The impact of commodity finance on resource availability

Abstract

Most industrial nations are reliant on a secure supply of raw materials but typically do not possess access to primary resources; a situation widely accepted by their respective governments which have instigated a variety of programs to secure availability. In this article, we explore the effect of financing conditions on the availability of base metals. Using fixed effects regression on international trade and banking data we find a consistent negative relationship between the financing costs and imports of base metals after allowing for prices and country risk. These results indicate that resource availability with respect to base metals is increased with a reduction in financing costs to market participants. The amount differs across the base metals where copper sees the highest reduction of 3.3 tons for an increase of short-term financing costs by one basis point. Furthermore, the effect differs across countries with the European Union’s states being highly dependent of imports in these materials. We interpret this at a firm level by considering the funding requirement during the import process and the relative sensitivity of market participants to financing costs.

Keywords:

• resource availability
• international trade
• base metals

JEL Classification:

• E44
• G21
• L14

Notes

¹ Conducting robustness checks on other aggregation measures (median, volatility weighted etc.) does not yield qualitatively different results.