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Raw material commodity prices retreat as the global economy slows

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Photo of a cotton field that's ready for harvest.
Photo: Kent Wheatley/Shutterstock

This blog is the fourth in a series of 11 blogs on commodity market developments, elaborating on themes discussed in the October 2022 edition of the World Bank’s Commodity Markets Outlook.

The World Bank’s Agriculture Raw Material Price Index has declined over the last six months and is currently more than 15% below start-of-the-year levels.  The index, which is projected to average 4% lower in 2022 compared to 2021, is expected to gain marginally in 2023 as demand recovers. A key risk to the outlook is a sharper-than-expected global growth slowdown.

Cotton prices declined amid strong supply and weak demand. Cotton prices plunged more than 20% in the third quarter of 2022 (q/q) and continued to slide in the fourth quarter.  Global consumption declined about 3% in 2022/23 (y/y) to levels well below the five-year average and is the key reason for the price weakness. Global cotton production is expected to drop marginally this season in response to weather events in India and Pakistan (notably floods) and from lower plantings in the U.S. (in favor of food crops). Cotton prices, which are projected to increase 32% this year, are expected to decline marginally next year. Similar to other raw materials, price risks are tilted to the downside, reflecting headwinds from slowing global growth.

Natural rubber prices, which declined 12% in the 2022Q3 (q/q), reached $US1.29/kg in November, a two-year low. Sluggish demand and robust production have been the key causes of the price weakness. Favorable weather in key producing countries, especially Thailand and Côte d’Ivoire, lifted global production by more than 2% in the first three quarters of 2022 (compared to the same period in 2021). These countries account for more than 40% of global natural rubber supplies. Natural rubber prices are expected to increase modestly in 2023, following a projected decline of 13% this year. Risks to the price outlook are tilted to the downside and depend on whether tire demand recovers, especially in China. The country accounts for one-third of global tire manufacturing, and its sales were down 7% in the first half of 2022.


John Baffes

Senior Agriculture Economist, Development Economics Prospects Group

Kaltrina Temaj

Research Analyst, Prospects Group, World Bank

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