduced aluminum-related import tariffs,

including those for alumina and aluminum (table 3-4), beyond those required by China’s

WTO Accession Agreement. Beginning on January 1, 2006, import tariffs were further

reduced from 8 percent to 5.5 percent on alumina and were eliminated for aluminum scrap.

Additionally, tax rebates previously enjoyed by exporters of aluminum and aluminumcontaining products were eliminated and the MOC officially imposed new export taxes of

5 percent on unwrought aluminum.40

Table 3-4 Alumina, unwrought aluminum, and scrap aluminum: Import duty and export rebate/tax rates, 

2001-05, percent

Item 2001 2002 2003 2004 2005

Import tariffs:

 Alumina 18 12 10 8 8

 Unwrought aluminum 95555

 Scrap aluminum 6 1.5 1.5 1.5 1.5

Export tax rebate or (tax):

 Unwrought aluminum 15 15 15 8 -5

Source: Evans, 22.

China’s Supply in Global Context

Growing demand and higher aluminum prices have encouraged expansion of aluminum

smelting capacity worldwide, particularly from 1999 through 2004, when global production

increased by 6.1 million metric tons. China accounted for over 65 percent of this production

increase, whereas U.S. production decreased significantly, declining from 15.9 percent to 8.4

percent of global production over this 5-year period. The U.S. decline illustrates the shift in

production from traditional producing regions, such as the United States and Western

Europe, to producing countries and regions with lower electric-power costs, such as Iceland,

the Middle East, Russia, and Brazil. 

Additionally, there has been a significant change in the makeup of the industry. Formerly

leading producers, such as Kaiser, have withdrawn from the market and many firms have

consolidated in order to streamline their facilities for greater operating efficiency (e.g., the

mergers of Alcan with Algroup, Alcoa with Reynolds, and Alcan with Pechiney). As the

traditional producers leave the market or consolidate, significant new producers have
 41 For further detail, see the appendix.

3-11

emerged onto the global aluminum market from Brazil (CVRD), Russia (e.g., Rusal and

SUAL) and China (Chinalco/Chalco).

Price Trends

Aluminum prices have remained robust over the past several years, reaching $2,377 per

metric ton in January 2006, a 48-percent gain over January 2004 and more than double the

March 1999 low of $1,182 per metric ton (figure 3-4). During the same period, alumina

prices also increased significantly, reaching $590 per metric ton by the end of 2005, more

than 4 times the low of $135 per metric ton in November of 2001. 

However, it is difficult to isolate the effect of China’s increased demand on the global price

of aluminum. Price elasticities of supply estimated in the economic literature suggest that

increases in China’s demand (as measured by changes in Chinese consumption) should have

increased global prices of unwrought aluminum by 8 percent to 52 percent during the period

1995 to 2004 and may be expected to cause a further increase of between 6 percent and 36

percent by 2010. However, these estimates do not account for large increases in the supply

of unwrought aluminum, especially from China, and changes in demand from other

countries. In fact, when considering only unwrought aluminum, the impact on the global

prices of growth in both Chinese consumption and production taken together is not clear. It

is clear, however, that higher Chinese demand for alumina and aluminum scrap caused prices

for these inputs to increase, which in turn caused aluminum prices to increase, thus affecting

downstream consumers worldwide.41

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1999 2000 2001 2002 2003 2004 2005

Dollars per metric tons

Aluminum Alumina

Figure 3-4 Aluminum, nonalloyed, high grade: London Metals Exchange monthly average spot 

prices, 1999-2005

Source: Compiled from daily statistics of the London Metals. 
 42 Global aluminum trade is presented in value terms in figures 3-4 and 3-5, rather than in less-complete

quantity terms across all reporting countries, as available from Global Trade Information Services.

 43 Data may exclude some developing countries, as not all report aluminum trade data. 

 44 Forster, “Aluminum Demand to Remain Strong; Global Supply Tight: BHP,” 14.

 45 See e.g., Evans, “Primary Aluminum, the China Syndrome,” 38.

3-12

Trade Trends

The value of global unwrought aluminum trade increased 59.3 percent to $17.8 billion

between 1999 and 2004,42 reflecting growing consumption, shifting geographic locations

among the major producers, and the increase in world prices. The European Union (EU-25)

remained the largest importer of unwrought aluminum, followed by Japan, the United States,

and Korea. During 1999-2004, EU-25 imports increased by 56.0 percent, and U.S. imports

rose 68.5 percent, as domestic production declined due to high electric power costs (figure 3-

5).

Worldwide exports of unwrought aluminum grew in value by 44.1 percent during 1999 to

2004, to reach $14.3 billion (figure 3-6).43 Export values dipped during 2001-02 before

growing rapidly in 2003 (by 11.8 percent) and 2004 (by 23.6 percent) as a result of higher

aluminum prices. U.S. exports of aluminum decreased by $41.9 million (21.6 percent) during

the 5-year period, slowing most significantly during 2001-03, as escalating electricity prices

forced smelters to shut down, particularly in the Pacific Northwest. 

In contrast, Chinese exports of unwrought aluminum increased by $2.2 billion during 1999-

2004 as domestic production surpassed consumption, allowing China to become a net

exporter of unwrought aluminum beginning in 2002 (figure 3-7). The extent to which China

remains a net exporter of unwrought aluminum depends on resolving a number of conditions

that will constrain the domestic smelting industry for the foreseeable future, discussed in

more detail above. These include continued government restrictions on capacity

expansions,44 adequate and stable supplies of alumina, and the availability of electric power

at reasonable rates. According to some aluminum industry observers, industry-constraining

forces and rising domestic consumption are anticipated to slow Chinese aluminum exports

over the next one-three years.45
3-13

0

5,000

10,000

15,000

20,000

1999 2000 2001 2002 2003 2004

Million dollars

EU-25 (external trade) Japan United States Korea China All others

Source: Compiled from statistics of Global Trade Information Service.

Figure 3-5 Unwrought aluminum: Imports from all sources,by importer, 1999-2004

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1999 2000 2001 2002 2003 2004

Million dollars

Russia China Australia Canada South Africa Brazil All others

Figure 3-6 Unwrought aluminum: Exports to all destinations, by exporter, 1999-2004

Source: Compiled from statistics of Global Trade Information. Service.
3-14

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

1,000 metric tons

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Percent

Domestic apparent consumption Domestic production Import reliance

Figure 3-7 Unwrought aluminum: Chinese domestic apparent consumption, domestic 

production, and net import reliance, 1994-2004

Source: World Bureau of Metal Statistics, World Metal Statistics, various months.
 1

 Most Chinese imports of forest products are classified under Harmonized Tariff Schedule (HTS)

headings 4403, 4407, 4703, 4707, 4804, 4805, 4810, and 4811. The impact of Chinese demand on these

products will be discussed in the context of the two major sectors of the forest products industry, pulp and

paper and wood products. 

 2

 “North American Hardwood Exports,” 7.

 3

 “Recovered Paper: China Casts a Wide Supply Net.” 

4-1

CHAPTER 4

FOREST PRODUCTS1

Summary of Conclusions

The rapid expansion of China’s paper and wood processing industries has required a steady

increase of imports of forest products input materials due to China’s limited domestic forest

resources. This demand significantly changed the pattern of global forest products trade

between 1995 and 2004. The scarcity of domestic forest resources makes China an unlikely

country to become a large producer of forest products. China has invested heavily in

domestic paper manufacturing capacity despite the fact that it is not a labor intensive

industry and the fact that Chinese mills may not have reliable, low cost supplies of wood

fiber. The extent to which China’s aggressive investment will suppress investment in other

countries and perhaps even short-circuit the recent shift in pulp and paper production

towards countries with greater domestic forest resources is not yet fully appreciated. As its

paper and wood processing industries continue to expand, China’s imports are expected to

shift from intermediate products such as paper and lumber to raw materials such as wood

pulp, waste paper, and logs. Expanding port facilities in North America and logistics

improvements in the interior of China will continue to encourage the westbound transpacific

flow of forest products from North America to Asia. 

Despite steep increases in Chinese demand, global prices for various forest products showed

no clear upward trend or only small increases between 1995 and 2004. Global market prices

for wood pulp, waste paper, and hardwood lumber were constrained by 1) plentiful supplies

of forest resources, including some quantity of illegally harvested logs, 2) ample additions

to global capacity, and 3) low or moderate increases in consumption in other countries.

However, price increases for hardwood products are expected in the future as a result of ongoing international efforts to curb illegal logging.2

 The full impact of strong Chinese demand

on global waste paper prices has been mitigated by capacity closures and generally weak

demand in the United States and Europe.3

 A more probable result than increased global

prices for raw materials will be weak global prices for a variety of finished paper and wood

products and/or capacity closures in other countries.
 On a regional basis in 2004, per capita consumption in North America (303 kg), Australasia (157 kg), 4

and Europe (131 kg) was above the world average (56 kg). Consumption in Latin America (38 kg), Asia

(34 kg), and Africa (7 kg) was below average. The United States consumed 312 kg per capita, and China

consumed 41.6 kg per capita. In comparison, Taiwan consumed 226.6 kg, and Hong Kong consumed

159.9 kg per capita in 2004. 2005 Annual Review.

4-2

Pulp and Paper

Demand

Factors broadly affecting demand

Major end uses for paper include packaging, newsprint, printing and writing papers, and

tissue products. The consumption of paper products is driven by economic activity. As a

result, per capita consumption in developed countries is generally higher than in developing

countries. In turn, the demand for paper drives demand for wood pulp and for waste paper,

4

the primary raw material inputs for paper (figure 4-1). The increasing importance of waste

paper as a source of wood fiber between 1995 and 2004 is reflected in the small annual

increase in worldwide consumption of wood pulp (table 4-1) and the much larger increase

in consumption of waste paper (table 4-2). It is unlikely that global waste paper recovery and

consumption will continue to expand as rapidly as in the past because collection costs and

fiber quality will become more important issues as recovery rates rise. 
4-3

Table 4-1 Wood pulp: Top five countries ranked by consumption and global market share, 1995 and 2004

Consumption Global Market Share

Average Annual

Growth Rate

1995 2004 1995 2004 1995–2004

Country 1,000 metric tons Percent

United States 58,263 53,530 33.7 28.5 -0.9

China 14,625 21,483 8.5 11.4 4.4

Canada 15,784 15,852 9.1 8.4 0.0

Japan 14,633 13,039 8.5 6.9 -1.3

Finland 8,894 10,432 5.2 5.6 1.8

World 172,641 187,766 100.0 100.0 0.9

Source: Pulp & Paper International 2005, Annual Review.

Table 4-2 Waste paper: Top five countries ranked by waste paper recovery and consumption, 1995 and 2004

Recovery Consumption

1995 2004

Average Annual

Growth Rate 1995 2004

Average Annual

Growth Rate

Country 1,000 metric tons 1995-2004 1,000 metric tons 1995–2004

United States 39,305 43,818 1.2 30,338 31,758 0.5

Japan 15,473 21,507 3.7 15,687 18,753 2.0

China 8,246 16,513 8.0 9,136 28,812 13.6

Germany 10,531 13,219 2.6 8,599 12,169 3.9

United Kingdom 3,981 6,582 5.7 4,013 5,172 2.9

World 115,061 170,473 4.5 115,395 174,494 4.7

Source: Pulp & Paper International 2005, Annual Review.
 5

 “China Charges Ahead in Printing and Writing Papers,” Solutions, vol. 89, no. 1 (January 2006), 54.

 6

 One forecast suggested that China's consumption of paper would grow 5 percent annually until 2020.

Jim Kenny, “The World Looks Just a Little Brighter in 2006,” Solutions 89 (1), January 2006, 29, and

“China Aims to Invest $48 Billion in the Paper Sector by 2015,” found at http://www.paperloop.com and

retrieved March 14, 2002.

 7

 Eastbound freight for a 40-foot container is approximately $2,400 and for a westbound container

approximately $1,200. Jean-Jacques, Ruest, “Opportunity to Capture China Boom New Logistics

Opportunities.” 

 8

 It is estimated that 2.65 loaded containers move from Asia to the United States for every loaded

container moving westbound. “Industrial Inputs, Raw Materials Lead U.S. Export Growth to Asia,” and

Federal Maritime Commission, 43rd Annual Report for Fiscal Year 2004, 38.

 9

 Federal Maritime Commission, 43rd Annual Report for Fiscal Year 2004, 38.

 10 The official noted that waste paper was only marginally profitable and that the firm used waste paper as

ballast. “China’s Demand for Waste Paper Threatens North American Producers.” 

 11 Ruest, Jean-Jacques, “Opportunity to Capture “China Boom” New Logistics Opportunities.”

4-4

Demand for pulp and paper in China

Chinese consumption of paper products is likely to continue to be fueled by China’s further

development of its economy, the expansion of its printing and publishing industries, and a

rapid growth in spending for advertising.5

 Although per capita usage almost doubled,

China’s consumption in 2004 was only 13.3 percent of per capita consumption in the United

States. Thus, there is still a large potential demand in China, and industry forecasts project

that annual consumption of paper in China will reach 80 million to 93 million metric tons

by 2015.6

Transportation costs are a significant factor affecting the growth of Chinese imports of

relatively low-value forest products from North America. In transpacific trade, freight rates

assessed for westbound U.S. exports are roughly one half of those for eastbound U.S.

imports.7

 This imbalance exists because the total volume of U.S. merchandise imports from

Asia is roughly twice the volume of U.S. exports to Asia,8

 resulting in a surfeit of shipping

containers in the United States and substantial excess vessel capacity on westbound

voyages.9

 Attractive backhaul rates are offered by logistics providers to encourage U.S.

shippers to use containers that would otherwise return to China empty. An official of

Chinese shipping firm COSCO noted that waste paper alone accounted for almost 33 percent

of the firm’s westbound transpacific trade, three times the tonnage of the next largest

commodity, scrap metal.10 It is unlikely that the fundamental rate structure of the transpacific

trade will change in the near future. In fact, the expansion of container handling facilities at

ports in Western Canada is expected to increase opportunities for North American shippers

to take advantage of backhauls to Asia.11

The United States remained the largest market for pulp and paper, using over one quarter of

all paper consumed in 2004. Four of the top five countries (the United States, Japan,

Germany, and the United Kingdom) have highly developed economies and mature paper

markets. These countries’ rates of growth in consumption were positive but lower than that

of global consumption causing their share of the global market to decline between 1995 and

2004.

Despite its relatively low per capita consumption, the size of China’s economy has made it

a leading paper consumer and the fastest growing market for paper. Between 1995 and 2004,

China’s per capita annual consumption of paper increased from 21.7 kg to 41.6 kg.

Consumption of paper in China grew at an average annual rate of 8.3 percent compared with

a global increase of 3.0 percent, and China overtook Japan as the second largest consumer
4-5

of paper behind the United States (table 4-3). In absolute terms, China’s increase in

consumption accounted for one third of the global increase in consumption. A principal

driver of China’s increase in consumption was the need for paper packaging (e.g., corrugated

boxes, folding cartons) to satisfy the demand of the expanding manufacturing sector, which

in turn drove China’s increasing demand for paper and its components, wood pulp and waste

paper. Between 1995 and 2004, the combined value of Chinese imports of paper, wood pulp,

and waste paper increased at an average annual rate of 15.5 percent (table 4-4). 

Table 4-3 Paper: Top five countries ranked by consumption and global market share, 1995 and 2004

Consumption Global Market Share

Average Annual

Growth Rate

1995 2004 1995 2004 1995–2004

Country 1,000 metric tons Percent

United States 87,409 92,257 31.6 25.6 0.6

China 26,499 54,392 9.6 15.1 8.3

Japan 30,019 31,426 10.9 8.7 0.5

Germany 15,834 19,442 5.7 5.4 2.3

United Kingdom 11,288 12,678 4.1 3.5 1.3

World 276,231 359,904 100.0 100.0 3.0

Source: Pulp & Paper International 2005, Annual Review.
4-6

Table 4-4 Chinese forest products imports by segment, 1995–2004

Description 1995 1996 1997 1998 1999 2000 2001 20

(Millions of Dollars)

Wood pulp and waste paper1 699 732 694 831 1,344 2,248 2,358 2,5

Logs and lumber2 517 638 946 945 1,908 2,634 2,681 3,2

Packaging and printing papers3 1,452 1,846 2,250 2,442 2,817 2,836 2,633 3,0

Other headings4 2,062 2,283 2,468 2,455 2,499 2,640 2,181 2,3

Total forest products 4,730 5,498 6,358 6,673 8,568 10,358 9,851 11,1

Share of Total Chinese Forest Products Imports

(Percent)

Wood pulp and waste paper1 15 13 11 12 16 22 24 

Logs and lumber2 11 12 15 14 22 25 27 

Packaging and printing papers3 31 34 35 37 33 27 27 

Other headings4 44 42 39 37 29 25 22 

Source: World Trade Atlas.

1 Defined as all products classified in HTS headings 4703 and 4707.2 Defined as all products classified in HTS headings 4403 and 4407.3 Defined as all products classified in HTS headings 4804, 4805, 4810, and 4811.4 Defined as products classified in all remaining HTS headings in chapters 44, 47, and 48.
 12 U.S. International Trade Commission, Conditions of Competition in U.S. Forest Products Trade, xiv.

 13 Ibid., 5-42.

 14 Chinese plantation forestry began in 1971 and was emphasized in the 1990s after two major floods

caused both ecological and economic disasters. As the impetus for developing plantations was ecological,

use of wood fiber was not emphasized. Allen T. Y. Chan, “How Much Risk? Investment Strategies for

China,” and Tony Zhang, “China’s Plantation Program: Will It Be Able to Supply the Growing Needs of

Both Wood Products and Pulp and Paper Producers?” 

 15 “China’s Appetite for Timber Grows,” 1, 4.

 16 Ibid.

4-7

Supply

Factors broadly affecting supply 

As a result of the relatively low value and high transportation costs of pulpwood and wood

chips, the manufacture of pulp and paper has traditionally been undertaken in countries or

regions of abundant forest resources12 and is not, therefore, evenly distributed. Pulp and

paper producing countries typically supplement harvests from natural forests by establishing

tree plantations, but as supplies of wood from natural forests have become depleted or

constrained by increased regulations, countries in warmer, moister regions with more

favorable growing conditions and higher potential growth rates have gained a significant

competitive advantage. Thus, the manufacture of pulp and paper has begun a slow migration

away from well-developed industries in the Northern Hemisphere toward countries at lower

latitudes and in the Southern Hemisphere such as Brazil, Chile, and Indonesia where tree

plantations of various fast-growing, often exotic, species (e.g., Eucalyptus, Acacia, Pinus)

have been established. Although these regions’ natural advantage was long recognized,

modern paper manufacturing operations generally require a well-developed economic and

industrial infrastructure to support them. Therefore, the migration is taking place slowly, as

countries have steadily expanded manufacturing capacity in step with their developing

infrastructure and expanding plantations. 

Supply of pulp and paper in China

For its size, China is not well-endowed with forest resources. On a per capita basis, China’s

115 million hectares (284 million acres) of natural forests are small relative to many other

countries. Many of its forests are in remote, mountainous regions, and years of over

harvesting and/or land use conversion have depleted the remainder.13 Its 53 million hectares

(131 million acres) of plantations are unevenly distributed and of generally poor quality, and

only 23 million hectares (57 million acres) are dedicated to forest production.14 A national

effort to restore China’s forests culminated in 1998 with the National Forest Protection

Program (NFPP), under which the State Forestry Bureau banned timber harvests on

95 million hectares in 17 provinces15 and developed plans to increase imports of forest

products.16 Despite a reduction in the number of mills between 1995 and 2004, China’s paper

capacity expanded at an average annual rate of 12.8 percent, compared with a global capacity

increase of 2.7 percent, as larger, more modern mills opened. Chinese pulp capacity

expanded at an average annual rate of 5.1 percent, far faster than the global increase of

1.1 percent.

Between 1995 and 2004, China posted the highest growth rate in paper production,

surpassing Japan to become the second largest producer. China’s annual output of paper

increased from 24.0 million to 49.5 million metric tons (table 4-6) and accounted for

31.2 percent of the annual increase in global production. Approximately 80 percent of the
 17 Robert G. Flynn, “China’s Paper Industry: What Low-Cost Labor Advantage?”

 18 In 2005, Chinese fiber supply for paper was estimated to be 49 percent waste paper, 30 percent

nonwood fibers, and 21 percent wood pulp. “China Charges Ahead in Printing and Writing Papers,” 54.

 19 Although they may use some recycled fiber, virgin fiber mills are so-called because they depend

primarily on pulpwood as a source of wood fiber. Rooks, Alan, “Dancing With the Dragon,” 8.

 20 Zehui Jiang,“Current Situation and Future Perspective of Forest Products Development in China,” and

“Report from China,” 12.

 21 “China Charges Ahead ,” 54.

 22 Rooks, “Dancing with the Dragon,” 8.

 23 By 1999, more than 100 joint venture or foreign-owned pulp and paper mill operations had already

been started with firms from Asia, Europe, and North America. Three European paper companies, UPM

Kymmene, Stora Enso, and Norske Skog,, have been particularly active in China. U.S. International Trade

Commission, Conditions of Competition in U.S. Forest Products Trade, 5-47, and Kenny,“The World Looks

Just a Little Brighter in 2006,” 28.

 24 “Nine Dragons to Launch IPO in Hong Kong.” 

 25 Flynn, “China’s Paper Industry.” 

 26 “China Aims to Invest $48 Billion in the Paper Sector by 2015.” 

 27 Rooks, “Jiangxi Chenming Drives Chinese LWC Market,” 27.

4-8

new paper capacity has been built in four coastal provinces convenient to imported wood

pulp and waste paper.17 The increase during the period in China’s annual production of pulp,

340,000 metric tons, was more modest due to limited domestic supplies of wood fiber.18

Nevertheless, the Chinese Government plans to spend $24 billion during the next six years

to fund new virgin fiber pulp mills.19 Discarding the old policy of reliance on imported raw

materials, the Government has stated its intention to become self-sufficient with respect to

wood fiber. To that end, China intends to establish an additional 13.3 million hectares of tree

plantations by 2015.20 However, an industry analyst expects that production at the new pulp

mills will continue to be limited due to the relatively slow development of Chinese

plantations.21

Between 1995 and 2004, the Chinese government encouraged domestic papermaking

capacity through loans to various companies.22 Also, there have been many joint ventures

between Chinese and foreign firms.23 Nine Dragons, a large Chinese manufacturer of

packaging papers, was approved for an IPO on the Hong Kong stock exchange in March,

2006.24 However, one U.S. industry source recently alleged that Chinese investments have

been made without proper due diligence or strategic planning and are motivated more by

employment potential than profitability potential.25 Recently, a Chinese industry source

estimated that to continue to meet China’s increasing demand for paper, an additional 40

million metric tons of capacity would be required by 2015 at a cost of $48 billion, at least

part of which was expected to come from foreign sources.26 In anticipation of further

investments in paper making capacity, some pulp mills have been purposely constructed with

more pulp capacity than initially necessary to facilitate the future addition of paper

machines.27

Some new pulp and paper facilities in China are very large relative to existing mills. For

instance, an Indonesian company, Asia Pulp and Paper (APP), recently constructed the

world’s largest single-line pulp mill on Hainan Island, China, with a planned annual capacity
 28 APP already has extensive operations in China and is planning further expansions despite continued

legal maneuvers stemming from massive debt ($13 billion) accumulated from previous capacity expansions

in Indonesia. The firm recently announced plans to increase production at the Hainan mill by 30 percent and

to build a paper mill in Shanghai with an annual capacity of 2 million metric tons. Rooks, “Dancing With the

Dragon,” 8, “APP China Starts to Sell Hainan Plant’s Pulp,” “APP China Signs Up Aker Kvaerner for

Upgrade at Hainan Mill,” and “APP China Looks to Build Another New Mill.”

 29 “APRIL Plans Massive Pulp Expansion in China.” 

 30 “Stora Enso Looks to Build Massive New Forest Products Complex in China.” 

 31 Rooks, “Will China’s Monster Mills Wake Up the West?,” 4.

 32 “Development in the China Paper Industry Set to Disrupt World Markets.” 

 33 Ibid.

 34 Ibid.

 35 “What is Projected for China’s Printing and Writing Paper Trade,” found at http://www.paperlopp.com

and retrieved January 23, 2006.

 36 Ibid.

4-9

of 1 million metric tons.28 Two other firms have also announced plans for mills with

capacities of 1 million metric tons. Indonesian-based Asia Pacific Resources International

(APRIL) has announced plans for installation of a new million ton pulp line at its Rizhao

mill. It is estimated that 200,000 hectares of plantations would be necessary to supply the

mill with wood chips. Initially, APRIL intends to supply the mill with wood chips from its

own Indonesian plantations and those of other timber firms in Indonesia.29 Another million

ton mill is being developed by Stora Enso in conjunction with the state-owned Gaofeng

Forest Pulp & Paper Company. The integrated paper mill in Guangxi Province is expected

to produce approximately 1 million tons of pulp and 1 million tons of paper annually.30 

One industry executive recently predicted a dramatic increase in outbound Chinese foreign

direct investments aimed primarily at securing long term supplies of raw materials,

especially softwood fiber.31 APRIL’s plan to supply its Rizhao mill from the firm’s

Indonesian plantations appears to confirm the need for offshore fiber supplies. 

Industry analysts also predict that the current wave of capacity expansion in China will have

the most impact on the global markets for printing and writing paper and packaging paper.

An estimated 3 million metric tons of new printing and writing paper capacity in China will

cause a large ripple in global markets as the displaced current suppliers to Chinese customers

seek new markets for their paper.32 Also affecting printing and writing paper markets is the

large growth of the printing industry in China, which has caused a drop in demand for book

paper by printers in North America.33 The continued decline in exports of both linerboard

and boxboard to China is expected to have an adverse impact on the North American markets

for packaging paper.34

As China shifts from net importer to net exporter of paper, Chinese mills are expected to

favor domestic customers, which are more profitable for local suppliers, but are also

expected to increase shipments to export markets, particularly the United States and Japan.35

China recently announced the elimination of a rebate for the 13 percent VAT on exports of

paper made from imported pulp. Most producers were granted exemptions for 2006, which

will delay the impact until 2007, but the change is expected to reduce both Chinese exports

and imports as domestic production is shifted to local customers.36
 37 U.S. International Trade Commission Industry & Trade Summary, Wood Pulp and Waste Paper, 24.

4-10

China’s supply in global context

The United States and Canada, each with abundant forests and well-developed economies,

rank high in production of both wood pulp and paper (tables 4-5 and 4-6). China and Japan

also rank high in the production of pulp and paper but are more reliant on recycled paper as

a raw material due to limited supplies of wood fiber from native forests. Between 1995 and

2004, the top five countries all increased paper production, and global production of paper

increased more than three times faster (2.9 percent annually) than global pulp production

(0.9 percent annually). Pulp production actually decreased in the United States and Japan,

but the declines were offset by increased recoveries of waste paper (table 4-3).

Table 4-5 Wood pulp: Top five countries ranked by production, 1995 and 2004

Production Share of Global Production

Average Annual

Growth Rate

1995 2004 1995 2004 1995–2004

Country 1,000 Metric Tons Percent

United States 59,682 53,585 34.2 28.4 -1.2

Canada 25,388 26,406 14.6 14.0 0.4

China 13,840 14,180 7.9 7.5 0.3

Sweden 10,089 12,106 5.8 6.4 2.0

Japan 11,120 10,720 6.4 5.7 -0.4

World 174,275 188,496 100.0 100.0 0.9

Source: Pulp & Paper International 2005, Annual Review.

Table 4-6 Paper: Top five countries ranked by production, 1995 and 2004

Production Share of Global Production

Average Annual

Growth Rate

1995 2004 1995 2004 1995–2004

Country 1,000 Metric Tons Percent

United States 81,000 83,401 29.2 23.2 0.3

China 24,000 49,500 8.6 13.8 8.4

Japan 29,663 30,889 10.7 8.6 0.5

Canada 18,705 20,461 6.7 5.7 1.0

Germany 14,827 20,392 5.3 5.7 3.6

World 277,791 359,598 100.0 100.0 2.9

Source: Pulp & Paper International, Annual Review.

In step with increasing environmental awareness, global recovery of waste paper increased

at an average annual rate of 4.5 percent during the period. Until the 1980s, the reuse of waste

paper was confined to mills that produced relatively low quality tissue, paperboard, and/or

industrial paper products.37 Subsequent regulations mandating recycled content, voluntary

recycling targets, and/or advances in papermaking technology have encouraged rapid growth

in the use of waste paper. In the United States alone, approximately 240 mills consumed

waste paper in 2000, over 60 percent of which used 100 percent recycled fiber. Despite their
 38 Pulp mills are capital-intensive and tend to maintain production despite soft demand during economic

downturns. Conversely, long lead times for new capacity constrain supply in the short-term, so strong

demand may induce large price increases before new supply is available. Also, high prices may induce more

capacity than is otherwise necessary, resulting in extended periods of oversupply and soft prices.

 39 As a preferred grade of wood pulp, NBSK serves as the benchmark of pulp pricing. Prices of other

grades are determined as discounts from the price of NBSK. 

 40 U.S. International Trade Commission, Industry & Trade Summary, Wood Pulp and Waste Paper, 18-19.

 41 “Market Pulp Sees Improved Demand, Rising Production vs. Last Year,” 11.

 42 “Market Pulp Has Strong Early 2003, But Slow Summer Hampers Producers,” 7.

 43 “Pulp Prices Expected to Climb Further Amid Rising Economy, Paper Markets,” 13.

 44 “Market Pulp Expected to See Price Pressure on New Capacity,” 13.

4-11

large paper industries, the United States, Japan, Germany, and the United Kingdom

generated waste paper in excess of their needs in 2004. Conversely, China’s rapidly

expanding industry consumed 12.3 million metric tons of waste paper more than domestic

production. 

Price Trends

Wood pulp flows freely in global markets and is generally subject to very low rates of duty.

Historically, the market price of wood pulp has been highly volatile. Prices fluctuate as

economies expand or contract, and the inelasticity of pulp supply,38 shifts in inventory, and

exchange rate fluctuations may amplify wood pulp pricing cycles. 

Prices of northern bleached softwood kraft pulp (NBSK)39 in the North American and

Northern European markets fluctuated widely during the last decade, but despite minor

timing discrepancies, prices in the markets track closely over time (figure 4-2). A large price

increase followed the recession of the early 1990s, and inventories rose rapidly in 1995 as

customers purchased in anticipation of further increases. Inventory liquidation in 1996 and

soft seasonal demand for paper in Europe caused prices to plunge. After a rally in 1997, the

Asian financial crisis and consequent soft Asian demand resulted in falling prices in 1998.

Strong paper demand in 1999, low inventories, mill downtime/closures, and limited new

capacity helped solidify the market. Prices peaked in 2000 before falling as the U.S.

economy declined.40 Declining inventories, strong U.S. demand for hardwood pulp, and

strong Chinese demand for softwood pulp arrested the price decline in 2002.41 Strong Asian

demand continued in the first quarter of 2003,42 and after a seasonal summer downturn,

prices continued upward. 

Despite cooling demand in Asia and Europe, price levels held in 2004 due to strong U.S.

shipments of printing and writing papers.43 Prices peaked in early 2005 before slipping due

to soft seasonal demand, lower demand in China, and new capacity in China and Europe.44
 45 U.S. prices are reportedly critical in determining global prices. “Recovered Paper: China Casts a Wide

Supply Net.” 

 46 In the United States, waste paper is generally sold F.O.B. seller's dock. Control of inbound shipments

allows mills to take advantage of backhaul opportunities in conjunction with their outbound shipments. 

Mills may also trade waste paper with other firms to lower freight costs.

 47 De-inked pulp, the product of recycling various grades of waste paper, performs roughly the same as

southern bleached hardwood kraft pulp (SBHK). Prices of de-inked pulp are on par with those for SBHK.

U.S. International Trade Commission, Industry & Trade Summary, Wood Pulp and Waste Paper 2005, 15.

 48 “Oversupply of OCC Keys Decline in the U.S. Export Prices to China; ONP No. 8 Increases in West.” 

 49 “OCC Prices Slip in China and Southeast Asia.” 

 50 "1994–95 The World's Pulp, Paper, and Board Industry: Production and Trade," 25, and Pulp & Paper

International, Annual Review.

 51 “Recovered Paper: China Casts a Wide Supply Net.” 

4-12

Figure 4-2 shows waste paper prices in the U.S. Midwest market,45 which are likewise highly

volatile.46 Although it is not a perfect substitute for wood pulp, waste paper price trends

nevertheless closely tracked wood pulp price trends during the period.47 In the fall of 2005,

U.S. export prices for old corrugated containers (OCC) declined as a result of continued

oversupply at U.S. paper mills. Chinese OCC demand was steady,48 but the main purchasers,

Chinese containerboard producers, were limiting their purchases due to soft domestic

demand for corrugated boxes.49

The steep increase in Chinese consumption of wood pulp (4.4 percent) and waste paper

(13.6 percent) between 1995 and 2004 has not yet put upward pressure on global prices for

either wood pulp or waste paper. With regard to wood pulp, this result was due in part to

relatively flat consumption by other consuming countries and because the annual increase

in consumption of 15 million metric tons was matched by almost 20 million metric tons of

additional annual production capacity.50 The full impact of strong Chinese demand on global

waste paper prices has been mitigated by capacity closures and generally weak demand in

the United States and Europe.51 

-

200

400

600

800

1,000

1,200

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-

50

100

150

200

250

NA Pulp Eur Pulp MW Waste Paper

Figure 4-2 North American and European prices for wood pulp1 Midwest U.S. price for waste,2 1995–2005 

dollars per metric ton

Source: Pulp & Paper, 2001 North American Factbook, Pulp & Paper–Annual market reviews , Paperloop.com 

archives, and Official Board Markets .

1 Wood pulp prices are for northern bleached softwood kraft pulp (NBSK).

2 The prices shown are quarterly averages of the reported prices of four important grades of waste paper; old 

corrugated containers (OCC), old news print (ONP), mixed waste (MW), and sorted white ledger (SOL); 

weighted by annual U.S. recoveries for each of those grade.

 Wood Pulp Waste Paper
 52 The source of all reported trade figures is the World Trade Atlas. 1997 was the first year for which

reported imports were available for all the countries examined. 

 53 Countries other than the United States in the top five were Germany, Canada, France, and China.

 54 As defined by HS heading 4703 and 4707.

4-13

Trade Trends52

In 2004, the value of global trade in forest products based on official statistics surpassed

$495 billion dollars. The United States accounted for 13.1 percent of the reported trade in

2004. Trade by the top five countries,53 which accounted for 40.7 percent of reported global

trade in 2004, advanced at a moderate pace (an average annual rate of 5.4 percent since

1997). In contrast, China’s total trade increased at a much greater rate (14.0 percent between

1995 and 2004), and was $23 billion or 4.6 percent of global trade in 2004.

In 2004, China was the largest importer of wood pulp and waste paper,54 accounting for

$4.6 billion or 19.5 percent of total reported global imports of $23.8 billion. The top five

importers, China, Germany, the United States, Italy, and South Korea, accounted for

54.4 percent of reported imports in 2004. China’s imports of wood pulp and waste paper

expanded at an average annual rate of 31.2 percent during 1997-2004, while the value of

imports by other major importing countries increased at average annual rates of 1.7 percent

to 5.8 percent.

In 2004, the largest exporter of wood pulp and waste paper was Canada, which accounted

for 9.0 percent of the $49.6 billion of reported exports. The top five exporters, Canada, the

United States, Sweden, Brazil, and Chile, accounted for 26.2 percent of reported global

exports in 2004. Four of the top five exporters, Canada, Sweden, Brazil, and Chile, are wellendowed with forest resources, but with relatively small domestic markets. Indicative of the

migration of wood pulp manufacturing toward South America, exports from Brazil and Chile

between 1995 and 2004 increased at average annual rates of over 8 percent, far outpacing

the growth of exports from traditional suppliers, Canada, the United States, and Sweden.

The largest importer of packaging and printing papers was Germany, which accounted for

11.1 percent of total reported imports of $53.0 billion in 2004. The top five importers,

Germany, the United States, the United Kingdom, France, and China, accounted for

41.8 percent of reported imports in 2004. During 1997-2004, the value of China’s imports

of packaging and printing papers increased at an average annual rate of 5.4 percent and

appears to be leveling off due to growing domestic production. The average annual rate of

increase during 2000-2004 was only 3.5 percent.

On a regional basis, other Asian countries and North America remained the top suppliers of

packaging and printing papers to China between 1995 and 2004 although those regions lost

market share to other regions, particularly Scandinavia. China’s top suppliers of packaging

and printing papers in 2004 were the United States, South Korea, Taiwan, Japan, and 
 55 China's top suppliers of wood pulp and waste paper in 2004 were the United States, Canada, Indonesia,

Russia, and Brazil, which accounted for 69 percent of China's imports.

 56 Pitman B. Potter, “China’s Needs and Goals: Political and Economic Issues.”

 57 Telephone interview by staff with industry representative on January 4, 2006.

 58 Ibid.

 59 “Chinese Official at ISRI Meeting: Send Your Scrap, Keep Your Trash,” found at

http://www.amm.com and retrieved April 20, 2005.

4-14

Sweden, which collectively accounted for 57 percent of China’s imports (figure 4-3). With

respect to imports of wood pulp and waste paper, North America and other Asian countries

remained the top suppliers to China between 1995 and 2004. However, North America lost

market share to other regions, with South America and Europe posting strong gains

(figure 4-4).55

China’s emphasis on developing higher value-added manufacturing and the rapid expansion

of its paper industry56 have led to a significant shift in the mix of its pulp and paper imports

during 1994-2005. The growth rate for imports of wood pulp and waste paper far exceeded

that for imports of packaging and printing papers (table 4-4). The share of Chinese forest

products imports composed of packaging and printing papers decreased from 31 percent to

22 percent during 1995-2004, and the share composed of wood pulp and waste paper

increased from 15 percent to 31 percent. Increased global recoveries of waste paper during

the period provided much of the fiber for China’s expanding paper industry. The increase

in annual waste paper usage in China between 1995 and 2004 accounted for 36 percent of

the increase in annual global recoveries during the period.

The United States shipped 7.7 million metric tons of waste paper to China in 2005. China

is purchasing more waste paper from Europe and Japan in order to reduce its exposure in the

U.S. market, which reportedly has dampened price fluctuations in the U.S. market.57

However, the extent to which increasing quantities of suitable waste paper continue to be

available to China depends on the practical limits of recovery and the quality of the

remaining waste paper. Industry representatives expect that waste paper prices will increase

as higher recovery rates tighten the supply/demand balance.58 Higher recovery rates will

accentuate quality issues. China already attempts to control the amount of impurities in scrap

shipments by requiring that foreign exporters obtain scrap import licenses.59
4-15
 60 Veneer is the primary raw material for the manufacture of plywood.

 61 “North American Hardwood Exports,” 7.

 62 Boardman, “China’s Government Policy: Support and Subsidies.” 

 63 Braden, “Opportunities and Constraints for Wood Building Materials: The Challenge of China.” 

 64 Boardman, “China’s Government Policy: Support and Subsidies.”

 65 “North American Lumber Exports to China Lagging Year-Ago Pace,” 1.

4-16

Wood Products

Demand

Factors broadly affecting demand

Although wood is used to manufacture a wide variety of different products, by far the largest

quantity of wood products is used for residential construction and/or remodeling and

commercial construction. Therefore, residential housing markets are a major driver of

demand for wood products. Housing markets are driven by short term economic cycles and

may also be influenced by long term trends in the number of home buyers and interest rates.

Large consuming countries are those where wood frame construction plays a major role in

meeting residential housing demand (e.g., the United States, Canada, Japan). Climate and/or

cultural preferences in some regions or countries may dictate the use of alternate building

materials such as masonry. 

End uses for particular logs depend on the size and quality of the logs, but the cost of

transportation typically restricts overseas trade of logs to relatively high value species.

Lumber, veneer, and wood chips, the intermediate products resulting from the primary

manufacturing of logs, are globally traded commodities.60 Demand for softwood lumber and

softwood plywood, which are used principally as structural elements in residential and

commercial construction, is linked directly to housing and construction markets. Major end

uses for hardwood lumber and hardwood plywood include shipping pallets, furniture,

millwork, cabinets, architectural woodworking, and railroad crossties. Though hardwood is

not generally used for structural purposes, demand for many hardwood products (e.g.,

cabinets, moulding, paneling, furniture) is nevertheless closely linked to housing and

construction.

Demand for wood products in China

China represents a vast market for residential construction, but estimates of future demand

must account for cultural and political factors. New residential construction in China now

exceeds 700 million square meters annually, and commercial construction, which is already

booming, is expected to increase in advance of the 2008 Olympics and 2010 World Expo.61

However, there is a strong cultural aversion to wood frame construction in China. Traditional

post and beam construction is regarded as old fashioned and rural.62 Only 300 wood frame

houses were constructed in China out of approximately 24 million mostly masonry housing

starts in 2005.63 It is also unlikely that the Government would encourage the use of wood

frame housing, which would put more pressure on already limited domestic wood supplies

and work against the policy goal of wood self-sufficiency.64 Thus, despite ongoing efforts

by U.S. industry associations to build market share, Chinese demand for softwood lumber

and plywood is likely to remain relatively low.65
 66 Braden, “Opportunities and Constraints for Wood Building Materials: 

 67 “North American Hardwood Exports,” 7.

 68 “Observations on Trade with China,” 3.

 69 Telephone interview by staff with an industry representative on November 14, 2005.

 70 Japanese housing starts in 2004 were approximately 19 percent below the 1995 level. “Housing Starts,”

and “Housing Starts by Structure,” 6.

 71 From 1995 to 2000, Chinese lumber production declined at an average annual rate of 22 percent from

25.6 million cubic meters to 7.3 million cubic meters. FAOstat.

 72 U.S. International Trade Commission, Conditions of Competition in U.S. Forest Products Trade, 5-43.

4-17

Nevertheless, privatization of the housing market has stimulated demand for larger, higher

quality homes with better amenities,66 and new construction is expected to drive steadily

increasing demand for hardwood used for many products inside the home (e.g., flooring,

paneling, furniture, cabinets).67 That said, U.S. industry analysts perceive a shift in Chinese

hardwood demand. In the last few years, Chinese imports of hardwood lumber have

stagnated, and log imports have increased relative to lumber imports as a result of China’s

intention to capture the value added by primary manufacturing of the logs.68 Chinese wood

products manufacturers are also expected to seek new suppliers of hardwood lumber,

particularly in Eastern Europe.69

China’s demand in global context

Between 1995 and 2004, the United States remained the largest consumer of lumber (table 4-

7). The United States and third-ranked Canada increased their shares of world consumption

on the strength of strong domestic housing markets. Japan remained the second largest

consumer of lumber, although its consumption decreased due to generally declining housing

starts during the period.70 The decrease in consumption of lumber by China occurred in spite

of a large increase in lumber imports and primarily reflects declining Chinese domestic

lumber production during 1995-2000,71 which resulted from the curtailment of domestic log

harvests with the implementation of the NFPP.72

Table 4-7 Lumber: Top five countries ranked by consumption, 1995 and 2004

Consumption Global Market Share

Average Annual

Growth Rate

1995 2004 1995 2004 1995–2004

Country 1,000 Cubic Meters Percent

United States 108,403 127,019 27.7 31.1 1.8

Japan 36,247 22,764 9.3 5.6 -5.0

Canada 11,855 21,194 3.0 5.2 6.7

Brazil 17,956 19,330 4.6 4.7 0.8

China 27,946 18,596 7.1 4.6 -4.4

World 391,516 407,782 100.0 100.0 0.5

Source: FAOstat.
 73 Data from United Nations Food and Agriculture Organization (FAO).

 74 “Report from China,” and “China Wood Markets Conference,” 5.

 75 Nilsson, “Log Imports: A Long Term Solution to Meeting China’s Fiber Needs.” 

 76 Compared with global average log costs ($57 per cubic meter), China's log costs average $65 per cubic

meter for domestic logs and $80 to $120 per cubic meter for imported logs. “Global Lumber Bench marking

2004,” 4.

4-18

Supply

Supply of wood products in China

Domestic annual production of logs in China began to decline in 1998 with the

implementation of the NFPP. Annual production of logs continued to decline until 2001,

after which it remained relatively flat (figure 4-5). Likewise, annual production of lumber

declined early in the period, but unlike log production, lumber production began to recover

in 2000 with the growing availability of imported Russian logs.73

China’s logs and lumber are used to manufacture a wide variety of wood products for both

domestic and export markets. China is now the largest producer of plywood in the world and

is increasing production of other products such as furniture, medium density fiberboard

(MDF), doors, flooring, stair parts, and moulding.74 In 2004, there were approximately

10,350 saw mills, 4,800 plywood mills, and 370 MDF plants in China.75 

China’s sawmills have the lowest manufacturing cost in the world due to low labor rates, but

are generally small and lack newer technology. The favorable labor costs of Chinese wood

products plants are partially offset by relatively high log costs.76 Prior to 1998, China’s

domestic timber resource was dominated by large diameter logs, but subsequent to the NFPP,

0

10

20

30

40

50

60

70

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Millions of cubic meters

Logs Lumber

Figure 4-5 Chinese production of logs and lumber, 1995–2004

Source: FAOStat.
 77 Chan, “How Much Risk? Investment Strategies for China.” 

 78 Ibid.

 79 Ibid.

 80 “China Wood Markets Conference,” 4.

 81 “China’s Transformation Through the Lense of Commercial Trade.” 

 82 Taylor, “China’s Wood Products Industry: Competitiveness Rating in Exports Markets,” 14.

 83 U.S. International Trade Commission, Conditions of Competition in U.S. Forest Products Trade, 5-46,

and “China Wood Markets Conference,” 4.

4-19

the domestic supply of large diameter logs has been limited.77 The existing commercial

plantations in China are not well aligned with China’s growing regional markets, and the rate

of adoption of new technology to utilize small diameter logs from plantations has reportedly

been slow.78 Thus, firms generally depend on the import market for large diameter logs.79

Because wood products investment in China has increased faster than domestic consumption,

most Chinese wood products firms are oriented toward export markets.80 Chinese firms’

success in increasing exports is in part the result of their ability to meet both the logistical

requirements and product specifications of U.S. and European importers.81 The necessity to

meet those requirements has driven investment in world class manufacturing facilities for

products such as furniture and doors.82 The Chinese industry has attracted foreign investment

in the form of joint ventures with firms from Europe, Hong Kong, and Taiwan, although

some investments have reportedly suffered from excess capacity and poor profitability.83

China’s supply in global context

The United States, Canada, and Russia, all well-endowed with domestic forest resources,

remained the top three producers of both logs and lumber between 1995 and 2004 (tables 4-8

and 4-9). Despite a general reduction in U.S. domestic log supplies resulting from decreased

harvests from public forests, overall U.S. production of lumber increased due in part to

increased lumber yields resulting from sawmill process improvements. There was a general

lack of investment in Russia’s industry during the 1990s which in part explains 
 84 U.S. International Trade Commission, Conditions of Competition in U.S. Forest Products Trade, 6-32.

 85 “Inefficient Use of Resources Stunts Growth in Russia’s Timber Industry,” 2, and “China Wood

Markets Conference,” 4.

 86 “Global Lumber Outlook 2006,” 3.

 87 “China Wood Markets Conference,” 4.

 88 Approximately 87 percent of Chinese imports of U.S. logs and 90 percent of Chinese imports of U.S.

lumber are hardwoods. USITC dataweb.

 89 Stumpage is the price of standing trees, which is paid to forest landowners, prior to or during

harvesting. 

4-20

Table 4-8 Sawlogs and veneer logs: Top five countries ranked by production, 1995 and 2004

Production Share of Global Production Average annual

growth rate

1995 2004 1995 2004 1995–2004

Country 1,000 Cubic Meters Percent

United States 242,874 234,67 25.9 24.4 -0.4

Canada 148,836 166,42 15.9 17.3 1.2

Russia 52,550 58,75 5.6 6.1 1.2

China 56,523 52,62 6.0 5.5 -0.8

Brazil 47,779 49,29 5.1 5.1 0.3

World 936,947 959,90 100.0 100.0 0.3

Source: FAOstat.

Table 4-9 Lumber: Top five countries ranked by production, 1995 and 2004

Production Share of Global Production Average Annual

Growth Rate

1995 2004 1995 2004 1995–2004

Country 1,000 cubic meters Percent

United States 84,140 87,436 21.5 21.4 0.4

Canada 45,444 60,655 11.6 14.8 3.3

Russia 26,500 21,500 6.8 5.3 -2.3

Brazil 19,091 21,200 4.9 5.2 1.2

Germany 14,105 19,051 3.6 4.7 3.4

World 391,977 409,385 100.0 100.0 0.5

Source: FAOstat.

why Russia’s lumber production decreased in spite of increased production of logs between

1995 and 2004.84 Widespread illegal logging, outdated processing facilities, and low levels

of foreign investment hinder Russia’s wood products industry, and doing business in Russia

still involves various levels of corruption.85 Russian firms have focused on exporting logs

and lumber during the last five years due to high export pricing.86

Price Trends

The combination of increasing Russian softwood log and lumber exports and expanding

Chinese manufacturing capacity was expected to affect global markets for softwood

products.87 Less clear, however, has been the potential impact of China’s increased demand

for hardwoods, which accounts for most of China’s increased imports of logs and lumber

from the United States, on global prices for hardwood logs and lumber.88 Since the early

1990s, U.S. stumpage prices89 for hardwood sawlogs have risen dramatically, driven by
 90 “Looming Declines in Demand Bring Uncertainty to U.S. Hardwood Sawlog Prices.” 

 91 Braden, “Opportunities and Constraints for Wood Building Materials: The Challenge of China.”

 92 “China Wood Markets Conference,” 4, 5, and “North American Hardwood Exports,” 1.

 93 “Our View of China,” 2, and telephone interview by staff with an industry representative on

November 14, 2005.

 94 “Observations on Trade with China,” 2.

 95 “China Wood Markets Conference,” 4.

 96 Don G. Roberts, “Global Investment Trends in the Forest Products Sector.” 

4-21

strong global demand and limited supplies.90 U.S. prices for hardwood lumber have also

increased. Between 1995 and 2004, the average U.S. price of various heavily exported

grades of hardwood lumber increased at an average annual rate of 1.6 percent (figure 4-6).

The Chinese market is reportedly very sensitive to price.91 Attempting to offset log price

increases, Chinese wood products firms tried using more domestic wood and/or lower quality

wood but apparently found it difficult to process low grade logs profitably, even with low

labor costs.92 Chinese firms are also less particular than other customers about the species

used to manufacture their products, switching species based on price.93 U.S. industry sources

have noted that when the price of a particular species or grade reaches a certain threshold,

it tends to trigger a shift in Chinese purchasing patterns to another species. Thus, as the

quantities of U.S. lumber exports to China have increased, the unit values have decreased.94

There have been widespread reports that illegally harvested logs are being imported into

China.95 Illegal logging causes harvests to exceed sustainable levels and has had a negative

impact on global log prices.96 Strict definitions of what constitutes illegal logging vary, but

a relatively large portion of China’s log imports may be from questionable sources. For

instance, it has been estimated that 50 percent of China’s hardwood log imports from Russia

and West Africa are from suspicious or illegal origins and that seven out of ten large

-

200

400

600

800

1,000

1,200

1,400

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Figure 4-6 Average U.S. mill prices for kiln-dried hardwood lumber, 1995–20051 

Source: Hardwood Review, Hardwood Market Report.

1 The average prices shown were computed by averaging reported January prices (f.o.b. mill) for the 

12 grades of kiln-dried hardwood lumber that are included in the Hardwood Review North American 

Hardwood Lumber Export Price Index as reported by the Hardwood Market Report .

$ per thousand board feet
 97 Kerstin S. Canby, “Meeting China’s Fiber Demand: Is China’s Supply Legal or Illegal? What is the

International Response?,” and “Our View of China,” 1.

 98 “North American Hardwood Exports,” 7.

 99 The source of all reported trade figures is the World Trade Atlas. 1997 was the first year for which

reported imports are available for all the countries examined. 

 100 “China Wood Markets Conference,” 4.

 101 Van Leeuwen, “What Is Russia’s Fit with China,” 3.

 102 “Inefficient Use of Resources Stunts Growth in Russia’s Timber Industry,” 2, and Van Leeuwen,

“What Is Russia’s Fit with China,” 3.

4-22

suppliers of logs to China have generally poor governance of natural resources.97 Eliminating

illegal logging would affect both the quantity and price of forest resources obtained by

China. As more forests are managed for sustainable harvests, as governments curtail illegal

harvests, and as forest certification programs spread, global markets are expected to undergo

significant change, and global prices can be expected to rise.98

Trade Trends99

Between 1995 and 2004, the value of Chinese imports of logs and lumber expanded at an

average annual rate of 26.1 percent (see table 4-4). In 2004, Russia, Malaysia, the United

States, Indonesia, and Thailand were the largest suppliers to China and collectively

accounted for 63 percent of China’s imports (figure 4-7). Chinese log imports represent

20 percent of global softwood trade and 26 percent of global hardwood trade.100 Chinese

imports from Russia increased the most dramatically, expanding at an average annual rate

of 51.0 percent compared with 26.0 percent for imports from the United States. China

accounted for almost all of the increase in Russia’s log exports between 2000 and 2004.101

The large increase resulted from a combination of factors: the increased harvesting of

Siberian timber, inefficient mills and/or lack of capacity in Russia, Russia’s relatively easy

overland access to China, and aggressive investment in new wood products processing

capacity in China.102

Beginning in 1998, the United States overtook Japan to become the largest importer of logs

and lumber from the world. In 2004, the United States accounted for 22.0 percent of total

reported global imports of $41.1 billion, and the top five importers, the United States, Japan,

China, Italy, and the United Kingdom, accounted for 55.7 percent. With respect to wood

products, the United States, Japan, Italy, and the United Kingdom are mature markets.

During 1997-2004, the value of Japanese imports of logs and lumber declined at an average

annual rate of 7.4 percent, and the value of imports in the other countries increased steadily

at average annual rates ranging from 1.7 percent to 2.8 percent. However, with the rapid

expansion of its wood products industry, China’s imports of logs and lumber increased at an

average annual rate of 23.6 percent.
 Softwood production in Europe was once dominated by traditional suppliers, Sweden and Finland. 103

However, newer, more efficient mills, some in Central Europe or Eastern Europe, are becoming an integral

part of European production capacity. “European Softwood Producers Poised to Expand,” 1, “Poland

Making Strides in Wood Products Industry,” 1. “Exporters Continue to Lose Market Share,” 1, “Export

Market Offering U.S. Mills Few Opportunities,” 1, “Global Slowdown, Competition Hinder Export Sales,” 1.

4-23

In 2004, the largest global exporter of logs and lumber was Canada, which accounted for

26.1 percent of the $36.1 billion of reported exports. The top five exporters, Canada, Russia,

the United States, Sweden, and Finland, accounted for 59.2 percent of the reported global

exports in 2004. During 1997-2004, the value of logs and lumber exports from Canada and

the United States declined at average annual rates of 0.3 percent and 3.3 percent

respectively, and those from Sweden and Finland both increased at about 1 percent annually.

On the strength of increasing harvests in Siberia and the Russian Far East, Russia’s logs and

lumber exports increased rapidly at an average annual rate of 12.5 percent.

North American exports of logs and lumber to China and Hong Kong grew rapidly between

1995 and 2004, with U.S. exports increasing at an average annual rate of 24.4 percent and

Canadian exports increasing by 19.0 percent. Other export markets were generally bleak for

North American firms; U.S. and Canadian exports to other offshore markets (e.g., Japan,

Europe, Caribbean) declined at average annual rates of 8.0 percent and 4.5 percent,

respectively. General factors contributing to the decline were global recession, the strength

 of the U.S. dollar, increasing capacity in other regions, displacement by lower cost

competitors, and a reduction in the U.S. supply of large-diameter logs.103

 1

 Ferrous scrap consists of discarded pieces of metal, containing primarily metallic iron, and suitable only

for remelting. For purposes of trade data in this discussion, ferrous scrap comprises HTSUS heading 7204.

5-1

CHAPTER 5

Ferrous Scrap1

Summary of Conclusions

China has become the second-leading importer of ferrous scrap in the world, after Turkey.

Imports grew at an average annual rate of 26 percent between 1999 to 2004 as the rapid

growth of China’s steel industry and the lower growth rate for the primary iron-producing

industries in China increased the country’s demand for ferrous scrap. Domestic production

of scrap within China has not kept pace with consumption, because the reservoir of steel

products to be scrapped is low in relation to the current rate of consumption. The high rate

of growth of demand for ferrous scrap in China and other nations has caused scrap prices

worldwide to increase to record levels and also to fluctuate widely in reaction to

uncertainties in the market.

Demand

Factors Broadly Affecting Demand

Ferrous scrap is a raw material for the production of steel products and ferrous castings, and

so demand for scrap is closely linked to production trends in the steel industry. Steel and

castings production are commonly established in developing nations to provide a foundation

for growing manufacturing economies. Additionally, many developing nations with low

labor costs, low real estate costs, low energy costs, reliable access to transportation, and

other positive factors are attractive sites for steelmaking, even if they must import iron ore

or scrap from other sources. Under normal market circumstances, ferrous scrap is a lower

cost alternative to primary iron products such as pig iron and direct-reduced iron, which are

produced directly from iron ore.

 

Demand for Ferrous Scrap in China

As in other developing countries, the expansion of China’s scrap consumption has been

driven by its production of steel mill products and ferrous castings. Production of crude steel

and castings increased from 106 million tons in 1995 to 136 million tons in 1999, and to

293 million tons in 2004 (table 5-1). The steel industry in China has been and remains

primarily dependent on primary iron produced directly from iron ore. Throughout the period,

however, China’s production of primary iron in the forms of pig iron and direct-reduced iron

increased at a lower rate; 5 percent per year during 1995 to 1999 and 15 percent per year

during 1999 to 2004, than the average annual rate of growth of steel and castings production;

6 percent during 1995 to 1999 and 17 percent during 1999 to 2004. Chinese scrap

consumption has made up the difference, increasing from approximately 19 million tons in

1995 to 29 million tons in 1999 and to 76 million tons in 2004, representing average 
5-2

Table 5-1 Metallics balance for China (thousand metric tons)

Year

Crude Steel

Production

Castings

Production

Total Crude Steel

Plus Castings

Total Metallics

Requirement (1)

Primary Iron Apparent

Consumption

Net Imports 

Consumpt

 of Sc

1995 95,360 10,645 106,005 119,000 100,013 1,21996 101,237 10,152 111,389 125,000 103,699 1,21997 108,911 10,252 119,163 134,000 109,630 1,71998 114,588 11,391 125,979 142,000 116,189 1,91999 123,954 11,688 135,642 152,000 123,824 3,22000 127,124 13,317 140,441 158,000 127,837 5,02001 150,853 13,752 164,605 185,000 147,661 9,72002 182,182 14,979 197,161 222,000 172,507 7,52003 222,376 16,600 238,976 269,000 215,564 9,22004 272,456 20,271 292,727 329,000 253,311 10,2

Source: IISI and Modern Casting.

1 Estimates are rounded to the nearest million tons.
 2

 Estimated by USITC staff based on iron and steel production. 

 3

 For example, a steel industry analyst projects crude steel production of 467 million tons in China in

2010. World Steel Dynamics. Chinese Steel: Facts and Forecasts to 2010, October 2005, 55.

 4

 See Michael D. Fenton, Iron and Steel Recycling in the United States in 1998, U.S. Geological Survey

Circular 1196-G, for model for estimating production of prompt and obsolete scrap in the United States.

 5

 World Steel Dynamics, Steel Strategist #31, The Age of Discontinuity, 59.

5-3

annual growth rates of 10.5 percent during 1995 to 1999 and 21.5 percent during 1999 to

2004 (table 5-2).2

The Chinese growth rate of steel production is expected to moderate in 2006, as demand for

steel products has abated, but an increase to at least 450 million tons is generally expected

by 2010.3

 Production of pig iron in China increased by 30 percent in 2005, to 328 million

tons, a more rapid increase than that of steel production, which increased only 28 percent.

As a result, demand for scrap moderated somewhat in 2005, but may resume its increase in

future years. Further increases in pig iron production are anticipated, to over 400 million tons

by 2010, representing an increase of about 5 percent per year. The fact that pig iron

production increased in 2005 at a much higher rate than steel production has already resulted

in some relief in the demand for scrap, and there has been an easing of scrap prices

worldwide. Present indications that future growth of pig iron production in China will be less

than that of steel production may indicate a return to increased imported scrap demand and

higher prices, worldwide.

Supply

Factors Broadly Affecting Supply

Ferrous scrap is produced as a result of two broad economic activities: manufacture of steel

and steel-containing products (prompt scrap), and recovery of steel from used articles and

demolished structures (obsolete scrap). The production of prompt industrial scrap, which

results from the use of new steel in construction and manufacturing, is more-or-less

proportional to the amount of steel consumed; however, manufacturing activities tend to

generate more scrap in relation to steel consumption than do construction-related activities.

As a result, a greater percentage of steel consumed becomes scrap in an economy where steel

is used primarily for manufacturing, such as that of the United States, than in an economy

where a greater share of steel is used for construction, such as in China. In 2004, for

example, apparent steel consumption in the United States was 130 million tons of steel, of

which an estimated 23 million tons (18 percent) became scrap.4

 In China, only an estimated

13 percent of the 309 million tons of steel products consumed in 2004 became scrap,

resulting in 41 million tons of scrap.5

 World production/consumption of ferrous scrap was

an estimated 458 million metric tons (tons) in 2004, having increased in volume from 307

million tons in 1995 and 364 million tons in 1999, which represents average annual growth

of 4.3 percent during 1995 to 1999 and 4.7 percent during 1999 to 2004 (table 5-2).
 6

 See Fenton, Iron and Steel Recycling.

5-4

Table 5-2 Annual consumption, production, and trade of ferrous scrap (million metric tons)

United States 1995 1999 2004

Consumption 51.0 51.5 54.4

Annual growth rate percent 0.4 1.3

Imports 2.1 3.7 4.7

Exports 10.4 5.5 12.0

Production 59.3 52.8 61.7

Annual growth rate percent -2.9 3.2

China 1995 1999 2004

Consumption 19.2 28.6 75.6

Annual growth rate percent 10.5 21.5

Imports 1.3 3.3 10.2

Exports 0.1 0.1 0.0

Production 18.0 25.3 65.4

Annual growth rate percent 8.9 20.9

World 1995 1999 2004

Production 307 364 458

Annual growth rate percent 4.3 4.7

 Sources: WSD, Steel Strategist #31; USGS, Iron and Steel Scrap, Chapter in Minerals Yearbook, various years;

and World Trade Atlas.

 Note: Excludes home scrap.

Supply of Ferrous Scrap in China

Obsolete scrap from the demolition of structures and the scrapping of obsolete articles,

especially automobiles, is a more important source of scrap than prompt scrap in developed

countries such as the United States. For 2004, the estimated quantity of steel scrap from

obsolete sources in the United States is 39 million tons.6

 China, unlike the United States,

lacks a vast reservoir of old manufactured products and buildings to be recycled as scrap. As

a result, obsolete scrap is a less important source in China than in the United States, resulting

in only about 24 million tons of scrap in 2004. Hence, China relies on imports of scrap,

which have increased fourfold from 1995 to 2004, and on domestically-produced prompt

scrap. However, the size of the Chinese scrap reservoir is growing rapidly, but from a small

base, and the amount of obsolete scrap available will increase in future years.

On July 20, 2005, China’s National Development and Reform Commission published

China’s Steel Industry Development Policy, which has been described as the blueprint for

the Chinese steel industry over the next decade. In their planning, China recognizes that its

production of obsolete ferrous scrap will increase as its economy matures, and plans that the

proportion of iron ore used in steelmaking shall be gradually reduced while that of scrap
 7

 National Development and Reform Commission, People’s Republic of China, Steel Industry

Development Policy, Article 35.

 8

 Ibid., Article 30.

 9

 No. 1 Heavy Melting Steel is the benchmark ordinary steel scrap, largely comprising plate and structural

steel from demolished structures.

 10 Automobile Bundle scrap includes trimmings from the manufacture of automobile bodies, which have

been compacted into bundles for ease of handling. Such scrap is highly prized because of its consistent

chemical content with low level of harmful residual elements. It is the most desirable and highest priced of

non-alloy, non-stainless steel scrap grades.

 11 Purchasing Magazine, Steel Transaction Price Report.

 12 For additional detail, see the appendix.

5-5

steel shall be increased.7

 In addition, the policy urges that exports of scrap, along with certain

processed products that represent a high level of energy consumption and heavy pollution

should be restricted. The policy urges that tax reimbursements for exporting these products

be reduced or eliminated.8

Price Trends

Increased world demand has led to increases in scrap prices in recent years (figure 5-1). The

selling price of No. 1 Heavy Melting Steel scrap9

 in the United States increased slowly from

2001 through the first half of 2003 and more sharply in late 2003, before fluctuating in a

higher and broader range through 2005, mostly from about $180 to $250 per long ton. The

price of automobile bundles10 followed a similar pattern, except that its increase in 2004 was

much greater, as it climbed to almost $450 per long ton in September 2004, before dropping

back to a level that was still more than double the price during the 2001 to 2003 period.11

Scrap prices in China followed a similar pattern, but with less month-to-month fluctuation.

The price index of Heavy General Scrap in China during 2001 to 2002 was steady at an

index of 75 (equivalent to $119 per long ton). The price increased steadily through 2003,

dropped briefly in May–June 2004, then renewed its increase, finishing 2004 at an all-time

high index of 163 (equivalent to $258 per long ton). Scrap prices in China declined in 2005

and continue to fluctuate, although at levels above those of 2001. While China’s imports of

ferrous scrap have increased quickly over the past decade, it is not clear from the existing

economic literature how much of the observed increase in global prices is due to the increase

in China’s demand.12

Trade Trends

Ferrous scrap is widely and competitively traded. Ferrous scrap exporting nations are those

with vast reservoirs of steel that have been in service for many years. The United States

perennially generates far more scrap than it consumes and is a leading exporter of steel scrap.

During 1995–2004, U.S. exports to Turkey and Korea declined while exports to China

increased (table 5-3). Russia, historically a large steel producing nation, has a huge reservoir

of scrap and has emerged as the leading exporting nation in the world, with its exports

increasing from 2 million tons in 1995 to 13 million tons in 2004. Ukraine, Kazakhstan, and

Romania have also become leading exporters of scrap. Scrap production within the European

Union varies widely and most EU trade in scrap is internal, with its northern
5-6

Table 5-3 Major destinations of U.S. exports of ferrous scrap (million metric tons)

Country 1994 1999 2004

China 0.2 0.4 3.0

Canada 1.7 1.7 2.2

Korea 2.6 1.9 1.9

Mexico 0.7 0.8 1.5

Thailand 0.1 0.1 0.8

Turkey 1.2 (1

) 0.6

Malaysia 0.4 (1

) 0.4

India 0.4 (1

) 0.3

All others 1.5 0.6 1.1

Total 8.8 5.5 11.8

Source: Official trade statistics. 

1

 Less than 0.1, included in “All others”.

Figure 5-1 Ferrous scrap prices in the United States and China, monthly, 2001-2005

0

50

100

150

200

250

300

350

400

450

500

Jan01Apr01Jul01Oct01Jan02Apr02Jul02Oct02Jan03Apr03Jul03Oct03Jan04Apr04Jul04Oct04Jan05Apr05Jul05Oct05

0

30

60

90

120

150

180

210

240

270

300

U.S.--No. 1 Heavy Melting U.S.--Automobile bundles China--Heavy general scrap (Index)

Source: Purchasing Magazine, Steelhome.cn.

Index (China)

Dollars per long ton (United States)
 13 International Iron and Steel Institute, Annual Statistical Report, various issues.

5-7

nations generally exporting to the southern nations. The EU is a relatively minor net exporter

of scrap. China produces some ferrous scrap, as noted above, but is not a scrap exporter.

Global trade in ferrous scrap nearly doubled from 1995 to 2004, reaching 96 million tons in

2004, driven by increased consumption in China and other Asian nations including Taiwan,

South Korea, Malaysia, Indonesia, and Thailand. Most of the growth in trade has occurred

in the last 5 years, as higher prices have spurred recovery of obsolete scrap throughout the

world. Exports increased primarily from Russia (an increase of 11.1 million tons), Ukraine

(2.1 million tons), Kazakhstan (1.8 million tons), and eastern Europe (4.3 million tons).

Japan has changed from a net importer of 0.3 million tons of scrap to a net exporter of 6.5

million tons, representing a total shift of 6.8 million tons. Exports increased from other Asian

nations including Hong Kong, the Philippines, and Singapore.

The leading importing nations for ferrous scrap from 1995 to 2004 were Turkey, China, and

Korea. Turkey, with a steel industry heavily dependent on scrap, has been the leading

importing nation over the period, and its imports have increased, from 7 million tons in 1995

to 13 million tons in 2004 (figure 5-2). Imports by Korea also have increased, but at a lower

rate, from 5 million tons in 1994 to 7 million tons in 2004. 

China’s steel industry has been growing at a prodigious rate, and production of scrap in

China has increased at a slower rate than demand, resulting in increased reliance on imported

scrap. China’s net imports of scrap increased from about 1 million tons in 1995 to 3 million

tons in 1999, and to over 10 million tons in 2004.13 The United States was the leading source

of scrap for China in 2004, followed by Kazakhstan, Japan, Hong Kong, and Russia (figure

5-3). Over the same period, many other major Asian markets increased their scrap imports.

China accounted for the highest increase (8.8 million tons), followed by Turkey (5.1 million

tons) and other Asian steel-producing countries (9.3 million tons).
5-8

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

China Thousands Quantity South Korea Turkey

Source: Global Trade Atlas , and International Iron and Steel Institute.

Figure 5-2 Ferrous scrap imports by major importing countries, 1995-2004 Metric tons (thousands)

North Korea

3%

Japan

14%

All others

14%

EU 25

Hong Kong 5%

11% Russia

9%

Kyrgyzstan

4%

United States

24%

Kazakhstan

16%

Source: Global Trade Atlas.

Figure 5-3 Major sources of China imports of ferrous scrap, 2004
6-1

CHAPTER 6

Next Steps and Suggestions for Future

Research

This paper examines the effects of increasing Chinese demand for four selected commodities

on the global market for each during the 1995-2004 period, the latest available 10-year

period. In each case, we have analyzed the extent to which Chinese consumption of each

commodity has increased over the decade, and whether this has led to an increase in global

market prices, or to other changes in the markets for crude petroleum, unwrought aluminum,

forest products, and ferrous scrap. We have not attempted to provide an in-depth forecast

of future events in each commodity-related market, other than to briefly point to emerging

trends. The study found varying results for each of the four commodities, summarized in the

Executive Summary and presented in detail in chapters 2 through 5. The remainder of this

concluding section briefly presents ideas for extending this study’s analysis of China’s

impact on global commodity markets. 

This study did not attempt a rigorous analysis of the specified commodity markets beyond

the 2004 data year, but that is an important next step. Is Chinese demand for these

commodities likely to continue along the same trend lines that we have witnessed during the

1995-2004 period? There are of course two sides to the question of the overall impact of

Chinese demand on global markets, the question of increasing Chinese

demand/consumption, and the question of worldwide supply/production trends. On the

demand side, increasing environmental pressure in China may well induce that country to

find ways to curtail its crude petroleum consumption, for example, leading to a downward

shift in expected Chinese demand. There have also been reports of some low-skilled

manufacturing moving outside of China, to Vietnam and other countries, in response to

rising wages in China. This may have the longer term effect of weakening demand for

commodity inputs. In contrast, continued foreign or domestic investment in new Chinese

manufacturing facilities may lead to increased consumption of commodities, beyond the

level predicted by current trends. Additional construction of oil-fired power plants may lead

to greater-than-expected increases in crude petroleum consumption. 

On the supply side, closer scrutiny of market conditions, new technologies, additional

exploration for oil and bauxite deposits, and other factors affecting the market for each of

the four commodities discussed in the study may also yield changes in predicted future

production and supply trends. For the crude petroleum market, political conditions have a

particularly strong influence on the global market supply and on prices. Recent events,

including political unrest in Nigeria and the possibility of U.N.-imposed sanctions on Iran,

have strongly affected crude petroleum prices in recent months.

Macroeconomic and political conditions beyond the purview of the specific industries

discussed here also may have profound effects on global markets for commodities in general

and for these four commodities in particular. An economic slowdown in the United States

or Europe would dampen global demand for crude petroleum and other commodities, leading

to lower worldwide prices even in the face of expanded Chinese consumption. For example,

higher interest rates in the United States likely would lead to a reduction in building starts,

dampening global demand for both aluminum and forest products. Changes in the exchange

rates of the U.S. and Chinese currencies, or a significant increase or decrease in China’s
6-2

overall economic growth rate, also would be likely to affect Chinese exports and overall

consumption, with the effects rebounding onto commodities markets. 

Another factor of concern is the domestic political situation in China. Media reports have

emphasized the high level of political unrest among certain segments of the Chinese

population. This situation has the potential to lead to economic disruptions which would

decrease overall Chinese economic growth, and thus the country’s demand for commodities.

In contrast, government efforts to mitigate popular discontent might lead to increased

demand in certain areas of the economy. Further analysis of changing demand scenarios

related to the commodities in question, or to the Chinese economy more broadly, would

prove useful.

This study looked closely at four specific commodity markets. However, concerns related

to China’s increasing demand extend across a broad range of commodities and raw materials.

Further analysis of additional commodities would also be useful in informing the debate over

the impact of Chinese demand on global commodity markets more broadly. 
APPENDIX

ECONOMIC ANALYSIS OF THE

EFFECTS OF CHINA’S INCREASE IN

DEMAND ON GLOBAL COMMODITY

PRICES

 1

 China’s consumption is not an exact measure of China’s demand. Changes in consumption can be

caused by factors other than changes in China’s demand, such as changes in demand in other countries or

changes in supply. For example, even if China’s demand remains the same, China’s consumption may

fluctuate due to price changes caused by changes in production capacity or changes in shipments to other

countries brought about by changes in demand in those countries. 

A-3

Economic Analysis of the Effects of China’s

Increase In Demand on Global Commodity

Prices

As indicated in the preceding chapters, China’s consumption of the four commodity products

discussed in this study has increased markedly over the past decade. Overall, it appears that

China’s demand, on its own, may have led to increases in global prices for the commodities

studied here. However, factors such as increased world-wide supply of these products

(especially petroleum, wood products, and aluminum) and changes in demand in other

markets may have amplified or dampened this impact. In this section we discuss what results

from other economic studies suggest regarding the impact of growth in China’s demand on

global and U.S. prices for crude petroleum, aluminum, forest products, and ferrous scrap.

Although the existing literature does not directly measure the effect that growth in China’s

demand has on the market for any of the four commodities, it can provide insights useful in

assessing the potential effect of the growth in demand. The availability of pertinent

information varies across the commodities, thereby requiring different approaches for

analyzing the impact that the increase in China’s demand has on each commodity. For

petroleum and aluminum we base our analysis on existing estimates of the price elasticity

of supply, while for forest products we consider results from a general equilibrium model

that already focuses on China. While differences in available information preclude an

overarching methodology for this section, we can use these existing results to make some

broad statements about each commodity. 

Without allowing for offsetting changes in global production capacity, results of existing

studies suggest that increases in China’s demand (as measured by changes in Chinese

consumption)1

 increased global prices of crude petroleum by 12 percent to 37 percent

between 1995 and 2004, and increased global prices for unwrought aluminum by 8 percent

to 52 percent over the same period. Existing studies of the forest products market that allow

for increases in China’s production capacity suggest that China’s growing economy has not

led to a substantial increase in world prices of forest products. The existing literature does

not speak directly to the impact of Chinese growth on the market for ferrous scrap. Some

points of consideration, however, are discussed below. 

Overview of Commodity Market Research

In general, the direct impact of changes in China’s demand on global commodity prices

depends on how firms adjust the prices they charge in response to those changes. Increases

in China’s demand are passed along to firms through changes in the price of the good. Given

the new demand and price information, firms then decide how much to supply. The
 2

 Typically, the price elasticity of supply is measured by the percentage change in quantity supply in

response to a 1 percent change in price. For example, an elasticity of 0.25 indicates that a 10 percent increase

in price will lead to a 2.5 percent increase in quantity supplied. Calculation of the price elasticity of supply

assumes a competitive market. 

A-4

relationship between the price firms charge and the quantity they wish to supply to the

market is typically measured by the price elasticity of supply.2

 When a change in

consumption takes place, the increased quantity is due to a change in supply (a shift of the

supply curve), a change in demand (a shift of the demand curve), or changes in both. When

looking at changes in consumption, if we assume that supply does not change while demand

does, then the increase in price associated with the change in demand can be determined

using the elasticity of supply. This is what we do below for petroleum and aluminum. Of

course, it is not technically correct to assume that supply does not change. For the

commodities discussed here, supply has changed as China and other countries have increased

their capacity. The results of this type of analysis must be considered within the context of

these limitations. Allowing for the appropriate increases in supply would dampen the price

effects estimated here. 

To perform this analysis, we need estimates of the elasticity of supply for the relevant

commodity markets. Several papers use empirical models to estimate the price elasticity of

supply to the U.S. market for these commodities. Examples include Krichene (2005) for

crude oil, and Boyd, Yung, and Seldon (1995) for aluminum.

As an alternative to analyses focused on estimating elasticities, other papers employ

simulation models to study various issues pertaining to the commodity markets which are

the subject of this study. These include commodity-specific simulation models such as the

U.S. Regional Ferrous Scrap Model in Gruver and Giarratani (2005) and the Global Forest

Products Model in Turner, Buongiorno, Zhu, and Prestemon (2003). Other papers use

economy-wide simulation models to estimate the impact of changes in China’s demand.

Examples include Gan (2004) for lumber, and Fairhead and Ahammad (2005) and Spatafora,

Yang, and Feyzioglu (2004) for aluminum. These studies allow for changes in both demand

and supply for the commodities discussed here but do not directly address the question of

how China’s increasing demand affects global prices. While the results of these studies may

not allow us a precise method for estimating the effect that the growth in China’s demand

has on commodity prices, they do provide some indication of what the impact might be. 

In addition to affecting the price of the commodity in question, changes in China’s demand

may indirectly influence prices of upstream, downstream, and substitute products. Demand

effects on the good itself, as well as on related goods are typically measured either by

empirical models which directly estimate the impact on a modest number of specific

products, or simulation models which are based on estimates from other empirical models

or qualitative analysis. Papers that estimate the impact of changes in demand for

commodities on the prices of downstream or related products include Grasso and Manera

(2005), Duffy-Deno (1996), Borenstein et al. (1997), Balke et al. (1998), Shin (1994), and

Gately and Huntington (2002) which all estimate the impact of changes in the price of crude

petroleum on the demand for gasoline. The results of such studies are cited when discussing

the broader impact of an increase in China’s demand for crude petroleum.

With these general approaches in mind, we now turn to a discussion of the individual

commodities that are the focus of this study. 
 3

 See chapter 2 for a detailed discussion of factors affecting supply both in China and worldwide.

 4

 U.S. Department of Energy, International Energy Annual 2003.

 5

 Bustelo, “China and the Geopolitics of Oil in the Asian Pacific Region,” 15.

 6

 These shares are based on predictions of worldwide consumption of oil growing to 94.6 b/d by 2010,

and 111b/d by 2020. Energy Information Agency, International Energy Outlook, 2005 (reference case).

 7

 Since supply elasticities are normally positive, a small, negative result is consistent with a perfectly

inelastic short-run supply curve, indicating that suppliers do not have the ability to increase supply in the

short run.

A-5

Petroleum

Results of existing studies suggest that, holding all else constant, an increase in China’s

demand can have an effect on global prices of crude petroleum. Estimates of the price

elasticity of supply found in the literature suggest that increases in China’s demand (as

measured by changes in Chinese consumption) increased global prices of crude petroleum

by 12 percent to 37 percent between 1995 and 2004. In addition, projections for China’s

demand suggest an additional increase in price attributable to Chinese growth of anywhere

from 4 percent to 20 percent by 2010. These estimates, however, ignore all supply increases

that have taken place in the last ten years as well as those that are projected to take place over

the next five years.3

 

As discussed in Chapter 2 of this report, China’s demand for crude petroleum has risen

substantially over the past decade and is expected to continue increasing over the coming

decades. This shift in demand has potential implications not only for the petroleum market,

but also for the markets for related products such as gasoline and natural gas. There is a

considerable body of literature that estimates changes in China’s demand. However, these

studies, along with more general studies of the petroleum industry as a whole, provide only

limited insight into the potential broader impact of the increase in China’s demand. 

Bustelo (2005) provides a brief summary of the results of a number of studies that predict

growth in China’s demand for oil. Reported Chinese consumption was 6.4 million barrels

per day (b/d) in 2004, which accounted for 7.8 percent of the 82.8 million b/d consumed

worldwide.4

 Estimates for Chinese consumption in 2010 in the studies surveyed by Bustelo

(2005) ranged from 7.1 million b/d to 10.6 million b/d, while predictions for 2020 range

from 8.8 million b/d to 12.8 million b/d.5

 These predictions suggest that China will account

for anywhere between 7.5 and 11.2 percent of worldwide consumption by 2010, and

anywhere between 7.9 and 11.5 percent of worldwide consumption by 2020.6

 

Estimates for the price elasticity of supply for crude oil indicate that in the short run,

unexpected increases, or shifts, in China’s demand would cause a large increase in world

prices as the quantity supplied will be unable to adjust quickly. Estimates also suggest that

in the long run, while quantity supplied will have more time to adjust, increases in China’s

demand may nevertheless lead to substantial price increases. These conclusions are based

on the elasticities estimated by Krichene (2005). Krichene uses a simultaneous equations

model for crude oil and natural gas to estimate both short run and long run price elasticities

of supply and demand for oil during three periods: pre-oil crisis (1918-1973), post-crisis

(1974-2004), and both periods combined (1918-2004). Estimating the model using two

distinct methods of estimation, the author finds that the short run price elasticity of supply

is quite small in the post-crisis period (-0.05 or -0.03), implying that supply will not respond

significantly to short run price increases.7

 Krichene also estimates the long run price

elasticity of supply for the same periods using two different estimation techniques. A long
 8

 This is the higher estimate for Krichene’s long-run price elasticity of supply. It indicates that a 10

percent rise in oil prices will precipitate a 2.5 percent increase in oil production, all else being equal.

 9

 Based on 2004 global consumption of 82.8 million b/d and using an arc-elasticity.

 10 A similar analysis that incorporates the observed change in global prices as well as an estimate of the

elasticity of demand for petroleum and the rest of the world suggests that growth in China’s demand is

responsible for a price increase of between 11 and 18 percent from 1995 to 2004.

A-6

run elasticity measures the final and long-term change in quantity supplied in response to

a change in price. As expected, supply is found to be more elastic in the long run with an

elasticity of 0.23 or 0.25 (depending on the estimation technique used) in the post-crisis

period. This result suggests that a long run price increase will generate significant supply

increases through increased oil exploration and investment.

Conscious of the limitations of basing estimates on the results of only one study, we can use

Krichene’s long-run elasticity estimates to approximate how an increase in China’s demand

may affect world prices. Assuming a long-run price elasticity of supply of 0.258

 and

assuming that demand in other countries as well as global supply remain constant, the

increase in China’s demand (as measured by changes in Chinese consumption) suggests an

increase in global prices of crude petroleum by 18 percent between 1995 and 2004.9

Accounting for the statistical uncertainty of Krichene’s elasticity estimate, this increase

ranges from 12 percent to 37 percent with 95 percent confidence during the same period.10

While these numbers may seem large, it is important to remember that oil prices have risen

by 200 percent over this period. If a 12 percent to 37 percent increase in the price of oil is

due to growth in China, then the remaining increase of 163 percent to 188 percent is due to

other factors.

Looking toward the future, a 0.9 million b/d increase in Chinese consumption of oil by 2010

(as predicted by Crompton and Wu (2005), one of the papers cited by Bustelo (2005)) is

consistent with a total global price increase of about 4.3 percent from 2005 and 2010. When

the analysis is expanded to include the entire range of China’s demand projections presented

in Bustelo (2005) (which range in growth of consumption from 0.7 million b/d to 4.2 million

b/d), a supply elasticity of 0.25 is consistent with price increases ranging from 3.4 percent

to 20.3 percent over the same period. 

As alluded to in the introduction to this chapter, these estimates rely on several strong

assumptions. First, they assume the price elasticity of supply is accurate and constant over

the size of the price increase. Second they assume that global supply (both inside and outside

of China) and demand outside of China do not change; in reality both are changing

constantly. As detailed in chapter 2 above, China and the other oil producing countries are

continuously involved in efforts aimed at increasing global supply, while at the same time

stemming the increase in demand. It is also important to keep in mind that petroleum markets

operate in an environment significantly influenced by OPEC, which has at least some power

to influence the price or supply of petroleum. In addition, political turmoil and other

unexpected events in oil producing countries may influence the market in unforeseen ways

and limit the ability to predict future behavior of the oil market. These concerns

notwithstanding, the elasticity exercise performed above provides a rough estimate of the

extent to which China’s demand increases likely affect the world market, holding all other

factors constant. However, given the other factors that also simultaneously affect the global

petroleum market, it is not possible to directly link the price increases witnessed during

2005-06 to rising Chinese demand for petroleum. 
 11 An example of this theory in action can be seen in the increased popularity of hybrid and highly fuelefficient cars.

 12 Balke, Brown, and Yucel, “Crude Oil and Gasoline Prices,” 2.

 13 Long-run estimates of the price pass-through between crude oil and retail gasoline prices range from 81

percent (Borenstein, Cameron, and Gilbert, “Do Gasoline Prices Respond Asymmetrically to Crude Oil Price

Changes?”) to 100 percent (see Duffy-Deno, “Retail Price Asymmetries in Local Gasoline Markets” for a

summary of earlier results). 14 Bustelo, “China and the Geopolitics of Oil in the Asian Pacific Region,” 8.

 15 Foss, “Global Natural Gas Issues and Challenges,” 125.

 16 Ibid. 125. 

A-7

While, all else being equal, increased demand for petroleum will lead to increased price of

petroleum, it is important to consider potential secondary effects that may arise as a result

of Chinese growth. Griffin and Schulman (2005) suggest that increases in oil prices may spur

technological change (primarily in the United States and other developed countries) that

reduces worldwide demand for oil. Such a secondary effect in industrial countries, which

currently account for the lion’s share of global demand for petroleum, will likely soften the

impact on global oil prices of the increase in China’s demand.11 Griffin and Schulman (2005)

indicate that as energy or oil prices increase, new technology is developed to make more

efficient use of energy, and then, as prices fall again, consumers using the new technology

need less energy and therefore do not respond as strongly in their consumption patterns. This

technological change, they argue, helps to explain the existence of the asymmetric

relationship often found in oil prices, with consumers responding strongly to significant

increases in oil prices and not as strongly to decreases in the price. Such a result has been

found by a number of researchers. Most notably, using data from 96 countries, Gately and

Huntington (2002) find that oil demand (and energy demand in general) respond

asymmetrically to price changes with the largest response occurring when prices hit new

highs. 

Changes in crude oil prices resulting from changes in China’s demand may also affect prices

of downstream products such as gasoline, which accounts for about half of all U.S.

consumption of petroleum products.12 However, while it is clear that increases in the price

of crude petroleum lead to similar increases in the price of gasoline,13 the evidence is mixed

as to whether decreases in the price of crude lead to equally large decreases in the price of

gasoline, and whether markets adjust as quickly to price decreases as they do to price

increases. While Borenstein et al. (1997) find evidence that gasoline prices will follow crude

prices up but will become sticky on the way down, Balke et al. (1998) produces mixed

results that depend on the specification, and Shin (1994) finds no evidence of price

asymmetry. 

Changes in China’s overall demand for energy may also indirectly affect prices of other

energy sources such as natural gas and coal. China has abundant domestic coal supplies and

is expected to begin importing natural gas by 2010.14 Estimating a simultaneous equations

model for the oil and natural gas markets, Krichene (2005) finds that the supply of natural

gas increases with the supply of oil - both in the short run and long run. Prices are even more

closely related since, as pointed out by Foss (2005), most liquified natural gas contracts are

based on oil prices.15 The prices of oil and natural gas have been converging due to the

ability to switch between the fuels in many end uses.16 So while the natural gas market will

certainly be affected by China’s demand for natural gas, it will also be affected by China’s

growing demand for oil.
 17 Fairhead and Ahammad, “China’s Future Growth: Implications for Selected Australian Industries,” 7.

 18 Datamonitor predicts an average annual growth rate of 6.3 percent for the period 2004–2009 as opposed

to a rate of 21.5 percent in the period 2000–2004. Source: Aluminum in China: Industry Profile,

Datamonitor, July 2005.

A-8

Aluminum

Price elasticities of supply estimated in the literature suggest that increases in China’s

demand (as measured by changes in Chinese consumption) increased global prices of

unwrought aluminum by 8 percent to 52 percent during the period 1995 and 2004 and may

be expected to cause a further increase of between 6 percent and 36 percent by 2010. These

estimates, however, take only China’s demand growth into account and ignore large

increases in the supply of unwrought aluminum, especially from China, and changes in

demand from other countries. In fact, when considering only unwrought aluminum, the

impact of growth in both Chinese consumption and production taken together on the global

market is not clear. However, higher Chinese demand for alumina and aluminum scrap

causes prices for these inputs to increase, which will, in turn, cause aluminum prices to

increase, thus affecting downstream consumers worldwide. Given the sparse data and the

lack of existing literature to address this issue specifically, measuring the size of that effect

is challenging.

Consumption of aluminum in China has increased by an average of 206 percent per year

since 1995 and China was the world’s largest aluminum consumer in 2004, with total

consumption of 5.9 million metric tons. Growth in Chinese production of aluminum,

however, has more than kept pace with its growth in consumption. Chinese production of

aluminum nearly doubled between 2001 and 2004 and stood at 6.8 million metric tons in

2004 while consumption rose by 40 percent over that same period. This growth put a great

deal of pressure on China’s upstream capacity (specifically China’s electric power

generation) and led to the imposition of several measures to curtail growth in the aluminum

smelting industry.17 Nevertheless, both production and consumption of unwrought aluminum

in China are expected to continue to rise, albeit at a much slower pace than exhibited over

the past several years.18

The global price of unwrought aluminum is determined by trading at the London Metals

Exchange (LME). Due to the centralized trading of aluminum, the market for aluminum, like

that for petroleum, is truly global in nature, so that any changes in global consumption and

production will have an effect on worldwide prices. 

The price elasticity of supply in the aluminum industry can give us an idea of how an

increase in China’s demand will affect global prices. Using data from 1965 to 1988, Boyd

et al. (1995) estimate price elasticity of supply of 1.39 for the U.S. aluminum industry.

According to this estimate, supply is fairly elastic and a relatively small increase in price will

be sufficient to induce a larger increase in production. Assuming that this elasticity applies

not only to the United States, but also to aluminum production around the world, the estimate

suggests that, taken on its own, the increase in China’s demand (as measured by the change

in Chinese consumption) increased global prices of unwrought aluminum by 14 percent

during the period 1995 to 2004. Accounting for the statistical uncertainty in the econometric

analysis used to estimate this elasticity, the impact lies between 8 percent and 52 percent

with 95 percent confidence during the same period. Applying the same logic, an additional

increase in Chinese consumption of 4 million metric tons by 2010, assuming no concurrent
 19 Fairhead and Ahammad, “China’s Future Growth: Implications for Selected Australian Industries,” 7.

A-9

shifts in the supply curve (caused, for example, by increases in capacity), would be

consistent with a price increase of between 6 percent and 36 percent.

While by itself, an increase in China’s demand for aluminum would likely lead to higher

prices worldwide, the impact has been dampened by ongoing growth in Chinese aluminum

capacity and production, which, on its own, would lead to lower prices. Without accurate

information regarding the relative sizes of the competing effects of higher production and

higher consumption, it is difficult to determine the overall effect that the Chinese aluminum

market has on global aluminum prices. It is entirely possible, for example, that China’s

booming aluminum production could result in a decrease in prices worldwide. While the

direct effect of China’s growth on aluminum prices may be uncertain, there is another,

indirect effect that may influence global prices of aluminum. Specifically, China’s effect on

the world aluminum markets is likely to flow principally through its growing demand for

aluminum inputs, rather than its demand for aluminum itself.

As discussed in Chapter 3, while China produces more aluminum than it consumes, it relies

heavily on imports of alumina and aluminum scrap to support domestic production. This

issue is addressed by Fairhead and Ahammad (2005) who study the potential impact of

China’s growth on five Australian industries including aluminum, using a dynamic general

equilibrium model of the world economy. Under two scenarios regarding the pace of Chinese

economic growth, they find that the primary impact of China’s growth on the Australian

aluminum market is transmitted through increased Chinese imports of alumina. This is also

true for the rest of the world since China’s demand for imported alumina appears to be the

primary channel through which the growth of the Chinese aluminum industry has affected

global aluminum prices. Fairhead and Ahammad (2005) report that Chinese net imports of

alumina tripled between 2000 and 2004.19 China has also increased imports of aluminum

scrap, which can be melted down to make new aluminum. 

Because of the central role that primary inputs play in China’s impact on global aluminum

markets, it is important to consider how changes in prices of these raw materials affect

production, as well as global prices, of aluminum. Lindquist (1995) finds that raw materials

are relatively price-inelastic in the Norwegian aluminum industry with price elasticity of

demand estimates ranging from -0.11 to -0.17. This means that usage of these inputs in

aluminum production falls only slightly with increases in the prices of the inputs. As a result,

the cost of producing aluminum will increase with any increase in raw material costs. While

this study uses data only for the Norwegian industry, production methods for aluminum are

fairly similar worldwide, and these results are likely to apply to aluminum industries outside

of Norway as well. 
 20 The forestry sector includes forestry services, timber tracts, logging, and forest nurseries and gathering

of forest products.

 21 The lumber and wood products sector includes lumber, wood panels, wood containers, and wood

buildings. 

 22 Correspondence with Turner, Buongiorno, Zhu, and Prestemon regarding forthcoming research.

 23 For example, in a paper that uses the Global Forest Products model mentioned above, Zhu, Buongiorno,

and Brooks (2002) assume that the price elasticity of supply for roundwood is 0.8. Kaillo, Moiseyev, and

Solberg (2003) assume that the price elasticity of supply for timber is 0.5 for the EU-15, 1.2 for Russia, and

1.0 for all other regions based on previous econometric studies. Adams and Haynes (1996) estimate

hardwood supply elasticities of 0.189 in the north-central region of the United States, 0.244 in the northeast

region, 0.813 in the south-central region, and 1.011 in the southeast region.

A-10

Forest Products

Results from existing studies that allow for increases in production capacity are consistent

with the finding in Chapter 4 that growth in China’s demand for forest products has not been

responsible for a substantial increase in world prices. Also, projections for future prices of

forest products show little or no increase provided that global production capacity is allowed

to reach expected levels. 

Gan (2004) uses a general equilibrium model to estimate the effect on global forest product

markets of China’s accession to the WTO. His results indicate that China’s WTO accession

will lead to a rise in the global price for forestry products/services20 of 0.04 percent, and a

decrease in global prices for lumber and wood products21 of 0.1 percent, while drawing in

imports of forestry and lumber products primarily from nearby Asian countries as well as

imports of pulp and paper products from Asia, North America, and Europe. While Gan’s

study does not directly discuss the impact of Chinese growth, it does speak to the impact that

increased trade with China has on the market for forest products.

Turner, Buongiorno, Zhu, and Prestemon (2003) use the Global Forest Products Model to

make predictions concerning international demand, supply, trade, and prices, conditional on

the last RPA (Resources Planning Act) Timber Assessment for the United States. They

predict that by 2030, China will be the largest importer of forest products included in the

model. They indicate that both the price and volume of U.S. exports of all forest product

commodities except for sawnwood will increase between 1999 and 2030. They also indicate

that substantial predicted growth in the value of U.S. paper exports (from $6.3 billion in

1999 to $24.7 billion in 2030) is most likely due to predicted strong growth in real paper

prices, driven by rapid growth in China’s demand for paper. However, while this model does

allow for some changes in Chinese paper making capacity, it does not appear to allow for

the “ample additions” to global and Chinese capacity discussed in Chapter 4, which would

greatly dampen any increase in U.S. paper exports or growth in real paper prices. More

recent projections by the same authors show little or no increase in paper or other forest

product prices when production capacity is allowed to reach the levels now expected by the

authors.22

Unlike the market for petroleum, the market for forest products, while global in nature, is

characterized by regional differences that affect production and consumption. These

differences are reflected in a wide variation in estimated region-specific price elasticities of

supply.23 Such a wide range makes it difficult to use these elasticities to analyze China’s

impact on global markets.
 24 Gan, “Substitutability between U.S. Domestic and Imported Forest Products.”

 25 Based on ferrous scrap: No. 1 Heavy Melting Steel, Chicago consumer prices, January 2000–October

2005. Source: Compiled by USITC staff from statistics of American Metal Markets.

 26 The U.S. Regional Ferrous Scrap Model characterizes regional variation in prices for two grades of

ferrous scrap, in 1,212 supply and 240 demand regions using data from 1989. 

 27 Much of the discussion in this and the following paragraph is based on correspondence with the authors

of the model, Gene Gruver and Frank Giarratani, and their colleague Soiliou Namoro.

 28 Low overseas shipping costs reduce the regional variation attributable to trans-oceanic shipping of

ferrous scrap.

A-11

Also, any impact on the global market for forest products from changes in China’s demand

will be limited by the degree of substitutability between forest products produced in China

and other countries. Gan (2006) finds that in the U.S. market, domestic and imported

softwood lumber are far from perfect substitutes, but that the degree of substitutability is

higher in the long run, varies across products and, in general, has increased over time.24 In

addition, the high level of competition between goods produced from forest products in

China and other countries suggests that forest products from different countries are highly

substitutable.

Ferrous Scrap

While China’s imports of ferrous scrap have increased quickly over the past decade, it is not

clear from existing research how much of the observed increase in global prices is due to the

increase in Chinese demand. 

Similar to aluminum, an important issue when analyzing China’s impact on the steel industry

is China’s demand for primary inputs - in this case ferrous scrap. Many attribute the

unprecedented increase in ferrous scrap prices to China’s rapidly growing steel industry. The

anecdotal evidence is clear; China’s imports of ferrous scrap have grown by over 200 percent

since 1999 and the price of ferrous scrap in the United States has increased by 100 percent

since January 2000 and over 240 percent since January of 2002.25

While prices are rising world wide, transportation costs may dampen the impact of China’s

demand for ferrous scrap on the U.S. market and create regional price variation similar to

those for lumber. As noted above, petroleum and aluminum are less affected by such

variation. The impact of transportation costs within the United States is modeled by Gruver

and Giarratani (2005). These authors developed a model to study regional variation and

interregional trade links between hundreds of individual scrap markets within the United

States.26 While the model allows for demand shocks from abroad, using it to estimate the

impact of changes in China’s demand on U.S. markets would require incorporating new

estimates of regional supply and demand, and new transportation cost parameters.27

However, if regional differences matter within the United States as much as their analysis

indicates, then we can expect them to matter between the U.S. and Chinese scrap markets

as well, particularly given the high inland transportation costs involved in shipping ferrous

scrap to and from ports.28 

 Finally, while imports of ferrous scrap into China have been growing quickly for the past

decade, the large increase in global scrap prices is a relatively recent phenomenon. And

although the rate of growth in China’s demand increased over the past few years, it is not

clear how much of the recent increase in global scrap prices is due to this increased demand.

In addition, the fact that the increase in demand for ferrous scrap by U.S. scrap-based mills
A-12

after 1989 coincided with the increase in China’s demand makes it difficult to separately

identify the impacts of increased China’s demand and increases in demand by U.S. scrapbased mills using available data. 
BIBLIOGRAPHY

B-3

Bibliography

“1994-95 The World’s Pulp, Paper, and Board Industry: Production and Trade.” Pulp & Paper 

International 38, no. 7 (1996): 24-25.

Adams, Darius M. and Richard W. Haynes, “The 1993 Timber Assessment Market Model: Structure,

Projections, and Policy Simulations.” United States Department of Agriculture, Forest Service,

Pacific Northwest Research Station, General technical Report PNW-GTR-368, November 1996.

“Alcan Forecasts Growth of Auto Business,” Automotive News, June 27, 2005.

“Alumina Prices: What Should We Expect?” CRU Strategies, Presentation at Annual Aluminum 

Association Meeting, Naples, FL, October 3, 2005. 

“Aluminum Production– a Chinese Puzzle,” Aluminum International Today, July/August 2005.

“Aluminum Bottles Rival Popularity of Plastic,” The Nikkon Weekly, July 30, 2001, 

http://www.aluminum.org/Template.cfm?Section=Home&template=/ContentManagement/

ContentDisplay.cfm&ContentID=1536.

Aluminum Applications and Society– Construction,” International Aluminum Institute, 

http://www.world-aluminum.org/iai/publications/lifecycle_construction.html.

Aluminum in China, Industry Profile, DataMonitor, reference code 0099-2004, July 2005.

American Enterprise Institute for Public Policy Research. A World with Less Oil: The Consequences. 

November 2005.

Andersen, Jon P., editor, Terms of the Trade, 4th ed., Random Lengths, Eugene, 2000.

———. CNOOC’s Bid for UNOCAL: What are the Lessons for U.S. Policymakers? (2005).

Anselmo, Joseph C., Anthony L. Velocci Jr., Robert Wall, and Michael Mecham, “Supply and Demand,” 

Aviation Week & Space Technology, December 12, 2005.

“APP China Signs Up Aker Kvaerner for Upgrade at Hainan Mill.” Paperloop.com, March 14, 2006. 

http://www.paperloop.com/db_area/archive/pponews/2006/wk03_13_2006/28.html.

“APP China Starts to Sell Hainan Plant’s Output.” April 22, 2005. Paperloop.com, October 4, 2005. 

http://www.paperloop.com/db_area/archive/pponews/2005/wk04_18_2005/114_key.html.

APP Looks to Build Another New Mill. 17 March 2006. Paperloop.com, March 20, 2006. 

http://www.paperloop.com/db_area/archive/pponews/2006/wk03_13_2006/103_key.html.

“APRIL Plans Massive Pulp Expansion in China.” January 6, 2006. Paperloop.com, January 23, 2006. 

http://www.paperloop.com/db_area/archive/pponews/2006/wk01_02_2006/78_key.html.

Balke, Nathan S., Stephen P. A. Brown and Mine K. Yucel, “Crude Oil and Gasoline Prices: An 

Asymmetric Relationship?” Federal Reserve Bank of Dallas Economic Review (1998): 2-11.
B-4

“Beetle Salvage Expected to Tighten J-Grade Supplies.” Random Lengths International 34, no. 19 

(2001).

Blagov, Sergei. “Russia Walks Thin Line between Japan and China.” Asia Times. February 15, 2006.

Boardman, Paul. “China’s Government Policy: Support and Subsidies.” Forest Products Society, 

Vancouver, BC. January 19, 2006.

“Bohai Bay Bonanza.” Petroleum Economist 71, no. 12 (2004).

Borenstein, Severin, A. Colin Cameron and Richard Gilbert, “Do Gasoline Prices Respond 

Asymmetrically to Crude Oil Price Changes?” The Quarterly Journal of Economics (1997): 

305-339. 

Borenstein, Severin and Andrea Shepard, “Sticky prices, inventories, and market power in wholesale 

gasoline markets.” RAND Journal of Economics 33, no. 1 (2002): 116-139.

Boyd, Roy G, Chulho Jung and Barry J. Seldon, “The Market Structure of the U.S. Aluminum Industry.” 

Journal of Economics and Business 47, (1995): 293-301.

Braden, Rose. “Opportunities and Constraints for Wood Building Materials.” Forest Products Society, 

Vancouver, BC. January 19, 2006.

British Petroleum, BP Statistical Review, 2005.

Brooks, David, “Chinese Group, Global Alumina Ink Offtake Pact,” American Metal Market,

May 18, 2005.

———. “Minmetals Asks Sherwin to Hike Alumina Output,” American Metal Market,

April 28, 2004. 

———. “Sherwin Gearing Up for China Alumina Shipments,” American Metal Market,

February 17, 2004. 

Bustelo, Pablo. China and the Geopolitics of Oil in the Asian Pacific Region. Real Instituto Elano de

Estudios Internacionales y Estralegicos. Working Paper 38:2005, May 9, 2005.

“Cahya Mata and Partners May Double Capacity at Proposed Al Smelter,” Metal Bulletin, 

February 6, 2006.

Canby, Kerstin S. “Meeting China’s Fiber Demand: Is China’s Supply Legal or Illegal?” Forest Products 

Society, Vancouver, BC. January 19, 2006.

Central Intelligence Agency. “China.” World Factbook. updated November 1, 2005. 

http://www.odic.gov/cia/publications/factbook/geos/ch.html.

“Chalco Signs MOU for Joint Development of Vietnam Alumina Project,” Platts Metals News,

December 15, 2005. 

“Chalco Signs MoU for Vietnam Bauxite and Alumina Project, Metal Bulletin, January 4, 2006.
B-5

Chan, Allen T. “How Much Risk? Investment Strategies for China.” Forest Products Society, Vancouver,

BC. January 19, 2006.

Chen, Jack, “China Aluminum Group Calls for Policy Changes,” Metal Bulletin, March 3, 2005.

“China Aims to Invest $48 Billion in Paper Sector by 2015.” March 11, 2002. Paperloop.com,

http://www.paperloop.com/db_area/archive/pponews/2002/wk03_11_2002/19_key.html.

“China Gives Backing to CVRD Alumina JV,” Metal Bulletin, January 18, 2006.

“China Makes a Huge Bid for Oil.” The Washington Times. August 23, 2005.

“China on Track to Buy More Than 7 Million Tonnes of U.S. Recovered Paper This Year.” December 9, 

2005. Paperloop.com, http://www.paperloop.com/db_area/archive/pponews/

2005/wk12_05_2005/122_key.html.

“China Said Eyeing Jamaican Alumina Refinery,” American Metal Market, February 8, 2005.

China Set to Cut Export Tax Rebates, U.S. Thrust for Stronger Yuan Cite, American Metal Market,

October 16, 2003. 

“China to Invest $99B to Upgrade Electrical Grid,” American Metal Market, January 25, 2006.

“China Wood Markets Conference.” Wood Markets Monthly 10, no. 9 (2005): 4-5.

China Wood Monthly Market Report. October 2004. China Ministry of Forestry.

“China’s Alumina Demand to Fall in 2006 on Tighter Ingot Control,” Platts Metals Week, 

December 5, 2005. 

“China’s Appetite for Timber Grows.” The Forestry Source 9, no. 11 (2004).

China’s CNPC, India’s ONG Could Sign Deal This Week for Syria Assets - Report. December 13, 2005.

http://www.forbes.com/business/feeds/afx/2005/12/13/afx2389870.html. 

“China’s Demand for Waste Paper Threatens North American Producers.” February 6, 2006.

Paperloop.com. http://www.paperloop.com/db_news/archive/pponews/

2006/wk02_06_2006/14_key.html.

“China’s Furniture Industry Faces Lower Profits.” Tropical Timber Market Report 11, no. 2 (2006).

“China’s Transformation Through the Lense of Commercial Trade.” J. P. Morgan. September 15, 2005. 

http://www.jpmorganchase.com.

“Chinese Aluminum Companies Form Alliance to Negotiate Prices,” People’s Daily Online, 

November 23, 2005.

“Chinese Wells.” Petroleum Economist. 71, no. 12 (2004). 

Clapp, David. “Recovered Paper: China Casts a Wide Supply Net.” September 29, 2005. Paperloop.com, 

http://www.paperloop.com/newsinfo/risi/092905risi_key_html.
B-6

“CMS and Chinese Sign MoU,” Aluminum International Today, May 25, 2005, 

http://www.aluminumtoday.com/shownews.asp?/.

Carroll, Cynthia, president, Alcan Primary Metal Group, “China’s Impact on the Global Aluminum 

Industry– a Strategic Perspective,” remarks to the Aluminum Association Annual Meeting,

Farmington, PA, October 1, 2002.

Crompton, Paul and Yanrui Wu, “Energy Consumption in China: Past Trends and Future Directions.” 

Energy Economics 27, no. 1 (2005): 195-208.

DataMonitor, “Aluminum in China: Industry Profile.” Datamonitor, Reference Code 0099-2004,

July 2005.

“Developments in China Paper Industry Set to Disrupt World Markets.” October 26, 2004. 

Paperloop.com, http://www.paperloop.com/db_area/archive/pponews/2004/

wk10_25_2004/40_key.html.

Duffy-Deno, Kevin T., “Retail price asymmetries in local gasoline markets.” Energy Economics, 18,

(1996): 81-92. 

“European Softwood Producers Poised to Expand.” Random Lengths International 34, no. 9 (2001): 1-2.

Evans, Richard B., Executive Vice President and Chief Operating Officer, Alcan Inc., “China Impact and

Outlook,” American Metal Market Conference, Vancouver, BC, October 2005. 

———. Executive Vice President and Chief Operating Officer, Alcan Inc., “Primary Aluminum, the 

China Syndrome,” RBC Capital Markets, Diversified Industries/Special Situations Conference,

China, Riding the Dragon, March 4, 2004.

“Export Market Offering U.S. Mills Few Opportunities.” Random Lengths Exports 33, no.15 (2000).

“Export Sales Growth Expected in Many Key Markets.” Random Lengths Exports 34 (2001).

“Exporters Continue to Lose Market Share.” Random Lengths Yardstick 11 (2001): 1-2.

Fairhead, Lindsay, and Helal Ahammad, China’s Future Growth, Implications for Selected Australian

Industries, ABARE eReport 05.13, prepared for the Australian Government Department of 

Industry, Tourism, and Resources, December 2005.

Fenton, Michael D., Iron and Steel Recycling in the United States in 1998. U.S. Geological Survey

Circular 1196-G.

Flynn, Robert G. “What Low-Cost Labor Advantage?” Forest Products Society, Vancouver, BC. 

January 19, 2006.

Forster, Christine, “Aluminum Demand to Remain Strong; Global Supply Tight: BHP,” Platts Metals

Week, November 28, 2005, 14. 

Foss, Michelle Michot, “Global Natural Gas Issues and Challenges: A Commentary.” The Energy Journal

26, no. 2 (2005): 111-128.
B-7

Foster, Kevin, “Self Sufficiency Still a Ways Off for China Aluminum Scrap,” American Metal Market, 

November 10, 2005.

“From Acceleration to Brake.” The Economist. October 6, 2005.

Gan, Jianbang., “Effects of China’s WTO Accession on Global Forest Product Trade.” Journal of Forest 

Policy and Economics 6 (2004): 509-519.

Gan, Jianband, “Substitutability between U.S. Domestic and Imported Forest Products: The Armington 

Approach,” Forest Science, forthcoming (2006).

Gately, Dermot and Hilliard G. Huntington, “The Asymmetric Effects of Changes in Price and Income on

Energy and Oil Demand.” The Energy Journal 23, no. 1 (2002): 19-55.

“Global Lumber Benchmarking 2004.” Wood Markets Monthly 10, no. 10 (2005): 4-5.

“Global Lumber Outlook 2006.” Wood Markets Monthly 10, no.10 (2005): 4-5.

“Global Slowdown, Competition Hinder Export Sales.” Random Lengths International 34.25, 

December 12, 2001.

Global Trade Atlas.

Goodman, Peter S. “Oil Exports Leave China Grappling for Fuel at Home.” The Washington Post. 

September 28, 2005.

Goodnow, Robert. “Looming Declines in Demand Bring Uncertainty to U.S. Hardwood Sawlog Prices.” 

November 17, 2005. Paperloop.com, http://www.paperloop.com/newsinfo/

risi/111705risi_key.html.

Grasso, Margherita and Matteo Manera, “Asymmetric Error Correction Models for the Oil-Gasoline Price

Relationship.” Working Paper: Fonazione Eni Enrico Mattei, May 2005.

Griffin, James M., and Craig T. Schulman, “Price Asymmetry In Energy Demand Models: A Proxy for 

Energy-Saving Technical Change?” The Energy Journal 26, no. 2 (2005): 1-21.

Gruver, Gene and Frank Giarratani, “Modeling Geographic Ferrous Scrap Markets: Regional Prices and 

Interregional Transactions in the United States.” Journal of Regional Science 45, no. 2 (2005): 

313-341.

Guth, Joanne and Melissa Ginsberg. “Energy Use in China: Trends in Oil Demand and Imports.” 

International Economic Review. USITC publication 3742. November/December 2004.

“Guinea Ratifies Global Alumina Project,” Platts Metals Week, May 23, 2005.

“Housing Starts by Structure.” Japan Lumber Journal 45, no. 16 (2004): 6-6.

“Housing Starts.” Japan Lumber Journal 43, no.15 (2002): 3-3.
B-8

Industrial Inputs, Raw Materials Lead U.S. Export Growth to China. 2005. Westbound Transpacific 

Stabilization Agreement. December 14, 2005. http://www.wtsacarriers.org/print/p_markets.html.

“Inefficient Use of Resources Stunts Growth in Russia’s Timber Industry.” Random Lengths 

International 38, no. 22 (2005): 2-2.

International Energy Agency. China’s Worldwide Quest for Energy Security. (2000).

International Iron and Steel Institute, Annual Statistical Report. Various issues.

International Monetary Fund, http://www.imf.org/exterma;/pubs/ft/weo/2006/01/pdf/statappx.pdf,

accessed May 4, 2006. 

International Monetary Fund, http://www.imf.org/external/pubs/ft/weo/2006/01/data/index.html.

———. Oil Market Report. November 10, 2005. http://omrpubllic.iea.org/currentissues/full.pdf. 

Jiang, Zehui. “Current Situation and Future Perspective of Forest Products Development in China.” 

Forest Products Society, Vancouver, BC. January 18, 2006.

Jianlia, Y., “Current Situation and Development of China’s Autos Industry and Its Demand for 

Aluminum,” 2003 China Aluminum Forum, Beijing, Antaike Information Development Co. Ltd.,

(2003): 148-161; cited in Warren H. Hunt Jr., “The China Factor, Aluminum Industry Impact,”

Journal of Metals (JOM), September 2004.

Jiazhu, Pan, Vice Chairman, China Nonferrous Metals Industry Association (CNMIA), cited in 

“Aluminum Demand Soars,” The Standard, Hong Kong, http://www.thestandard.com.hk/,

December 9, 2005.

Kallio, A. Maarit I., Alexander Moiseyev and Birger Solberg, “The Global Forest Sector Model EFIGTM - The Model Structure.” European Forest Institute, Internal Report No. 15, 2004.

Kassakovich, Natalia, “Future is Bright as Aluminum Demand is Set to Soar,” American Metal Market, 

September 26, 2005, 28-29.

Kenny, Jim. “The World Looks Just a Little Bit Brigher in 2006.” Tappi and Pima Solutions 89 (2006): 

25-29.

Kinch, Diana, “Chinese Committed to Brazil Refinery Project,” American Metal Market,

 January 23, 2006. 

———. “Expansion of Alunorte Plant is Near, Brazilian Miner Says,” American Metal Market,

 January 20, 2005. 

———. “Producers Hot, Analysts Not On Brazilian Alumina Project, CVRD-Chalco Accord Targets 

Eventual Output of 7.2M Tonnes a Year,” American Metal Market, May 25, 2004.

Krichene, Noureddine, “A Simultaneous Equations Model for World Crude Oil and Natural Gas 

Markets.” International Monetary Fund Working Paper, February 2005.
B-9

Larkin, J. Stephen, president, The Aluminum Association, to the Aluminum Extruders Council, Chicago, 

IL, September 22, 2004.

Leung, Winston, and Marc Czachorski, “The Global Competitiveness– a Perspective View of a Chinese 

Extruder,” Kam Kiu Aluminum Group, October 2004.

Lindquist, Kjersti-Gro, “The Existence of Factor Substitution in the Primary Aluminum Industry: A 

Multivariate Error-Correction Approach Using Norwegian Panel Data.” Empirical Economics 20

(1995): 361-383.

Lis, Beth. “What is Projected for China’s Printing and Writing Paper Trade?” January 19, 2006. 

Paperloop.com, http://www.paperloop.com/newsinfo/risi/011906risi_key.html.

Logan, Jeffrey. International Energy Agency. Testimony at EIA’s Annual Energy Outlook for 2005. 

Committee on Energy and Resources. U.S. Senate. July 26, 2005.

“Made for Each Other.” Petroleum Economist 71, no. 12 (2004).

“Malaysia Smelter Plans Gather Pace,” Aluminum International Today, news article ID No. 5302, 

July 23, 2003, http://www.aluminumtoday.com/shownews.asp?/.

“Market Pulp Expected to See Pressure on New Capacity.” Pulp & Paper 79 (2005).

“Market Pulp Has Strong Early 2003, But Slow Summer Hampers Producers.” Pulp & Paper 77 (2003).

“Market Pulp Sees Improved Demand, Rising Production vs. Last Year.” Pulp & Paper 76 (2002).

Marley, Michael. “Chinese Official at ISRI Meeting: Send Your Scrap, Keep the Trash.” April 19, 2005. 

American Metal Market. http://www.amm.com/News-2005-04-19_19-16-04.html.

Matussek, Heide, Rita Anna Pappens, and JiM Kenny. “Unlucky 13th Year for World Production 

Growth?.” Pulp & Paper International 38, no. 7 (1996): 22-23.

McCreary, Iain and Verne Loose. U.S. Department of Energy, Office of Energy Intelligence. Los Alamos 

National Laboratory. China’s Energy Resources and Supply.

http://www.lanl.gov/orgs/d/d4/energy/docs/china-energy.pdf. 

McCulloch, Russ, “China Set to Abolish Export Tax Rebates January 1,” American Metal Market, 

December 28, 2005.

Minerals Management Service, “Hurricane Katrina/Hurricane Rita Evacuation and Production Shut-in 

Statistics Report as of Thursday, December 29, 2005;” http://www.mms.gov.

Minerals Management Service, “Hurricane Katrina/Hurricane Rita Evacuation and Production Shut-in

Statistics Report as of February 8, 2006.” http://www.mms.gov.

Nappi, Carmine, Director for Industry Analysis, Alcan Inc., “China’s Aluminum Industry, An Update,”

72nd Annual Meeting of the Aluminum Association, Naples, FL, October 3-4, 2005.
B-10

National Development and Reform Commission, People’s Republic of China. Steel Industry Development

Policy. Accessed at www.CRUMonitor.com.

Nilsson, Sten. “Log Imports: A Long Term Solution to Meeting China’s Fiber Needs.” Forest Products 

Society, Vancouver, BC. 19 January 2006.

“Nine Dragons to Launch IPO in Hong Kong.” February 13, 2006. Paperloop.com. 

“North American Hardwood Exports.” Hardwood Review Global 16 (2006): 1-8.

“North American Lumber Exports to China Lagging Year-Ago Pace.” Random Lengths International 

38, no. 21 (2005): 1-2.

“Observations on Trade with China.” Hardwood Review Express 5, no. 19 (2005): 1-3.

“OCC Prices Slip in China and Southeast Asia.” November 24, 2005. Paperloop.com, 

http://www.paperloop.com/db_area/archrive/pponews/2005/wk11_21_2005/72.key.html.

“Opportunity NOCs.” Petroleum Economist 71, no. 12 (2004).

Organization for Economic Cooperation and Development (OECD). Economic Surveys-China. 2005.

“Our View of China.” Hardwood Review Express 5, no. 3 (2005): 1-3.

“Oversupply of OCC Keys Decline in U.S. Export Prices to China; ONP No. 8 Increases in West.” 

November 7, 2005. Paperloop.com. 

“Pahang Seeks Approval for Aluminum Project,” Aluminum International Today, news article ID No. 

9655, May 25, 2005, http://www.aluminumtoday.com/shownews.asp?/, accessed

January 6, 2006.

PennWell Corp. International Petroleum Encyclopedia. 2002.

Perez, The Honorable Vincent. Yale World Fellow and former Secretary of the Department of Energy. 

Republic of the Philippines. Who Wins and Who Loses in the Scramble for Energy in Asia?

speech at Chemonics International. November 18, 2005.

Pinkham, Myra, “Demand for Aircraft Aluminum Reaches New Levels, Aluminum International Today, 

September/October, 2005.

Plunkert, Patricia A., “Bauxite and Alumina” Mineral Commodity Summaries, U.S. Geological Survey 

(USGS), various years; Patricia A. Plunkert, “Aluminum,” Mineral Commodity Summaries,

USGS, various years; Patricia A. Plunkert, “Bauxite and Alumina” Minerals Yearbook, USGS,

various years; Patricia A. Plunkert, “Aluminum,” Minerals Yearbook, USGS, various years.

“Poland Making Strides in Wood Products Industry.” Random Lengths International 34, no. 22 (2001): 

1-2.

Potter, Pitman B. “China’s Needs and Goals: Political and Economic Issues.” Forest Products Society, 

Vancouver, BC. 18 Jan. 2006.
B-11

Price, Lynn, et. al., “Industrial Energy Efficiency Policy in China” Lawrence Berkeley National 

Laboratory, paper presented at the 2001 ACEEE Summer Study on Energy Efficiency in

Industry, http://china.lbl.gov/publications/aceee_paper_10.pdf. 

Pulp & Paper International Annual Review. July 2005. Paperloop.com,

http://custom.paperloop.com/annualreview/index.jsp.

“Pulp Prices Expected to Climb Further Amid Rising Economy.” Pulp & Paper 78, no. 8 (2004): 13.

Rach, Nina. “China Pushes Domestic Upstream Development.” Oil and Gas Journal 103 no. 26 (2005). 

Radetzki, Marian and Carl Van Duyne, “The demand for scrap and primary metal ores after a decline in 

secular growth.” Canadian Journal of Economics 18, no. 2, (1985): 435-449.

“Recent Developments Reviewed in European Rolling Sector,” Aluminum Today, October/November 

1996.

“Report from China.” Tropical Timber Market Report 10, no.18 (2005): 12.

Roberts, Don G. “Global Investment Trends in the Forest Products Sector.” Forest Products Society, 

Vancouver, BC. January 19, 2006.

Rooks, Alan. “China Charges Ahead in Printing and Writing Papers.” Tappi and Pima Solutions 89 

(2006): 53-54.

———. “Dancing With the Dragon.” Tappi and Pima Solutions 88 (2005): 8.

———. “Jiangxi Chenming Drives Chinese LWC Market.” Tappi and Pima Solutions 88 (2005): 27-29.

———. “Will China’s Monster Mills Wake Up the West?.” Tappi and Pima Solutions 88 (2005): 4.

Ruest, Jean-Jacques. “Opportunity to Capture ‘China Boom’ New Logistics Opportunities.” Forest 

Products Society, Vancouver, BC. January 19, 2006.

“Second Half Looks Challenging for North American Exporters.” Random Lengths Exports 33, no. 17 

(2000): 1-2.

Shin, D., “Do Product Prices Respond Symmetrically to Changes in Crude Oil Prices?” OPEC Review

18 (1994): 137-157.

“Steady Growth to Continue in Europe; Australia Running Hot.” Random Lengths Export 33, no. 2 

(2000): 1-2.

Steel Transaction Price Report. Purchasing Magazine on-line service.

“Stora Enso Looks to Build Massive New Forest Products Complex in China.” November 10, 

2005.Paperloop.com, http://www.paperloop.com/db_area/archive/pponews/

2005/wk11_07_2005/57.html>.
B-12

Stutovich, Christina A., “Counter Intelligence: Engine Parts,” Aftermarket Business, August 25, 2003. 

Taylor, Russell E. “China’s Wood Products Industry: Competitiveness Rating in Export Markets.” 

International Wood Markets Group, Dongguan, China. October 31, 2005.

Teo, Vivian, “China Bans More Projects in Wider Crackdown on Metals,” American Metal Market, 

December 21, 2005. 

———. “China Readies New Aluminum, Copper Rules,” American Metal Market, 

December 9, 2005.

———. “Doubts Surface Over Plan to Cut China Aluminum Output,” American Metal Market,

December 2, 2005.

———. “Doubts Remain Over China Aluminum Output Cutbacks,” American Metal Market, 

January 11, 2006.

———. “NDRC, Up to a Quarter of China’s Aluminum Smelting Capacity Idle,” American Metal 

Market, January 27, 2006.

———. “More aluminum capacity could mean less alumina for sale,” American Metal Market, March 6, 

2006.

———. “Doubts Surface Over Plan to Cut China Aluminum Output,” American Metal Market, 

December 2, 2005.

———. “China Planning to Trim Alumina Import Tax,” American Metal Market,

 December 14, 2005.

———. “China Eliminates Tax Benefits for Tolling,” American Metal Market, August 12, 2005.

Tomberlin, David, Zhu, Shushuai, and Buongiorno, Joseph, “The Global Forest Products Model (GFPM):

Users Manual and Guide to Installation,” Global Forest Products Outlook Study Working Paper 

Series, Working Paper No: GFPOS/WP/02, December 1998.

Turner, James, Joseph Buongiorno, Shushuai Zhu and Jeffrey Prestemon, “Global Context for the United 

States Forest Sector in 2030.” mimeo 2005.

———. “The U.S. Forest Sector in 2030: Markets and Competitors” Forest Products Journal 55, 

No. 5 (2005).

Tse, Pui-Kwan, “The Mineral Industry of China,” Minerals Yearbook, USGS, various years.

United Nations, Food and Agriculture Organization. January 2006. 

http://faostat.fao.org/faostat/collections?version=ext&hasbulk=0&subset=forestry.

U.S. Aircraft Production–Civil, Aerospace, Fact & Figures 2005-2006, Aerospace Research Center,

Aerospace Industries Association of America, Inc. 
B-13

U.S. Department of Energy. Energy Policy Act 2005 - Section 1837: National Security Review of 

International Energy Requirements. February 2006. 

———. Energy Information Administration, Country Analysis Brief: China Environmental Issues. July 

2003.

———. Country Analysis Brief: South China Sea Region. September 2003.

———. Country Analysis Brief: China. August 2005.

———. International Energy Outlook, 2005.

———. Office of Fossil Energy. An Energy Overview of the People’s Republic of China.

http://www.fe.doe.gov/international/EastAsia_and_Oceania/chinover.html.

U.S. Department of State, “Jamaica Strengthens Economic Ties with China,” message reference No.

01757, U.S. Embassy, Kingston, July 18, 2005.

———. Bureau of East Asian and Pacific Affairs. Background Note: China. March 2005. 

http://www.state.gov/r/pa/ei/bgn/18902.htm. 

U.S. Federal Maritime Commission. 43rd Annual Report for Fiscal Year 2004. March 2005.

U.S. International Trade Commission. Conditions of Competition in U.S. Forest Products Trade. 

Publication 3246, October 1999.

———. Industry & Trade Summary: Wood Pulp and Waste Paper, Publication 3490.

February 2002.

Van Leeuwen, Gerry. “What is Russia’s Fit with China?” International Wood Markets Group,

Dongguan, China. 31 October 2005.

Watkins, Clinton and Michael McAleer, “Econometric Modeling of Non-ferrous Metal Prices.” Journal

 of Economic Surveys, 18, no. 5, (2004): 651-701.

Watkins, Eric. “Russia, China Sign Energy Agreements.” Oil and Gas Journal 103 no. 26: (2005). 

Wong, Kit Ling, “Asian Juggernaut Looks to Gently Cool Down Growth Engine,” American Metal

Market, January 12, 2004.

World Steel Dynamics, Steel Strategist #31, The Age of Discontinuity The Portal to the New Continuum,

 2005.

———. “China Imposes New Guidelines on Investments,” American Metal Market,

 August 27, 2004.

———. “A Slow Boat to China,” Metal Bulletin, December 5, 2003.

Yergin, Daniel. “Ensuring Energy Security,” Foreign Affairs 85, no. 2: (2006).
B-14

Yu, Xiao and Helen Yuan, “Alliance is Forged to Cut Alumina Prices, International Herald Tribune, 

November 23, 2005. 

Zhang, Tony. “China’s Plantation Program: Will It Be Able to Supply the Growing Needs of Both Wood 

Products and Pulp and Paper Producers?” Forest Products Society, Vancouver BC. 

January 19, 2006.

Zhu, Shushuai, Joseph Buongiorno and David J. Brooks, “Global Effects of Accelerated Tariff 

Liberalization in the Forest Products Sector to 2010.” United States Department of Agriculture, 

Forest Service, Pacific Northwest Research Station, Research Paper PNW-RP-534, March 2002.

Zweig, David and Bi Jianhai. “China’s Global Hunt for Energy.” Foreign Affairs 84, no. 5: (2005).