After strengthening in early 2013 due to an improved economic outlook, most industrial commodity prices have now retreated below their end-2012 levels (figure 1). Food prices have been weakening as well, mainly a reflection of improved supply conditions. The price of crude oil averaged less than $100/bbl during 2013Q2, down from $105/bbl during 2013 Q1. The metal price index is down 32 percent since its February 2013 peak. Precious metals are down as well, 23 percent since February and 30 percent since the all-time high reached in August 2011.
COMMODITY PRICE INDEXES FOOD PRICE INDEXES
In our baseline scenario of this outlook, which assumes no major macroeconomic shocks or supply disruptions, oil prices are expected to average $101/bbl in 2013, down from $105/bbl in 2012. Agricultural prices are projected to decline 6 percent in 2013 under the assumption of a normal crop, while the prices of food, beverages, and raw materials are expected to drop by 4.7, 11.7, and 7.1 percent, respectively. Metal prices will fall more than 8 percent due to abundant supplies and weakening demand conditions. Fertilizer prices are expected to decline 10 percent, mainly reflecting low natural gas prices in the United States. Precious metals prices are expected to drop almost 20 percent as institutional investors increasingly consider them less attractive “safe haven” alternatives, which come on top of weak physical demand.
Nonetheless, there are numerous risks to these forecasts. Downside risks include weak oil demand if growth prospects deteriorate sharply, especially in emerging economies where most of the demand growth is taking place. The prospects for the metal market depend importantly on Chinese demand, as the country accounts for almost 45 percent of global metal consumption. However, if robust supply trends continue and weaker-than-anticipated demand growth materializes, metal prices could follow a path considerably lower than the baseline presented in this outlook, with significant consequences for metal exporters. In agricultural commodity markets (especially food), the key risk is weather. According the global crop outlook assessment released by the U.S. Department of Agriculture in July 2013, global grain market will be better supplied in the upcoming 2013/14, season. However, as the experience of the summer of 2012 showed, it can only take a head wave or a drought to boost prices by as much as 50 percent.
For full version of the Commodity Market Outlook, please click here.