Director Essay

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Aluminum price after 1993 The following graph is the historical price of aluminum quoted at LME. The data is quarterly averaged and downloaded from the IFS database of IMF. As you can see, the price after 1993 is almost above its historical average over 1965Q1~2007Q1, which is 1275 US/MT as the dotted line in the graph. 3200 2800 2400 2000 1600 1200 800 400 1965 ALUMINUM 3200 2800 2400 2000 1600 1200 800 400 1970 1975 1980 1985 1990 1995 2000 2005 This basically reflects two things. First, the demand for aluminum is rebounded. Second, the value of US dollars is declining, particularly in the recent 5 years. 2800 ALUMINUM(L) 2400 USD(R) 130 140 2000 120 1600 110 1200 100 800 90 400 1965 80 1970 1975 1980 1985 1990 1995 2000 2005 As shown in the above graph, the USD weighted index is typically negative correlated to the price of aluminum. The reason is simply that the price of aluminum is quoted by USD. Nevertheless, the aluminum is a normal good, so that its real price should be co-moving with the economic growth. The following graphs of GDP growth rates provide some evidence of this conjecture. The data is from the WDI dataset of World Bank. Clearly, the first peak over 1987~1989 is mainly due to the world expansion and, of course, partly reflecting a weak USD. However, the second peak now (and obviously not ended) is sustained by the strong economic growth of EA&PAC (East Asia and Pacific) countries, particularly of China. 2800 2400 2000 1600 1200 800 400 1965 2800 2400 2000 1600 3 1200 800 400 1970 1975 1980 1985 1990 1995 2000 2005 2 1 0 1965 3 2 1 0 1970 1975 1980 1985 1990 1995 2000 2005 7 6 5 4 7 6 5 4 ALUMINUM 7 6 5 4 3 2 1 0 1965 7 6 5 4 3 2 1 0 1970 1975 1980 1985 1990 1995 2000 2005 14 12 10 8 6 4 2 0 -2 1965 1970 1975 GDP__WORLD 14 12 10 8 6 4 2 0 -2 1980 1985 1990 1995 2000 2005 GDP__OECD

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