World Bank Lowers Commodity Price Projections for 2016

Based on its latest Commodity Markets Outlook report, prices of 37 out of the 46 commodities the World Bank monitors were projected to decline this year. World Bank report points at the supply and demand disproportion – continually growing supplies while emerging market economies are slowing the demand for these goods.

“While we see some prospect for commodity prices to rise slightly over the next two years, significant downside risks remain,” John Baffes, Senior Economist and Lead author of the Commodity Markets Outlook said.

Baffe said it may be awhile for oil and commodities to remain at low prices. Projected crude oil prices have decreased from $51 per barrel based on its October 2015 report down to $37 per barrel for 2016. Reasons behind the revised forecast according to World Bank’s latest quarterly report are

  1. the sooner-than-anticipated resumption of exports by Islamic Republic of Iran,
  2. greater resilience in US production,
  3. a mild winter in the Northern Hemisphere and
  4. weak growth prospects in major emerging market economies.

Oil prices are expected to drop this year by another 27 percent from 47 percent decline in 2015.

However, the report says that recovery in oil prices is also expected. World Bank breaks down the following reasons for recovering oil prices —

  1. The sharp oil price drop in early 2016 does not appear fully warranted by fundamental drivers of oil demand and supply.
  2. High cost oil producers are expected to sustain persistent losses and increasingly make production cuts that are likely to outweigh any additional capacity coming to the market.
  3. Demand is expected to strengthen somewhat with modest pickup in global growth.

Non-energy prices are projected to drop by 3.7 percent this year. Metals are expected to fall by 10 percent this year from its 21 percent decline in 2015.

Agricultural prices are expected to fall by 1.4 percent this year despite the effects of El Niño.

“Low commodity prices are double-edged sword where consumers in importing countries stand to benefit while producers in net exporting countries suffer,” said Ayhan Kose, World Bank’s Director for Development Prospects Group.

“It takes time for the benefits of lower commodity prices to be transformed into stronger economic growth among importers, but commodity exporters are feeling the pain right away,” he added.

Sources: World Bank, CNBC, Business Inquirer, Business World Online

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