Most commodity prices are expected to rule sharply higher this year compared with 2021. The prices are expected to remain at the elevated level till 2023-24 compared to the past five years, the World Bank has said in its current “Commodity Markets Outlook”.
For India, China and other developing nations’ concern, energy prices are forecast to increase by 50 per cent, while non-energy prices by up to 20 per cent. The rates could decline “somewhat” in 2023 and settle at higher levels.
‘Historically elevated levels’
The prices of agricultural commodities are projected to rise by 18 per cent this year, reflecting more of supply disruptions due to the Russia-Ukrain war, besides high input costs due to costlier fuel, chemicals and fertilizers.
Metal prices will likely increase by 16 per cent and ease somewhat in 2023. But prices will remain “at historically elevated levels”, the outlook said.
Referring to to the Ukraine War, it said in the short-term, supply disruptions and higher food and energy prices will raise inflation and policymakers will need to mitigate their impact on poorer households.
“The long-term effects of the war on commodity markets will depend on how extensively commodity trade is diverted, how much demand is reduced, and whether new supplies emerge,” it said.
Among energy commodities, Brent crude oil prices are expected to average $100 a barrel this year. This will be a 42 per cent increase compared with 2021 as Russia’s energy exports are expected to be disrupted with many countries seeking alternative suppliers.
“Declining supply from Russia, however, is being partially offset by inventory releases and diversion of exports to other countries. Prices are expected to average $92 a barrel in 2023 as supply disruptions ease and production rises outside Russia, while demand is likely to grow more slowly than previously expected,” the Commodity Markets Outlook said.
The disruptions resulting from the war are likely to have a lasting impact on Russia’s oil production due to the exit of foreign oil companies, weaker investment, and reduced access to foreign technology, the World Bank said.
Natural gas and coal prices are also expected to be significantly higher this year, with prices in Europe projected to be more than double their 2021 levels. Coal prices are forecast to average about 80 per cent higher than last year’s price.
On the agricultural front, the outlook said the war has already disrupted exports from Ukraine and will severely interrupt agricultural output this year. This will include production of maize (corn), barley, and sunflower seed oil, which are typically planted in the spring.
Also, in Russia, the lack of access to agricultural inputs, such as seeds and farm machinery, could reduce agricultural production. But prices of agricultural commodities are expected to pare their gains reflecting a rise in supplies from other parts of the world.
In particular, wheat supplies are likely to increase from Argentina, Brazil and the US, the outlook said. But prices during 2023-24 could come under upward pressure, if prices of inputs such as fertilisers increase and result in lower yield since many growers in developing nations could cut down on consumption.
Among metals, nickel rates are likely to increase by 52 per cent and those of aluminum by 38 per cent, reflecting Russia’s role as a supplier in these markets.
A worsening of the conflict could lead to further rise in prices, but prolonged lockdown curbs in China to control the Covid pandemic could drag prices down, the World Bank said in its outlook.
Dwelling on the war, it said, high natural gas prices could force economies such as China and developing nations to turn to more polluting sources such as coal. Shortage in fertilizers could lead to reduction in yield in emerging economies, while countries such as the US, Brazil and Argentina would allocate more land for wheat to make for the supply problems from Ukraine and Russia.
April 28, 2022