Prospects for Liberian iron ores considering shifting patterns of trade in the world iron ore industry.

Abstract

This dissertation examines the performance of the Liberian iron ore industry from 1950-1985 and its viability in global markets, assuming stagnation (World Bank) and expansionist (Leontief et al.) expectations. It examines past trends in trade and investment patterns in the light of equilibrium allocations which imply the existence of efficient transportation links. This model assumes that given world sources and sinks as constrained by the supply and demand structure of the ore industry, each individual region acts as a basing point to maximize net social payoff from its ore trade. The model is validated on recent (1984) industry data and "explains" 91% of actual demands and 79% of actual trade flows. Price discrimination is evidenced in the form both of monopsony power exercised by some buyers in the Pacific Basin over intra-regional (e.g., Australian) and extra-regional (e.g., Brazilian, Liberian) producers and monopoly power permitting modest rents to be collected by some producers in Africa, including Liberia, from the European markets. In North America, rents appear for some domestic producers in some simulations. These results confirm quantitatively the descriptive results of others while postulating a much more competitive environment for producers. The model assumes world trade doubles through year 2000 or stagnates. Liberia fares poorly in either case, losing significant portions of its U.S. and of its EEC markets to Canada and Brazil respectively despite the maintenance of some resource rents globally. This analysis quantifies for the first time the claims of earlier studies that price discrimination exists, but indicates actual prices may be closer to long-run competitive prices than has generally been assumed by others. Thus, realistic ways for Liberia to increase its market shares require not only an expansion of the industrialized countries' steel industries but an aggressive willingness to absorb transport and other costs by foregoing rents and lowering costs. Removing diseconomies of small transport scale, absorbing freight, and lower U.S. exchange rates combined with world steel expansion could increase Liberian annual shipments by as much as 50 million tonnes per year or $1 billion annually.