WORKERS are striking at BHP’s Escondida copper mine in Chile for a simple reason. The labour force has noticed that the price of the metal that they are digging out of the ground has shot up, and they want a slice of the action.
It is hardly an unreasonable argument. Why should shareholders and company executives be the only ones to benefit from the fantastic growth the value of commodities? BHP’s response, thus far at least, has been to take a hard line. The outcome of the tussle, however, may determine the length and strength of the boom in commodity prices that is currently in full swing.
The rising price of commodities has been a pot-boiler topic in world trade over the past 18 months and news this week that nickel and copper prices have continued to surge gives the debate fresh impetus.
There is broad agreement as to why commodity prices are rising. World demand for metals — and other commodities, especially oil — comes about because of Chinese economic development. Admittedly there is some shorthand in that. Other emerging economies in South America, India and Eastern Europe are also developing apace. They are sucking up nickel, a key ingredient in production of the stainless steel used in construction and in cars. Likewise copper. Demand from these economies is behind the rising price of oil, too; they’ll not get far without energy.
There is greater debate about the nature of the price rises, particularly about the sustainability of the pricing levels. In the red corner, as it were, are those who think we are seeing a new paradigm. These people think that commodity prices have left cyclicality in the past. Demand, they say, will remain permanently high while supply will stay steadfastly tight.
The blue corner is populated by those with a more cynical — or perhaps that should be a more realistic — view. All talk of new paradigms is nonsense, they say. Moreover, when anyone says that it will be different this time around, it is a sure sign that the speaker is caught up in the later stages of a booming market teetering on the brink of a bust.
Standing between the two are those taking the “stronger for longer” view. These argue against the notion that commodity price cyclicality has disolved, but accept that the dynamics of the market are different enough to suggest that the amplitude of the cycle will break new ground. We may be, they maintain, in the midst of a super-cycle.
The debate turns, probably, on the supply side of the equation. It can be asserted, with at least some credibility, that demand from China and the other emerging economies is open-ended. But if BHP, and its peers, fail to silence worker demands that may only get louder, the cycle will lengthen. If operating costs spiral, there will be less incentive to dig. And if there is less metal above ground, prices will stay stronger for longer.
Damage done
ANDREW YOUNG acted swiftly to limit the damage done to the reputation of Wal-Mart, the world’s most powerful retailer, by the remarks he made about small shopkeepers of Jewish, Korean and Arab extraction. By quickly distancing itself from the obnoxious statements made by Mr Young to the Los Angeles Sentinel, Wal-Mart helped itself. The speed with which the affair exploded, however, suggests that US consumers are prone to think pretty poorly of the super-retailer.
In the final analysis, it is not what you say that is important, it is what you believe and the way you act upon the beliefs you hold. Wal-Mart may have the best intentions and may well hold those intentions sincerely. Its mistake was to try to convey its sense of decency through the words of lobbyists such as Mr Young rather than through its own concerted and sustained actions.
Tainted by Mr Young’s loose words — no matter if they were repeated in a context that was unfair to the former Atlanta mayor and UN Ambassador — Wal-Mart’s task of convincing Americans that it is a good corporate citizen just got harder.
Public is not fooled by new measure of inflation
AS EVER bigger bills for council tax, gas, electricity, and water thud down on doormats across the country, millions of us find it hard to believe that the cost of living is rising only by the 2.5 per cent a year that already has the Bank of England rattled. The official inflation numbers seem even harder to credit after a trip to the petrol pumps.
Of course, millions of us also forget that prices in the shops for everything from clothes to flat-screen televisions and PCs have been tumbling for years. Just how much better, or worse off, each of us is thanks to inflation depends on exactly what we choose to buy, so no average inflation gauge can ever represent our individual shopping baskets — nor should it.
But the rising mistrust surrounding official inflation measures at a time when so many household costs are soaring is a reminder of the mistake it was for Gordon Brown to switch the Bank of England’s target from the trusty and well-understood retail price index to the new-fangled, euro-friendly CPI.
The switch to the CPI has merely sowed deeper public doubts about the numbers. This matters because credibility is vital to the Bank’s mission. To help to keep inflation in check, people must believe that the Bank will keep rises in living costs in line with its 2 per cent a year target. If some think the true rate of increase is markedly higher, the Bank’s fear that public expectations of future inflation will climb, stoking higher pay demands and a “wage-price spiral”, could be fulfilled. The change in target, to a measure fewer people trust, has increased these risks.
Still, nobody should doubt the Bank’s determination to achieve its goal. Inflationary pay deals will prove to be an illusory benefit if they are quickly punished with higher interest rates, as they will surely be.
Hard to credit
IT IS better to travel hopefully than to arrive, or so it is said. The reverse seems to be true for the UK-listed home credit specialists such as Provident Financial. Shares in the company rose sharply as the Competition Commission finalised its thinking on regulation of its market. Such are the sensitivities surrounding the wisdom of lending money to the least well-off members of society, however, it is doubtful that the rulings mark the end of the controversy that doorstep lenders create, and the uncertainty they struggle with.
