Almost all major commodity price indexes fell in the third quarter of 2019, led by energy, which declined more than eight percent (q/q), according to the commodity markets outlook report issued recently by the World Bank, which also said that trade tensions and weakness in global trade, manufacturing, and output growth are weighing on commodity demand. Thus, in line with subdued global growth prospects, most price forecasts have been revised down.
Energy prices, the report mentioned, are to fall 15 percent lower in 2019 than 2018, which is a substantial downward revision from April, and will continue to decline in 2020.
According to the report, non-energy prices are projected to decline by five percent in 2019, a smaller downward revision from April, and stabilise in 2020.
The outlook for commodity prices, especially oil and metals, is vulnerable to a larger than-expected slowdown in global growth, particularly in emerging market and developing economies (EMDE), as oil prices are projected to average $60/bbl in 2019 and are forecast to weaken to $58/bbl in 2020, $7/bbl lower than the World Bank's previous forecast, according the report.
"The downward revision reflects the weaker outlook for global growth and therefore for oil demand," the report said.
On the supply side, according the report, although US production increases have been modest in 2019, they are expected to rise substantially by 2020 as new pipelines come into operation. The forecast assumes that production cuts by OPEC and its partners will be sustained into 2020.
"Oil consumption growth is expected to increase slightly next year at a level usually associated with global downturns. If economic growth deteriorates further, oil demand could be substantially weaker. Conversely, the recent attack on Saudi Arabia’s oil processing facilities serves as a reminder that geopolitical events remain a major risk that could drive up oil prices, despite the short-lived impact of the recent attack," the report said.
The report also expected that metal prices would fall by five percent in 2019 and are forecast to fall further in 2020 due to slowing global demand that weighs heavily on the market. A greater-than-expected slowdown in global growth, particularly in China, poses the biggest risk to this sector.
Agricultural prices, as well, are expected to stabilise in 2020 following a projected fall in 2019 on reduced crop plantings.
Global trade tensions have a negative impact on some commodities, such as soybeans and corn, while lower energy prices could reduce fuel costs and fertiliser prices, reducing prices of energy intensive crops such as oilseed.
According the report, prices of almost 60 percent of commodities fell in the third quarter of 2019 amid elevating concerns about slowing global growth and the current deteriorating macroeconomic environment, including a sharp slowdown in manufacturing and goods trade, which has weighed heavily on commodity demand.
Energy prices fell more than eight percent (q/q) in the third quarter.
"The fall in prices occurred despite an attack on Saudi Arabia’s oil infrastructure, which triggered the largest 'one day' price rise in Brent crude oil since 1988, the year when Brent crude futures began trading on futures exchanges.
Also, on the supply side, growth in the United States has been much weaker than the record pace of 2018, and OPEC and its partners have agreed to continue with their production cuts. While oil production growth has slowed, the weakness in demand has been more severe. Demand growth expectations have been repeatedly revised downward and are now around one percent, or one million barrels per day, which is the weakest growth rate since 2012. Coal and natural gas prices have also continued to weaken, amid ample supply," as the report indicated.
Most non-energy prices fell in the third quarter of 2019. Base metals and ore prices fell 2 percent, what reflected concerns about demand and trade tensions.
Meanwhile, iron ore prices fell sharply as supply bottlenecks resulting from the Vale Dam accident in Brazil eased, while nickel prices, as an exception to the broader base metals price weakness, surged after Indonesia, which is the world’s largest nickel ore producer, announced a ban on nickel exports from the start of 2020.
Precious metal prices surged in response to trade tensions and monetary policy alleviation in advanced economies.