According to the World Bank's "Commodity Market Outlook" report, commodity prices will generally show a downward trend in 2023, and commodity prices are expected to fall by 21% in 2023 compared with last year, remaining stable in 2024. A number of experts said in an interview with the Economic Daily that in the context of continued downward demand, commodity prices may fluctuate moderately downward, but the high inflationary pressure facing the global economy cannot be quickly alleviated.
Supply and demand continue to improve
At present, global commodity supply and demand continue to improve. Commodity prices have fallen 14% since January, 32% below the all-time high set in June 2022, the biggest drop since the start of the pandemic, according to the report. The report expects energy prices to fall 26 percent this year, with the average price of U.S. dollar-denominated Brent crude expected to be $84 per barrel, down 16 percent from the previous year's average. Non-energy commodity prices will fall by 10% in 2023 and 3% in 2024.
Multiple factors will affect commodity price movements. Lian Ping, chief economist and director of the research institute of Zhixin Investment, believes that the most important factor affecting commodity prices is the decline in demand, "the global economic growth rate is slowing down, the demand for commodities has declined accordingly, and prices have weakened, while the structural impact of the Ukraine crisis on global commodity supply and demand has gradually diminished." In addition, the Fed's tightening monetary policy has an impact on commodity prices."
The World Bank report also pointed out that commodity price trends still face many uncertainties. For example, oil supplies from Russia and OPEC could be lower than expected, tighter credit conditions could hinder the ability of oil or coal companies to increase supplies elsewhere, and stricter regulation of fossil fuels could discourage related investment. Geopolitical concerns are also an important factor affecting commodity prices. In addition, concerns about abnormal weather could also push commodity prices higher, given that the drought in Europe in the summer of 2022 severely affected river flows and food production.
Guo Chaohui, chief analyst of commodity research at CICC Research, said that the recent price trend in the commodity market is mainly driven by demand expectations and actual performance. "The weakening of global demand has formed a more obvious suppression of commodity prices, the European and American manufacturing purchasing managers' index (PMI) continues to contract, energy demand is under pressure, coupled with the spread of the banking crisis in the United States and Europe, the US debt ceiling and other risk factors, macro expectations have further deteriorated, suppressing overseas oil and gas, and the price of safe-haven assets such as gold has risen." Guo Zhaohui believes that in the short term, demand expectations may dominate the trend of oil prices, the current pessimistic expectations may not be supported by actual data, and have been revised to a certain extent, if the subsequent fundamentals do not deteriorate further, the weak situation of oil prices may improve.
Inflationary pressures remain
Despite the downward trend in energy prices, high inflationary pressures on the world may be difficult to ease effectively in the short term. According to the report, commodity prices remain well above the average between 2015 and 2019, and European gas prices this year will be nearly three times the average price from 2015 to 2019.
"Falling commodity prices are good for curbing inflation, and they are themselves concrete manifestations of changes in inflation, indicating that inflationary pressures are decreasing." Lian Ping pointed out that in the next stage, due to the low growth of the world economy, weakening demand, geopolitical conflicts and weakening influence, prices may continue to decline, but from the perspective of 2023, the global price level and inflation level are still high.
Ayhan Goss, Deputy Chief Economist and Director of the World Bank's Forecasts Group, said: "Lower commodity prices have helped reduce overall global inflation. However, central banks need to remain vigilant as a wide range of factors, including weaker-than-expected oil supplies, heightened geopolitical tensions or adverse weather conditions, could push up prices, sending inflationary pressures back up. ”
"The post-crisis surge in food and energy prices in Ukraine is largely over due to slowing economic growth, a mild winter, and a redistribution of commodity trade." Indermit Gill, World Bank Chief Economist and Senior Vice President for Development Economics, said, "But this is not much comfort for consumers in many countries. In real terms, it remains one of the highest food prices in the past 50 years. Governments should avoid imposing trade restrictions and adopt targeted income-support programs rather than price controls to protect the poorest. ”
Pang Ming, chief economist and director of research at JLL Greater China, pointed out that the recent price fluctuations in commodity prices, especially commodities and raw materials, mainly reflect supply-demand and liquidity issues in the short term. Even if commodity prices are lower and stable this year and next, they remain above pre-Covid levels, putting continued pressure on headline global inflation.
Pang said that from the perspective of long-term structural changes, the global commodity price center and the long-term inflation center may rise in the future, mainly due to: first, in the past 10 years, China's production capacity has largely inhibited and moderated the upward trend of global commodity prices, and this situation has changed; Second, in the past 10 years, the oligopoly characteristics in the production and supply of commodities and raw materials have gradually emerged globally, and the relative supply constraints caused by the decline in related capital expenditures will continue to increase the price rigidity of commodities in short supply; Third, the green transformation trend of global low-carbon emission reduction means that the cost of carbon reduction will be reflected in the cost and price of various commodities on a global scale; Fourth, monetary policies in advanced economies have become more tolerant of inflation, so responses to potential future inflationary pressures may be untimely or inadequate; Fifth, the impulsive impact and risk aversion caused by rising geopolitical risks, disruptions to globalization and international trade, and a potential slowdown in the world economy.
Food security needs attention
Among the various categories of commodities, the price trend of agricultural products, especially grain prices, is worth paying attention to. For the nearly 350 million people worldwide facing food insecurity, the impact of falling food prices is minimal. The report shows that while food prices are expected to fall by 8% in 2023, they will remain at their second highest level since 1975. Rising food prices have exacerbated food insecurity, with severe impacts on poor people in many developing economies.
Global food prices have risen 20 percent as of February, the highest level in the past 20 years, the data showed. Fertilizer prices are also expected to fall by 37 percent in 2023, the largest annual decline since 1974 but still close to the highs during the 2008-2009 food crisis.
The Global Food Price Index released by the Food and Agriculture Organization of the United Nations for April was 127.2 points, up 0.6% from the previous month, the first increase in 12 months. Máximo Torero, chief economist at the Food and Agriculture Organization of the United Nations, said that as the economy recovers from a severe slowdown, demand will increase, giving upward impetus to food prices, and the rise in rice prices is extremely worrying. In addition, the Black Sea grain export agreement needs to be renewed to avoid a spike in wheat and corn prices.
Overall, world food shortages have not improved significantly. "The impact of the food problem on developing countries, especially the poorer ones, is fatal. The Ukraine crisis has brought great obstacles to the global food supply, the uncertainty of the implementation of the Black Sea grain export agreement, and the unpredictable climate change, have brought uncertainty to global food prices. Food shortages in LDCs could recur if food supplies were not basically secured. Lian Ping said. (Economic Daily reporter Zhou Mingyang)