World Bank revises outlook on commodity prices as uncertainty rises, growth slows

The World Bank has projected in the October issue of its Commodity Markets Outlook that energy and metal commodity prices will continue to fall in 2020, following sharp declines in 2019, as the outlook for global growth continues to weaken and demand decelerates.

“Slowing demand for commodities presents a challenge for exporters and an opportunity for importers,” said Ceyla Pazarbasioglu, World Bank Group vice-president for Equitable Growth, Finance & Institutions“As both of them switch from using one commodity to another due to price fluctuation and technological advance, it will be important that these resources be produced and consumed in an environmentally sustainable way.”

The World Bank predicts that metal prices will fall by five per cent in 2019, only to decline further in 2020 as global demand wanes. At the same time, the value of precious metals will continue to rise next year due to heightened global uncertainty and accommodative monetary policies.

Demand for crude oil slows

Crude oil prices will reach an average US$60 per barrel in 2019 then weaken to US$58 per barrel in 2020. Based on the forecasts made in the Commodity Markets Outlook for April this year, the price of crude will be US$6 per barrel lower than expected at the end of 2019 and US$7 per barrel lower than expected in 2020.

Consistent with sluggish global growth, oil consumption will increase at a much slower rate than earlier forecasts and increase only modestly next year.

A sharper-than-expected economic downturn poses the greatest risk to the oil price forecast, the World Bank says. More broadly, energy prices, which also include natural gas and coal, will average almost 15 per cent lower in 2019 than in 2018, with continued to decline expected in 2020.

Agriculture prices are anticipated to decline this year but stabilise in 2020. However, a resolution of trade tensions could drive up the prices of some agricultural commodities, such as soybeans and corn. As energy prices continue on a downward trajectory, so too will the costs of fuel and the price of fertiliser, thus reducing prices of energy-intensive crops such as oilseeds.

A closer look

In a special section of the report which looks at why consumers substitute one commodity for another — such as natural gas for coal, or paper instead of plastic — the World Bank notes that substitutions are driven by technological innovation and changes in commodity prices. As such, countries relying heavily on a small number of commodity exports are at risk of low economic growth in the long-term.

“Depending on export revenues from a small set of commodities makes commodity-exporting developing economies vulnerable because demand surges and higher prices could induce innovation and facilitate substitution among commodities,” said Ayhan Kose, director of the World Bank’s Prospects Group.

Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia
(Photo: Straits Times)

Another special section looks at the impact of the September 14 attacks on oil production facilities in Saudi Arabia. The market response was short-lived by historical standards because of the swift restoration of production, increasingly diversified sources of oil supplies, including shale oil, and weakening demand. However, it was a reminder that the global oil market remains dependent on several critical infrastructure and transport bottlenecks that may be vulnerable to disruption.