Hot Commodities
By IBISWorld analysts Josh McBee and Brian Bueno
In October, the New America Foundation released a white paper that estimates the developed world (i.e. countries with viable economies, stable governments and sustainable industries) used to have about 500 million workers. These days, the authors estimate that number to b emore like 2 billion. This explosion of labor across the globe has increased demand for resources like energy, metals and agricultural products. In many cases, fast-growing countries like India, Brazil, South Africa and Thailand lack the natural resources or suitable infrastructure to meet the needs of their populations. As such, these countries have turned to imports to offset their inherent scarcities, and American exports to these countries have been growing at phenomenal rates recently.
To better understand which US industries are benefitting from the export boom, IBISWorld has identified some of the fastest-growing US export commodities and their destinations. The criteria for selecting a commodity were based on the highest five-year average growth rates for commodity exports to destinations identified as“newly industrialized countries” (NICs), based on GDP growth and per capita GDP (as observed by the World Bank as of 2010). Export data analyzed to determine the growth rates for each commodity is sourced from the United States International TradeCommission (USITC).
Analysis reveals that America’s top three fastest-growing export commodities include the primary smelting of nonferrous metals (IBISWorld report 33141), petroleum refinery products (32411) and coal and petroleum gases (21211). Among the countries receiving commodities from the United States, India, South Africa and Thailand, each exhibit triple-digit growth rates for certain commodities, well above other NICs. The following discussion presents an overview of the hottest export commodities and analyzes the reasons why demand has shot through the roof for certain NICs.
Primary smelting
As defined by the North American Industrial Classification System (NAICS), the primary smelting and refining of nonferrous metals (except copper and aluminum) represents a subsector of the overall nonferrous smelting industry. Exports of this commodity consist of precious and semiprecious raw metal ores that have been melted down and formed into bricks and ingots. The exclusion of copper and aluminum leaves zinc, lead, gold, silver and other precious metals in this export group. The demand for zinc is mainly connected to steel manufacturing for construction and industrial purposes, while lead is used in automobile battery manufacturing. Manufacturers that further process metals into usable materials are the direct purchasers of primary smelting exports. For more information, refer to IBISWorld report 33141, Copper, Zinc and Lead Refining.
In the smelting commodity group, South Africa leads the top three destinations for US exporters. With a five-year growth rate of 260.2%, US exports of primary smelting to South Africa are expected to total about $1.1 billion in 2011. The groundwork for such growth in demand began in 2007. According to a USITC trade report, key developments at that time included: increased demand that drove prices higher, investments designed to expand production capacity, government policies that promoted development and overall improvements in the country’s infrastructure. With regard to government policies, there has been increased regional integration in Sub-Saharan Africa. Combined with the country’s bustling port city of Cape Town, these policies and investments have increased South Africa’s role as a major supplier of goods to neighboring countries and the continent in general.
Smelting exports to India exhibit the second-fastest growth rate, surging 163.1% to total an expected $823.0 million during the five years to 2011. Recently, the US smelting industry received a bump in demand when adverse weather closed off India’s closest smelting supplier, Australia. In the last quarter of 2010, floods in Queensland brought Australian exports to a screeching halt. Subsequently, India turned to US smelters to fill the void. Jewelry demand is also driving the growth of primary smelting exports to India. According to a November 2010 article in the Financial Times, jewelry has long been central to the Indian way of life. As disposable incomes in that country rise, consumers are buying more jewelry, much of it made with imported base metals. Of note, exports of jewelers’ material and gemstone work have increased 35.3% during the period to total an expected $1.1 billion by year-end.Thailand rounds out the top three fastest-growing countries with regard to smelting. With 127.7% five-year annualized growth, US smelting exports are expected to total about $806.3 million at the end of 2011.
Thailand is the fastest-growing economy in Southeast Asia, with GDP growth of 8.0% in 2010. The country serves as a supply hub to the neighboring economies of Laos, Cambodia and Myanmar, which lack the governmental and economic stability of Thailand. Thailand’s internal growth and regional demand have created conditions ripe for manufacturing, and the auto industry in that country has taken note. Ford and Toyota have manufacturing plants there, thus creating an environment conducive to metal fabrication, assembly and further processing.
The export of US waste and scrap metal is similar to primary smelting in that metal processors will import such commodities for the manufacture of raw materials. Waste and scrap exports have also been growing at significant rates, averaging five-year growth rates of 37.9% to Turkey, 21.5% to India and 21.1% to Thailand.
Petroleum refinery productsPetroleum refinery products (IBISWorld report 32411) form the next fastest-growing group of exported commodities. These products include gasoline, jet fuel and kerosene; light, heavy and lubricating fuel oils and greases; unfinished oils and lubricating oil base stock; asphalt; liquefied refinery gases; and other finished petroleum products. As NICs gain momentum through increased industrial output and growing populations, their demand for energy inevitably increases. As such, petroleum refinery products are required to fuel manufacturing plants and equipment, construction and mining machinery, and other vehicles. For an idea of how crucial these commodities are to NICs, the total US exports of petroleum refinery products hit a record of 2.9 million barrels a day in July 2011 (latest data available), according to an October 12 release from the International Energy Agency (IEA).
Turkey straddles the divide between developed and developing. With a capital in Europe but the vast majority of land in Asia, petroleum exports to Turkey have been growing at an annualized rate of 64.9% to an estimated $819.1 million during the five years to 2011. The presence of Turkey as the leader within this commodity group represents a decade-long push to upgrade the country’s oil and gas infrastructure and enact policies that regulate energy use toward increasing efficiency. Overall, Turkey’s energy use per capita is rising, according to the IEA, and now represents higher use than the average of all 28 IEA-member countries. This indicates that, while demand for petroleum is strong now, it will likely level off as the country develops more sophisticated systems that increase energy efficiency. Despite Turkey’s far-flung location relative to the United States, the US International Trade Administration reports that, overall, exporters in all 50 states and Washington, DC, have sent products to Turkey during the past five years, and 20 states reported sending exports worth more than $100 million in 2010.
Emerging powerhouse Brazil’s growth rate for US petroleum products comes in second. Brazil’s total expenditure on US petroleum is expected to reach about $3.1 billion by the end of 2011. According to the USITC, refinery closures in Brazil have spurred the impetus to import, but the country’s rapidly expanding industrialization is the biggest factor for increasing trade levels. In fact, the USITC estimates that Brazil’s GDP has grown more than 4.0% on average between 2002 and 2010, including a 0.6% decline in 2009 that was promptly followed by an 8.0% gain in 2010.
Once again, South Africa emerges as a bourgeoning export destination, this time rounding out America’s top three fastest-growing destinations for petroleum refinery products. Shipments to that country have grown at an average rate of 28.1% during the five years to 2011, with commodity-specific export revenue expected to total $513.7 million. While only about 13.0% of the country’s energy comes from oil, the nation’s crucial mining industry (coal accounts for about two-thirds of the country’s energy production) requires large amounts of petrol-based products to power machinery, ore refineries and related activities. While the US Energy Information Administration (EIA) reports South Africa may contain potentially vast deposits of shale gas, environmental concerns have put a hold on exploratory activities, thus redirecting attention back to petrol-based solutions. Similar to Turkey, South Africa’s demand for US petroleum products will likely trend downward as technological and political developments make alternative resources more readily available.
Coal and petroleum gases
Coal and petroleum gases (except anthracite) make up another popular commodity sector, with coal being the third fastest-growing commodity export to NICs. This category includes mined metallurgical coal that is sent to producers of coke, a fuel used in steel manufacturing, and steam coal for electricity generation. According to the EIA, the United States is the second largest producer of raw coal after China, accounting for about 13.0% of global production in 2010, or just more than 1.0 billion tons. The US Coal Mining industry (IBISWorld report 21211) is expected to export about $7.4 billion of domestically mined coal in 2011. Metallurgical coal accounts for nearly 60.0% of exports by volume, although it amounts to less than 10.0% of production. This market has grown substantially over the past five years, due in part to NICs demanding coking coal at accelerating rates as construction-related steel demand escalates in line with industrial growth.
Of NICs, India’s demand for coal is growing most rapidly, estimated at an annual rate of 58.0% over the five years to 2011. As previously mentioned, demand for US-sourced steel manufacturing inputs increased strongly during 2011 as Australia, India’s main source for coking coal, was hit by major floods that reduced supplies from the country. In 2011 alone, US coal exports to India are expected to surge 116.2%, reaching $998.0 million. According to the World Steel Association, India’s steel consumption by volume is anticipated to grow 14.0% in 2011, while US consumption grows 8.0%. The importance of India as a major coal export destination is due to its steel manufacturing industry, which is projected to be the fourth largest in the world (after China, Japan and the United States). Up until 2009, Russia held this distinction, with India falling outside the top 10 steel manufacturers.
Turkey and Brazil have also heavily increased their demand for US coal over the past five years. The value of coal exports to Turkey is projected to increase at an annualized rate of 41.6% to $644.5 million in the five years to 2011. Similar to India and other major coal export destinations, coking coal for steel manufacturing has grown most rapidly over the period. Steam coal, however, is also highly demanded in Turkey since roughly 30.0% of energy consumption in the country is derived from coal and the country imports about half of its coal needs. Turkey’s energy consumption has been growing much faster than its production, increasing its reliance on energy imports. Brazil, whose demand for US coal has risen at an annualized rate of 34.9% to $1.9 billion, is currently the eighth largest steel manufacturer in the world. Unlike the United States and other major steel-producing countries, Brazil’s steel output remained relatively unchanged during the recession as demand for the metal remained robust in its rapidly growing economy.
Honorable mentions
The industrial input commodities that have exhibited notable export growth over the past five years are not limited to metals, petroleum and coal. Other fast-growing exports to NICs include: cotton (IBISWorld report 11192), organic chemicals (32519) and plastics (32521) that are largely used as inputs in manufacturing activities. Additionally, fast-growing export markets include more than the countries previously mentioned. Overall, exports to the nine NICs (Brazil, China, India, Malaysia, Mexico, Philippines, South Africa, Thailand and Turkey) have grown at an average annual rate of 10.4% over the five years to 2011, while total US exports have grown at a rate of 7.3%. In fact, exports to these countries grew from 24.5% of total US exports in 2006 to roughly 28.4% in 2011, outstripping growth to other industrialized nations.
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