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Raw material commodity prices: Stable with some divergence

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A woman harvests cotton in Maharashtra, India.
A woman harvests cotton in Maharashtra, India. Photo: © CRS PHOTO/Shutterstock

This blog is the sixth in a series of nine blogs on commodity market developments, elaborating on themes discussed in the October 2021 edition of the World Bank’s Commodity Markets Outlook.

Agricultural raw material prices diverge. Following last year’s stability and more-recent recovery, cotton prices spiked in 2021Q4 in response to rising demand. Natural rubber prices, however, weakened due to improved supply conditions and subdued demand.  The World Bank’s Agricultural Raw Material Index is expected to stabilize in 2022 following a projected 8 percent increase in 2021. An unexpected uptick in COVID-19 outbreaks poses some risk to the forecast as this would weaken demand. 

Stronger-than-expected consumption outlook supports cotton prices. Cotton prices, which reached a 10-year high in October 2021, responded to the positive outlook for global consumption. Global cotton demand is expected to reach 36 mmt this season (which ends in July 2022), one percent higher than 2020-21 and close to the 30-year average growth of 1.2 percent.  On the supply side, global production is projected to increase by 6.4 percent, led by gains in Brazil (16 percent) and the U.S. (27 percent). Cotton prices are expected to increase by 5 percent in 2022.

Top producers and consumers of cotton

Subdued demand keeps natural rubber prices in check. After reaching nearly $2.40/kg in March 2021, a 7-year high, natural rubber prices declined to $1.74/kg in November 2021.  Weakening global demand due to lower-than-expected vehicle sales—linked to the semiconductor shortage—have kept prices in check (two-thirds of natural rubber is used in tire manufacturing). On the supply side, global output increased by 5.8 percent during January-October 2021 compared to the same period last year. Most key suppliers registered increases, including Thailand (1.2 percent), Indonesia (7.1 percent), Vietnam (12 percent), and India (13.9 percent). Weaker-than-expected demand and recovering supplies is expected to exert further downward pressure on prices (projected to be 10 percent down in 2022). Risks to the price outlook hinge on supply considerations: how quickly the semiconductor sector will return to pre-Covid levels (which will affect demand for tires), and the impact of mobility restrictions due to the recent COVID-19 outbreak.

Top producers and consumers of natural rubber


John Baffes

Senior Agriculture Economist, Development Economics Prospects Group

Kaltrina Temaj

Research Analyst, Prospects Group, World Bank

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