75059 Global Economic Prospects Commodity Market Outlook Published by The World Bank’s Development Prospects Group January 2013 A market in turmoil in 2012. Commodity prices ended 2012 close to where they began, but major global events created significant upward and downward price movements through the course of the year. The first half of 2012 brought declines in most commodity prices especially energy and metals as European sovereign debt troubles intensified and emerging economies, especially China, slowed. Price pressures were distinctly upward in the second half of the year, however. Maize and wheat prices spiked as parts of the United States, Eastern Europe, and Central Asia were gripped by a summer heat wave. Crude oil prices were driven up after an EU embargo on Iranian oil imports went into effect in July and violence and political instability continued in several oil-producing countries in the Middle East. In addition, renewed monetary policy easing by the central banks of the EU and the United States as well as weakness of the US dollar put upward pressure on industrial commodities. Easing prices in 2013. Most commodity prices are expected to ease marginally in 2013. The forecast presented in this report indicates that crude oil will average US$102/bbl in 2013, just 3 percent lower than in 2012. Agricultural commodity prices are also forecast to decline: food by 3.2 percent, beverages by 4.7 percent, and raw materials by 2.2 percent. Metal prices are expected to rise slightly but still average 14 percent lower than in 2011. Fertilizer prices are set to decline 2.9 percent, while precious metal prices will increase almost 2 percent. John Baffes Weathering risks ahead. The 2013 commodity market outlook is subject to a Development Prospects number of risks. In regards to crude oil, global supply risks remain from ongoing Group political unrest in the Middle East. A major supply cutoff could limit supplies The World Bank and result in prices spiking above US$150/bbl. For metals, prices depend impor- 1818 H St, NW tantly on economic conditions in China, which accounts for almost half of global Washington DC 20433 metal consumption. Should conditions there deteriorate, metal prices could de- Tel: +1(202) 458-1880 cline substantially. On agricultural commodities—most importantly, food— jbaffes@worldbank.org weather a key risk. Given historically low stocks, a major adverse weather event Commodity Markets would induce sharp increases in maize prices. Wheat prices may come under upward pressure as well. In contrast, better-supplied rice and oilseed markets face limited upside price risks. Food prices stabilize after the summer surge The gap between WTI and Brent persists US cents per bushel US$ per barrel 140 1000 900 120 800 100 700 80 600 Wheat Maize WTI Brent 60 500 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Source: Chicago Mercantile ExchangDatastream and World Bank. Source: Datastream and World Bank. Commodity Market Outlook January 2013 Overview environment, oil prices have responded to geopolitical concerns, including the EU‘s Following sharp declines during 2012Q2, embargo on Iranian oil imports and ongoing commodity prices rebounded in the second half violence and political instability in several oil- of 2012, with most of the relevant indices ending producing countries in the Middle East. the year at levels close to where they began (figure 1). For 2012 as a whole, crude oil prices Under our baseline scenario, which assumes averaged US$105/bbl, just US$1 above the 2011 further easing of financial tensions in Europe, level. Food prices also increased marginally for most commodity prices are expected to ease in the year, despite grain prices reaching record 2013. Oil is expected to average US$102/bbl for highs in 2012Q3 (figure 2). Metal prices the year, just 3 percent lower than the 2012 declined more than 15 percent through the average (table 1). Agricultural prices are set to course of the year, ending 2012 at levels close to decline more than 3 percent (food, beverages, the mid-2010 lows. Prices of raw materials and and raw materials down by 3.2, 4.7, and 2.2 beverages declined more sharply—by almost 20 percent, respectively). Metal prices are expected percent each. Fertilizer and precious metal prices to gain marginally but still average 14 percent changed little. lower than 2011. Fertilizer prices are expected to decline 2.9 percent, while precious metal prices The price declines of most commodities in the will increase a little less than 2 percent. first half of 2012 reflected intensification of the European sovereign debt crisis and slowing There are a number of risks to the baseline growth in emerging economies, especially forecast. On oil, global supply risks remain from China. In the summer, however, food prices rose the ongoing political unrest in the Middle East. sharply as hot weather and dry conditions in the A major supply cutoff could result in prices United States, Eastern Europe, and Central Asia spiking well above US$150/bbl. Such an reduced maize and wheat output. Toward the end outcome would depend on numerous factors, of 2012Q3, prices of most industrial including the severity and duration of the supply commodities firmed following the European cutoff, policy actions regarding emergency oil Central Bank‘s bond purchase program and later reserves, demand curtailment, and OPEC‘s the announcement of a third round of response. Downside price risks, on the other quantitative easing by the U.S. Federal Reserve. hand, include weak oil demand due to continued In addition to weakness in the global mediocre economic growth rates, especially in Figure 1. Commodity price indices Figure 2. Food price indices $US nominal, 2005=100 $US nominal, 2005=100 250 300 250 200 200 150 150 100 100 Energy Metals Agriculture Edible oils Grains 50 50 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: World Bank. Source: World Bank. 2 Commodity Market Outlook January 2013 Table 1. Nominal price indices—actual and forecasts (2005 = 100) ACTUAL FORECAST CHANGE (%) 2008 2009 2010 2011 2012 2013 2014 2011/12 2012/13 2013/14 Energy 183 115 145 188 187 183 183 -0.4 -2.6 0.1 Non-Energy 182 142 174 210 190 186 180 -9.5 -2.0 -3.2 Metals 180 120 180 205 174 176 176 -15.3 1.3 -0.1 Agriculture 171 149 170 209 194 188 180 -7.2 -3.2 -4.4 Food 186 156 170 210 212 205 192 0.7 -3.2 -6.4 Grains 223 169 172 239 244 239 225 2.4 -2.1 -6.0 Fats and oils 209 165 184 223 230 220 206 3.3 -4.2 -6.5 Other food 124 131 148 168 158 153 143 -5.9 -3.1 -6.6 Beverages 152 157 182 208 166 158 155 -20.2 -4.7 -2.0 Raw Materials 143 129 166 207 165 162 162 -20.0 -2.2 0.4 Fertilizers 399 204 187 267 259 245 232 -2.9 -5.6 -5.3 Precious metals 158 175 272 372 378 378 353 1.7 0.0 -6.7 Memorandum items Crude oil ($/bbl) 97 62 79 104 105 102 102 1.0 -2.9 0.2 Gold ($/toz) 872 973 1,225 1,569 1,670 1,600 1,550 6.4 -4.2 -3.1 Source: World Bank. emerging economies. The key element for price historically low stocks. The wheat market, which stability will be how well OPEC (and, currently is better supplied than maize, may importantly, Saudi Arabia) address changing come under pressure as well. In contrast, there demand conditions. Historically, OPEC has been are limited upside price risks for rice and able to respond quickly to defend a price floor oilseeds given that those markets are well by cutting production sharply, but it has been supplied. Trade policy risks appear to be low as unwilling to set a price ceiling so rapidly. On the well. Despite the sharp increases in grain prices other hand, there is some room on spare capacity during the summer of 2012, countries did not and stocks. OPEC‘s spare capacity averaged 3.9 engage in export restrictions—indeed, several mb/d during 2012Q3, 14 percent higher than press reports to the contrary turned out to be 2012Q2 but remarkably similar to the past unsubstantiated. Finally, growth in the decade‘s historical average (it had reached a low production of biofuels has slowed as policy of 2.3 mb/d during the first half of 2008, when makers increasingly realize that the oil prices exceeded US$140/bbl. Moreover, environmental and energy security benefits from OECD oil inventories recovered remarkably, biofuels are not as large as initially believed. rising 17 percent from 2012Q2 to 2012Q3. On the demand side, while the oil intensity of GDP Crude Oil in middle- income countries has been rising, it has not reached levels that could derail economic Despite large fluctuations, oil prices (World growth. Bank average) ended the year at US$101/bbl, close to where they began (figure 3). The decline Price risks on metals depend importantly on in the first half of 2012 (23 percent between China; metal prices could decline significantly if March and June 2012) reflected weak demand China‘s economic conditions deteriorate due to slowing growth in developing countries substantially, as the country accounts for almost and heightened concerns about the European half of global metal consumption. sovereign debt crisis. Supply concerns, mostly of a geopolitical nature, came to bear in the second In terms of agricultural commodities (most half of the year, prompting a firming of prices. importantly, food), a key upside risk is weather. Any adverse weather event is likely to induce Although the price of Brent crude (the sharp increases in maize prices, in view of international marker) topped US$113/bbl in 3 Commodity Market Outlook January 2013 September, West Texas Intermediate (the U.S. Figure 3. Oil prices and OECD oil stocks mid-continent price) has remained almost $US per bbl million bbl US$20/bbl less due to the build-up of regional 140 2,800 stocks (figure 4). A decline in the Brent-WTI spread in late 2011 and early 2012, which 120 reflected reduced euro zone demand for Brent, 2,700 turned out to be temporary; by August 2012, the 100 spread again exceeded 20 percent. 80 2,600 In the United States, crude flows from Canada 60 OECD oil inventories (right axis) 2,500 through the Keystone pipeline (which 40 Oil price, World Bank commenced in 2011), as well as rapidly rising average (left axis) domestic shale liquids production, especially in 20 2,400 Texas and North Dakota, have contributed to a Jan-06 May-07 Sep-08 Jan-10 May-11 Sep-12 build-up of stocks at a time when U.S. oil Source: International Energy Agency (IEA), World Bank. consumption is dropping. Currently, there is limited additional capacity to transport surplus Figure 4. WTI/Brent price differential oil to the U.S. Gulf coast via rail, trucks, and barges. The WTI discount is expected to persist 30% for, at least, another two years when new pipelines to the U.S. Gulf are expected to 25% become operational. Yet, some easing may take 20% place earlier, reversal of existing pipelines that carry oil from the East Coast to Mid-Continent 15% US takes place earlier. 10% World oil demand increased modestly (less than 5% 0.8 percent, or 0.67 mb/d) in 2012 (figure 5). Oil consumption among OECD countries fell, 0% however, by almost 5 mb/d, or 10 percent, from the 2005 peak. Japan is the only OECD country -5% for which crude oil demand increased (by 1 mb/ Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 d) in 2012. Most of that increase was to fill the loss of nuclear power generation capacity as a Source: World Bank. result of the Tohoku earthquake. Non-OECD demand remains positive and robust—currently, Figure 5. World oil demand growth non-OECD countries account for almost half of mb/d global crude oil consumption and, as of 2012 all 4 of the increase in global demand. non-OECD OECD 2 On the supply side, the decline in non-OPEC output growth in 2011 appears to have reversed. In 2012, non-OPEC producers added more than 0 1 mb/d to global supplies, mainly reflecting earlier large-scale investments. The technology -2 used to exploit natural gas in the United States— a combination of horizontal drilling and hydraulic fracturing—has been adapted for use -4 in the petroleum industry and is currently being 1Q03 1Q05 1Q07 1Q09 1Q11 1Q13 applied to the oil-bearing shale plays of the Source: IEA, World Bank. 4 Commodity Market Outlook January 2013 Bakken formation in North Dakota and Eagle Iran is circumventing sanctions through bilateral Ford formation in Texas. Oil production in these in-kind trade arrangements. two areas has risen very rapidly over the past few years, with Texas and North Dakota adding The net growth in OPEC oil production has 1 mb/d of crude production in the 16 months reduced spare capacity among its member from April 2011 to August 2012 (figure 6). countries to 3.5 mb/d (figure 7), of which nearly Although shale liquids (also referred to as tight two-thirds is in Saudi Arabia. The Saudi oil oil) production has great potential to be applied minister has promised to keep the market well elsewhere in the U.S. and worldwide, there are supplied, but also deems US$100/bbl to be a fair public concerns about the ecological impacts of price. hydraulic fracturing—most notably, that the process leads to water contamination. Outlook for crude oil Oil production among OPEC countries has risen In the near term, oil prices are likely to be 1.8 mb/d since the end of 2010 (prior to capped at around US$120/bbl because of price- disruptions in Libya), with Saudi Arabia induced demand restraint and publicly- accounting for 1.5 mb/d of the net gain. During announced intentions to release oil from strategic the same time period, Libya‘s oil production has reserves in France, the United Kingdom, and the recovered to 1.3 mb/d, compared to 1.6 mb/d United States. Any crossing of the US$120/bbl prior to the country‘s 2011 civil war, although threshold would likely stem from technical and further gains may be difficult due to ongoing geopolitical problems, particularly in countries internal disputes. Iraq‘s production reached a pre struggling with conflict and security, including -war high of 2.84 mb/d in March 2012, and Libya and Iraq. exports are increasing after the introduction of a new mooring system in the Gulf. Iran‘s oil In the medium term, world oil demand is exports 0.3 mb/d below pre-sanctions levels, and expected to grow moderately, at 1.5 percent are set to tumble further unless alternative buyers annually, with all of the growth coming from (or buying arrangements) can be found. Iran‘s non-OECD countries, as has been the case in traditional crude buyers are struggling to arrange recent years (figure 8). Growth in oil payment mechanisms, secure ships to lift oil, and consumption among OECD countries is engage insurance companies to underwrite the expected to continue to be subdued, due to trade. Numerous reports, however, indicate that efficiency improvements in vehicle transport and Figure 6. U.S. crude oil production Figure 7. OPEC spare capacity mb/d mb/d 9 5 Other 4 6 3 2 Texas + N. Dakota 3 1 0 0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Source: U.S. Energy Information Administration. Source: IEA. 5 Commodity Market Outlook January 2013 a gradual switch to electric and natural gas real terms, due to growing supply of transport (in the absence of continued conventional and (especially) unconventional innovations, though, the switch may be slow, as oil, efficiency gains, and a substitution away discussed in box 1). Environmental pressures to from oil. The assumptions underpinning these reduce emissions are expected dampen oil projections reflect the upper-end cost of demand growth at the global level. Growth in oil developing additional oil capacity, notably from consumption developing countries, on the other oil sands in Canada, currently assessed by the hand, is expected to be strong in the near and industry at US$80/bbl in constant 2012 dollars. medium terms, while it is expected to moderate While it is expected that OPEC will continue to in the long term as economies mature, subsidies limit production to keep prices relatively high, are phased out, and other fuels become the organization may be sensitive to letting incorporated into the fuel mix, notably natural prices rise too high, for fear of inducing gas. technological changes that would alter the long- term price of oil. On the supply side, non-OPEC oil production is expected to continue its upward climb, as high Metals prices have attracted considerable investment associated with continued advances in upstream Most metal prices declined steadily during the technology (figure 9). High oil prices have first three quarters of 2012 (by 15 percent reduced resource constraints, and new frontiers between February and September) on global continue to be exploited, including deep water growth concerns, weakening demand by China, offshore and shale liquids. Production increases high stocks of most metals, and emerging supply are expected in a number of areas, including growth (figure 10). China currently consumes Brazil, Canada, the Caspian, the United States, almost 45 percent of world‘s metal‘s output and West Africa, which together are likely to (figure 11). Yet, there are signs that China‘s offset declines in mature areas such as the North consumption growth has slowed during 2012 due Sea. to destocking Nominal oil prices are expected to average The extended period of high metal prices, US$102/bbl during 2013 and 2014 as supplies underway since the mid-2000s, has generated accommodate moderate demand growth. Over significant investment in new capacity, and the longer term, oil prices are projected to fall in supply is rising more quickly than demand for Figure 8. Crude oil consumption Figure 9. Crude oil production mb/d mb/d 55 55 50 50 Non-OPEC 45 45 OECD 40 40 35 non-OECD 35 30 30 OPEC 25 25 1Q00 3Q01 1Q03 3Q04 1Q06 3Q07 1Q09 3Q10 1Q12 1Q00 3Q01 1Q03 3Q04 1Q06 3Q07 1Q09 3Q10 1Q12 Source: IEA. Source: IEA. 6 Commodity Market Outlook January 2013 Box 1. The “energy revolution”, innovation, and the nature of substitution Large, sustained price changes alter relative input prices and induce innovation (Hicks 1932). The post-2004 crude oil price increases did just that in both natural gas and oil exploration and extraction through new technologies such as horizontal drilling and hydraulic fracturing. Because of these technologies, the United States increased its natural gas production by almost 30 percent during 2005-12. Similarly, U.S. crude oil production increased by 1.3 mb/d over the past four years. To put this additional oil supply into perspective, consider that global biofuel pro- duction in terms of crude oil energy equivalent was 1.2 mb/d in 2011. The sharp increase in natural gas supplies not only put downward pressure on prices, but also induced substitution of coal by natural gas in various energy intensive industries, notably in electricity generation and petrochemicals. Natural gas, which traded just 7 percent below oil in 2000-04 in energy-equivalent terms, averaged 82 percent lower in 2011-12 and has been trading close to parity with coal (figure box 1.1). On the other hand, growing U.S. oil supplies, coupled with weak demand, caused WTI to be traded at 20 percent below Brent, the international marker (figure box 1.2). The discount is expected to persist until 2015, when new pipelines and reversal of existing pipelines will move oil supplies from the Midwestern United States to the Gulf Coast. Yet, the shift from crude oil to other types of energy, notably electricity and natural gas, with potential use by the transportation industry (which globally accounts for more than half of crude oil consumption) has been very slow. Such slow response reflects the different physical properties of various types of fuel, namely density (the amount of energy stored in a unit of mass) and scalability (how easily the energy conversion process can be scaled up). The energy densities of the fuels relevant to the transportation industry are 37 MJ/liter for crude oil, 1 MJ/kg for electricity, and 0.036 MJ/liter for natural gas (in its natural state). Compressed natural gas (GNG), used by bus fleets in large cities, is about 10 MJ/liter, while the density of liquefied natural gas (LNG) is 24 MJ/liter. Energy density is measured in megajoules (MJ) per kilogram or liter. For comparison, note that one MJ of energy can light one 100-watt bulb for about three hours. To gauge the importance of energy density associated with various fuels and technologies consider the following illustrative example. If a truck with a net weight capacity of 40,000 pounds were to be powered by lithium-sulphur batteries (currently used by electric-powered vehicles) for a 500-mile range, the batteries would occupy almost 85 percent of the truck‘s net capacity, leaving only 6,000 pounds of commercial space. That is, an energy conversion process that works at a small scale (a passenger car) does not work at larger scales (in a truck, an airplane, or an ocean-liner). Similarly, to increase the energy density of natural gas, it must be liquefied, which involves cooling it to about -62oC at a LNG terminal, transporting it in specially designed ships under near atmospheric pressure but under cooling, and then off loading at destination, gasified and re-injected into the natural gas pipe network. This is a technically demanding process adding considerable costs at delivery. Contrary to natural gas, crude oil prod- ucts have convenient distribution networks and refueling stations that can be reached by cars virtually everywhere in the world. Thus, in order for the transport industry to substitute crude oil by natural gas at a scale large enough to reduce oil prices, innovations must take place such that the distribution and refueling costs of natural gas be- come comparable to those of crude oil, which explains why the transport industry is slow to utilize natural gas. Box figure 1.1 Energy prices Box figure 1.2 Oil to natural gas price ratio $US /mmbtu Ratio of oil to US natural gas prices 25 8.0 Crude oil 20 Natural gas (US) 6.0 Coal 15 4.0 10 2.0 5 0 0.0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 2000 2002 2004 2006 2008 2010 2012 Source: World Bank. Source: World Bank. 7 Commodity Market Outlook January 2013 some metals, including nickel and copper. risks—suggesting that prices are unlikely to fall During 2012Q4, however, most metal prices much more. Furthermore, a significant amount trended upward as the possibility of hard of aluminum inventories are tied up in economic landing in China became more remote. warehouse financing deals and unavailable to the market. Aluminum consumption continues to An interesting characteristic of metals and other benefit from substitution, mainly substitution industrial commodities during the recent price away from copper in the wiring and cable sectors boom is that prices have been highly volatile, (copper prices are now more than four times even more volatile than food prices (historically, higher than aluminum prices, whereas the two the reverse has been the case). In fact, non-food were similar prior to the 2005 boom). price volatility during the second half of the past Substitution is expected to continue for as long decade has been the highest since 1970. For as the aluminum to copper price ratio remains example, non-food price volatility during 2000- above 2:1. 05 reached 9.7%, when the previous high in 1970-75 was 7.8%. Most likely, high non-food Global aluminum production capacity continues price volatility reflects that fact that these to outstrip consumption, with the bulk of the commodities increased the most during the latter originating in China and, to a lesser extent, recent boom. food commodities increased the Europe, the Middle East, and North America. most during the recent boom. Nevertheless, The market surplus is expected to endure in the overall price volatility appears to have eased near term. Therefore, prices are likely to respond during the past two to three years, indicating that to higher production costs, of which energy the high volatility during 2008-10 reflected the accounts for 40 percent alone. move from low to high prices and the financial crisis of 2008 (see discussion in box 2). Copper prices fell sharply in 2012Q2 due to weakening import demand by China. Still, the Recent developments in metal markets large difference between copper and aluminum prices has led not only to increased use of Aluminum prices fell below US$2,000 per ton in aluminum in place of copper, but also to the 2012Q3, near their pre-2005 levels, due to a accelerated rates of copper recycling of scrap persistent global surplus and high stocks. Prices reprocessing. Copper demand is expected to are now at or below marginal production costs increase at a modest 2.5 percent per annum, for many producers, with more limited downside however, over the forecast period, before Figure 10. Metal prices Figure 11 . Consumption of metals $/ton $/ton 'ooo tons 10,000 60,000 40,000 China Copper 50,000 8,000 Aluminum 30,000 OECD Nickel (right axis) 40,000 6,000 30,000 20,000 4,000 Other 20,000 10,000 2,000 10,000 0 0 - 1990 1993 1996 1999 2002 2005 2008 2011 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Source: World Bank. Source: World Bureau of Metal Statistics. 8 Commodity Market Outlook January 2013 Box 2. Commodity prices: levels, volatility, and comovement Applying a standard measure of volatility to 45 monthly Box figure 2.1 Commodity price volatility: food and non- prices during 1970-2012 shows that even though histori- food (5 year averages) cally non-food prices have been less volatile than food 12 prices, non-food price volatility exceeded that of food Non-Food (21 commodities) Food (24 commodities) prices by a wide margin (9.7 versus 8.0) during 2005-09. 9.7 10 Furthermore, while non-food price volatility reached re- 8.6 8.8 cord highs during 2005-09, food price volatility did not— 8 7.8 7.5 8.0 i.e., food price volatility during the recent boom has been 7.0 6.2 high but not unprecedented. This result is remarkably 6 5.4 5.3 5.7 5.8 5.8 6.0 5.8 5.2 5.3 similar to Gilbert and Morgan (2010, p. 3023) who con- 4.9 cluded that food price variability during the post-2004 4 boom has been high but, with the exception of rice, not out of line with historical experience. And, there is some 2 evidence that volatility has come down to historical norms during the past 3 years (box figure 2.1). Two fac- - tors may account for the high volatility during 2005-09: 1970:H1 1970:H2 1980:H1 1980:H2 1990:H1 1990:H2 2000:H1 2000:H2 2010:H1 the move from a lower to higher price equilibrium and Source: World Bank the 2008 financial crisis. The latter is supported by the fact that volatility increases sharply when August 2008 is included in a two-year moving average, while a similar Box figure 2.2 Commodity price volatility: all commodi- ties (2-year trailing moving average) decline becomes apparent when January 2011 is included in the average (box figure 2.2). 12 In addition to increased levels and volatility, commodity 10 prices have been moving in a more synchronous manner. In fact, price comovement during the second half of the 8 past decade has been the highest compared to the 43-year sample period (box figure 2.3). Moreover, while there is 6 some evidence that comovement has moderated recently, 4 it is still high by historical standards. The increase in co- movement implies that common factors have been the 2 dominant force behind post-2004 commodity price move- ments (box 3 elaborates further on this point). 0 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Price volatility is calculated as the median of 100*STDEV[log p(t)) - log p(t-1)] for 21 non-food and 24 food prices, where STDEV denotes standard devia- Source: World Bank. tion, p(t) is the current price of each commodity, and p(t- 1) is the one-period lagged price (their logarithmic differ- Box figure 2.3 Commodity price comovement ence is the so-called returns). The measure is applied to 0.50 five-year periods, denoted as H1 and H2 for the first and second part of each decade, respectively (2010:H1 in- 0.40 cludes 36 observations because the sample ends in De- cember 2012). Volatility is also presented as a two-year trailing moving average. Apart from its simplicity, this 0.30 measure of volatility is appropriate for non-stationary variables, which is typically the case with commodity 0.20 prices. Comovement is measured as a two-year trailing moving average of ABS[n(up)-n(down)]/[n(up)+n 0.10 (down)], where ABS is the absolute value operator and n (up) and n(down) denote the number of prices that went - up and down during the month. The index can take values Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 between zero (when half of the prices go up and half go down) and unity (when all prices move in the same direc- tion). While random chance is expected to an equal num- Source: World Bank. 9 Commodity Market Outlook January 2013 ber of increases and declines, because of common factors, the index is likely to take values well above zero. Indeed during 1970-2012 the index averaged 0.27, implying that of the 44 commodities of the sample, on aver- age, 16 prices went up (down) and 28 prices went down (up). Two key advantages of the index are that (i) it measures comovement across a large number of prices (difficult to measure using parametric models), and (ii) it is not subjected to degrees of freedom limitations. However, these advantages come at the expense of measur- ing direction of change only, not magnitude, thus underutilizing the informational content of prices. The index has been used in the financial literature (see, for example, Morck, Yeung, and Yu (2000) on the measurement of equity price comovement in emerging economies). slowing further over the longer term as copper announced that it will develop its own NPI intensity in China—which has risen sharply— industry and has introduced export quotas and plateaus. may ban nickel ore exports by end-2013. Copper mine production, which was flat in 2011, Outlook for metals has not kept pace with consumption for a number of reasons: technical problems, labor Overall, metal prices are forecast to increase disputes, declining grades, delays in start-up marginally in 2013. Aluminum prices are projects, and shortages of skilled labor and expected to increase almost 3 percent and remain inputs. The tightness in copper production has at that level through 2015 due to rising power been pronounced at the world‘s two largest costs and the fact that current prices have pushed mines, Escondida in Chile and Grasberg in some producers at or below production costs. Indonesia. However, high copper prices have induced a wave of new mines that are expected Nickel prices are also expected to increase to come on-stream shortly—in several African almost 3 percent in 2013, and to follow a slightly countries, China, Peru, and the United States, for upward trend thereafter. Although there are no example. physical constraints in these metal markets, there are a number of factors that could push prices Nickel prices rose modestly in early 2012 before even higher over the forecast period, including receding due to the sluggish market for stainless declining ore grades, environmental issues, and steel (the end use of more than two-thirds of rising energy costs. nickel production) and the rapid restart of nickel pig iron (NPI) production in China. China now On the contrary, copper prices are expected to accounts for 40 percent of global stainless steel decline 2 percent in 2013 and as much as 10 production, up from 4 percent a decade ago. percent in 2014, mostly due to substitution Stainless steel demand is expected to remain pressures and slowing demand. robust in the medium term, growing by more than 6 percent annually, mainly driven by high- grade consumer applications, initially in high- Precious metals income countries and, increasingly so, in emerging economies as well. A wave of new Precious metals prices increased less than 2 nickel mine capacity is expected to keep nickel percent in 2012, a significant slowdown prices close to marginal production costs, compared to the previous two years, during however. Several new projects will soon ramp which increases of 37 and 28 percent, up production, including those in Australia, respectively, occurred (figure 12). Nonetheless, Brazil, Madagascar, New Caledonia, and Papua 2012 was the eleventh straight year of higher New Guinea. Another major global source of nominal prices of precious metals, as measured nickel is NPI in China, which sources low-grade by the precious metal index, mostly reflecting nickel ore from Indonesia and the Philippines. their attractiveness ―safe-haven‖ investment China‘s production capacity may soon be assets. The price of gold spiked twice in 2012, constrained, though, given that Indonesia has once during 2012Q1 on heightened tensions with 10 Commodity Market Outlook January 2013 Iran and again in 2012Q3 following the prices firmed following a heat wave that affected announcement of the third round of quantitative maize-producing areas in the Midwestern United easing in the United States. According to several States, while drought conditions in Eastern reports, high gold prices during 2012 may have Europe and Central Asia reduced the outlook for been supported by strong physical demand in wheat. On the other hand, oilseed and edible oil Turkey, mostly reflecting bilateral trade based on prices weakened toward the end of the year on gold-based transactions with Iran. better supply prospects from South America (soybeans) and East Asia (palm oil). Beverages On the supply side, high gold prices have and raw material prices continued their slide as attracted considerable investment in the gold well in the latter part of the year, to about 30 mining industry, not only to replace aging percent lower than the 2011 peaks (figure 13). existing mines but also to develop new mines. For the year as a whole, the World Bank‘s China has announced a new production target of agricultural price index is down almost 7 450 tons per year by 2015, up from 400 tons at percent. present, while production in South Africa appears to be in long-term decline. The decline Recent developments in agricultural markets in South Africa was compounded by very serious labor disputes in September and October Grain prices were remarkably stable between the 2012, which disrupted production of both gold end of 2011 and the summer of 2012, when and platinum. Prices of gold are expected to initial assessments for the 2012/13 season decline by 4 percent in 2013, while platinum and indicated a good crop (figure 14). As a silver are expected to change little. Most risks consequence, prices of key grains fluctuated are on the downside as the pace of global within a tight band during this period. The recovery improves, including further easing of outlook changed dramatically, though, as the financial tensions in Europe. summer got underway and a heat wave in the United States and drought conditions in Europe and Central Asia induced sharp declines in maize Agriculture and wheat yields. In its July update, the U.S. Department of Agriculture (USDA) reduced its Following an across-the-board sharp decline 2012/13 assessment for global maize production from the peaks of 2011, agricultural commodity from 950 to 905 million tons, causing end-of- prices diverged in the summer of 2012. Food season stocks to decline by 14 percent— Figure 12. Precious metals prices Figure 13. Agriculture price indices $US/troy oz ¢/troy oz 2005=100 2,500 4,500 250 Gold (left axis) 2,000 Platinum (left axis) 3,600 200 Silver (right axis) 1,500 2,700 150 1,000 1,800 100 500 900 Food Beverages Raw Materials 0 0 50 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-06 Mar-07 May-08 Jul-09 Sep-10 Nov-11 Jan-13 Source: World Bank. Source: World Bank. 11 Commodity Market Outlook January 2013 associated with a stock-to-use ratio of less than Figure 14. Grain prices 15 percent, the lowest since 1972/73. A smaller, $/mt $/mt but still important, downward assessment Wheat (left axis) 500 1,000 occurred for wheat yields. Prices of both maize Maize (left axis) and wheat then increased almost 40 percent Rice (right axis) 400 within just a month. Since then, subsequent 800 USDA assessments have retained the tight 300 outlook for both commodities. 600 200 Between August and December 2012, maize and wheat prices averaged US$313 and US$353 per 400 100 ton, respectively, associated with a 9 percent premium of wheat over maize—historically the 0 200 premium has averaged 30 percent. The summer Jan-06 Jul-07 Jan-09 Jul-10 Jan-12 drought therefore not only reduced the maize stock-to-use ratio to historical lows, but brought Source: World Bank. the wheat-to-maize price premium to historical lows as well (figure 15). Figure 15. Wheat-to-maize price ratio 60% Rice prices have averaged US$520/ton over the past three years (they have exceeded US$600/ton 50% on only a few occasions), in large part due to the 40% fact that, contrary to the situation for wheat and maize, the rice market remains well-supplied. 30% The variability of rice prices over the past year 20% reflects, in part, purchases through the Thai Paddy Rice Program. Thailand is the world‘s 10% largest rice exporter, accounting for 25-30 percent of global exports, and hence its policy 0% actions have a large impact on world markets. -10% Although flood damage incurred early in 2012 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 led to reports that rice yields would be affected, the concern turned out not to be important. Source: World Bank. According to the USDA‘s January 2013 assessment, global rice production is expected to Figure 16. Edible oil prices reach 466 million tons, 1 million tons above the US$/ton US$/ton 2011/12 record. The stock-to-use ratio is 1,400 800 expected to reach 22 percent, marginally lower than 2011/12 but well within historical norms. Trade in rice has improved as well reaching a 1,150 new record of 39.1 million tons in 2012, aided in 600 part by a surge in Chinese imports (2.6 million 900 tons in 2012, up from 0.5 million tons in 2011). 400 Edible oil prices dropped almost 12 percent from 650 Palm oil (left axis) August to December 2012, as measured by the World Bank edible oil price index, reversing a Soybeans (right axis) 27 percent increase during the first eight months 400 200 of the year (figure 16). The decline reflects an Jan-06 May-07 Sep-08 Jan-10 May-11 Sep-12 improved outlook for the South American crop Source: World Bank. 12 Commodity Market Outlook January 2013 as well as a reassessment of the U.S. soybean that Brazil‘s crop for the current season will be crop, for which yields turned out to be higher much larger than anticipated caused arabica than originally expected. Palm oil supplies from prices to plummet 36 percent in 2012—Brazil is Indonesia and Malaysia are improving as well. the world‘s largest arabica producer. Robusta prices have been remarkably stable over the past It should be emphasized that edible oils year (around US$2.30/kg) despite a record-large experienced the fastest consumption growth crop in Vietnam, the world‘s largest producer of rates of all food groups during recent decades. robusta. The stability of robusta prices can be Between 1964 and 2012, edible oil consumption attributed to coffee roasters including more grew at an average annual rate of 6.1 percent, robusta in their blends as arabica prices have almost three times as large as the increase in risen. Cocoa prices, which reached record highs grain consumption, which grew at 2.4 percent in 2011 as well, have weakened considerably in annual rate, a rate remarkably similar to response to an improved crop outlook in Côte population growth (figure 17). d‘Ivoire and weakening demand in Europe. Tea prices edged down marginally in 2012, a little In general, edible oils are, perhaps, the only food less than 1 percent. Nevertheless, prices have commodity group income elasticity is high not- surged to record highs during the last five years, only for low and middle income countries but partly in response to repeated cycles of adverse also for high income countries. This reflects the weather conditions in the producing countries fact that as people become wealthier, they tend and partly in response to strong demand by to eat more in professional establishments and major tea consuming countries, including also consume more pre-packaged food items, various Middle East countries, Pakistan, Russia, both of which are using more edible oil than as well as domestic consumption in India. otherwise. Cotton prices declined sharply in the first half of Beverage prices declined consistently in 2012, 2012, to US$2/kg in May, following a ending the year 30 percent lower than their quadrupling of prices in the year leading up to historic early 2011 highs. The previous strength March 2011, when they exceeded US$5/kg. The in overall beverage prices reflected a surge in improved supply outlook for the 2012/13 crop coffee prices—specifically, arabica coffee— year induced further declines in prices, which which averaged close to $6.00/kg during 2011, ended the year 18 percent lower than in January the highest-ever nominal level. However, news 2012. The cotton market is well supplied by historical standards; global production is Figure 17. Global edible oil consumption expected reach 25.5 million tons in 2013, while million tons consumption is not expected to exceed 23.5 180 million tons. An estimated 2 million tons will be added to stocks, pushing the stock-to-use ratio to 150 70 percent, the highest since the end of World War II. Approximately 9 million tons of cotton 120 have gone to the state reserve of China during the past two seasons, explaining why prices did 90 not collapse (ICAC 2012). Nevertheless, from a long-term perspective, cotton prices increased 60 the less than other agricultural commodities during the recent price boom, primarily because 30 of the increase in yields by China and India following the introduction of biotech crops - 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 (Baffes 2011). Source: US department of Agriculture 13 Commodity Market Outlook January 2013 Natural rubber prices declined steadily in 2012, Table 2. Food Prices in selected Low and Middle In- come Countries (nominal local currencies, percent to average the year almost 30 percent lower than changes) 2011. As was the case with cotton, natural 2012Q3/ 2012Q3/ rubber prices reached record highs in 2011, 2012Q2 2011Q3 exceeding US$6/kg in February 2011, more than Maize (21 countries) a four-fold increase within two years. The recent W orld (US$) 21.6 8.8 decline reflects both increased supply and fears USD, broad index -0.1 4.9 of demand deterioration, especially from China. Rwanda 16.0 31.5 (most natural rubber goes toward tire production, South Africa 19.8 26.1 and China is the fastest-growing market for Thailand 7.3 23.9 tires). Crude oil prices play a role in the price of Nigeria 1.0 20.0 Tanzania -1.5 19.1 rubber as well, because synthetic rubber, a close Dominican Republic -12.5 4.2 substitute to natural rubber, is a crude oil by- Brazil 19.8 3.0 product. Regarding timber, expectations for a M exico -4.6 -1.3 boom in prices following the Tohoku earthquake Peru -0.3 -3.8 Ethiopia 8.7 -7.7 were short lived. The price of logs from Kenya -0.5 -13.2 Malaysia, for instance, dropped 8 percent in Panama 1.5 -14.1 2012, effectively reaching pre-Tohoku levels as Costa Rica 0.5 -19.4 global demand for timber products has weakened Philippines 1.5 -20.2 considerably. Colombia 1.0 -23.9 Uganda -25.6 -25.4 Guatemala 9.3 -26.1 Recent trends in domestic food prices Honduras 15.2 -31.0 Bolivia -7.8 -33.6 The discussion thus far has focused on price Nicaragua 15.0 -41.4 El Salvador -1.3 -42.3 movements in U.S. dollar terms. However, what Wheat (7 countries) matters most to consumers is the price they pay W orld (US$) 29.9 10.7 for food in their home countries. It is not Sudan 16.2 25.2 uncommon for prices paid by consumers in an India 4.9 17.2 individual country to differ considerably from Brazil 20.1 16.1 international prices, at least in the short run. South Africa 21.5 11.5 Peru 0.2 3.8 Reasons for this include exchange rate Ethiopia 4.5 -2.7 movements, trade policies intended to insulate Bolivia -9.3 -10.3 domestic markets, the long distance of domestic Rice (18 countries) trading centers from ports (adding considerably W orld (US$) -2.5 0.1 to marketing costs), quality differences, and M exico 20.3 33.3 differences in the composition of food baskets Brazil 2.7 17.0 Nicaragua 0.1 12.4 across countries. Colombia -2.6 9.5 India 4.2 8.8 Table 2 reports changes in domestic wholesale El Salvador 3.2 6.2 prices of three commodities (maize, wheat, and M yanmar 18.2 5.9 rice) for a set of low- and middle-income Guatemala 2.6 2.1 Philippines -0.6 1.4 countries. The period chosen is 2012Q3 against Honduras 1.9 0.1 2012Q2 and 2012Q3 against 2011Q3. The first Niger 0.0 0.0 comparison captures the likely impact of the Cambodia 8.6 -2.2 summer drought that affected mostly maize and Burkina Faso 3.2 -3.0 Bolivia -0.5 -4.1 wheat prices, which increased 22 and 30 percent, M ali -13.7 -4.9 respectively (rice prices did not change Peru -2.6 -6.1 substantially during these two quarters). The Dominican Republic -7.4 -8.6 second comparison is intended to capture the Bangladesh -2.4 -22.2 longer term effect of price changes, given that in Sources: World Bank, FAO (GIEWS Food Price Data). 14 Commodity Market Outlook January 2013 most cases the price transmission is likely to be Outlook for agricultural commodities slow. Yet, the price increases between 2012Q3 and 2011Q3 were relatively small, at 9 for maize Agricultural prices are projected to decline 3.2 and 11 percent for wheat (again, the price of rice percent in 2013. Specifically, wheat and maize was stable). prices are expected to average 2.2 and 2.8 percent less, respectively, than their 2012 levels. These results vary widely across commodities Rice prices are expected to decline about 4 and across countries. For example, between percent, to an average of US$540 per ton, while 2011Q3 and 2012Q3, 14 out of the 21 countries soybean and palm oil prices are expected to be that reporting data experienced price declines in 3.6 and 2.1 percent lower, respectively. Among maize, while only seven experienced price beverage prices, coffee may experience the increases; the world maize price during this largest decline (9.6 percent for robusta and 7.6 period increased 9 percent. Interestingly, even percent for arabica), while cocoa and tea will between 2012Q2 and 2012Q3, 14 out of the 21 change only marginally. On raw materials, countries experienced single-digit prices changes timber and natural rubber prices are expected to (an equal number of increases and declines), decline modestly (0.5 and 2.3 percent, while only five countries reported maize price respectively), while cotton prices are forecast to increases comparable to world price changes. drop by 8.5 percent. This discrepancy may reflect the fact that the world price of maize is reflects demand and A number of assumptions underpin the outlook supply of maize used for feed, while most for agricultural commodities. First, it assumes domestic prices refer to maize for human that crop production in the Southern Hemisphere consumption. The results for wheat and rice are will not be impacted by adverse weather more in line with expectations: three of the seven conditions, and that next season‘s outlook will countries reporting data for wheat experienced return to normal trends—note that the wildfires increases comparable to world prices. that affected Australia in early January did not Furthermore, with only three exceptions, affect its wheat crop. In its January 2013 domestic rice prices did not change much, which assessment, the USDA estimated the 2012/13 was the case with world prices. A key season‘s global grain supplies (production plus conclusion from this brief analysis regarding the starting stocks) at 2.47 billion tons, down 2.5 shorter term, is that in the case of wheat and rice, percent from 2011/12. If history is any guide, domestic prices do follow world prices (with when markets experience negative supply shocks some lags); this is not the case for maize. Figure 18. World and domestic price changes In the longer term, it appears that about one-third percent change, 2006 to 2011 of the world price movements are transmitted to 1.20 domestic prices, not surprisingly given the host of reasons mentioned above. For example, World prices between 2006 and 2011, roughly corresponding the period spanning the recent commodity price 0.80 Median domestic price boom, the median domestic maize price increase for the sample of countries mentioned above was approximately 30 percent, compared to a doubling in world maize prices. The 0.40 corresponding price changes for were 37 versus 6 percent for wheat and 48 versus 18 percent for rice (figure 18). 0.00 Maize Wheat Rice Source: FAO and World Bank. 15 Commodity Market Outlook January 2013 similar to the one experienced in the summer of Figure 19. Grain production and stocks 2012, production comes back to pre-crisis levels 40% Maize 1,000 within the next season through resource shifting, as was the case for maize in 2004/05, wheat in 2002/03, and rice in 2001/02 (figure 19). 900 30% However, it takes between three and four seasons before stocks are fully replenished, in 800 turn keeping prices of the respective commodity 20% under pressure. As discussed earlier, wheat is traded about 30 percent above maize in the long 700 term, indicating that it may take up to three years before maize and wheat prices return to their 10% 600 long term equilibrium. Second, the outlook assumes that in 2013 crude 0% 500 oil prices will ease marginally, while fertilizer 2000 2002 2004 2006 2008 2010 2012 prices will decline by more than 6 percent (both fertilizer and crude oil are key inputs to agriculture). However, because of the energy 40% Wheat 700 intensive nature of agriculture—the industry is estimated to be four to five times more energy 30% intensive than manufacturing—an energy price 600 spike is likely to be followed by food price increases. The price transmission elasticity from energy to agriculture ranges between 0.2 and 0.3 20% (depending on the commodity), implying that a 10 percent increase in energy prices will induce 500 a 2-3 percent increase in food prices (see box 3 10% for crude oil‘s contribution to food price changes). 0% 400 Third, based on recent experience, the outlook 2000 2002 2004 2006 2008 2010 2012 assumes that policy responses would not upset food markets. This assumption, however, depends crucially on how well markets are 40% Rice 500 supplied. If the baseline outlook materializes, policy actions are unlikely and, if they take 30% 450 place, will be isolated with only limited impact. For example, when the market conditions for rice and cotton were tight (in 2008 and 2010, 20% 400 respectively), export bans had a major impact on market prices. However, last year‘s Thai rice purchase program and the Indian export ban of 10% 350 March 2012 had very limited impact on prices because these markets were (and still are) well supplied. Reports in October 2012 that some 0% 300 Central Asian grain producing countries might 2000 2002 2004 2006 2008 2010 2012 introduce export bans did not materialize. For Stock-to-use ratio, % (left axis) agricultural commodities, policy response is Production, million tons (right axis) perhaps the only risk that is covariant with the Source: US Department of Agriculture (January 2013 update). 16 Commodity Market Outlook January 2013 Box 3. Which drivers matter most in food price movements? The post-2004 commodity price boom took place during a period when many countries were experiencing strong economic growth. Growth in low- and middle-income countries averaged 6.2 percent during 2005-12, one of the highest eight-year averages in recent history. Yet, economic growth was only one among numerous causes of the commodity price boom. Fiscal expansion in many countries, along with low interest rates, created an environment favoring high commodity prices. A depreciating U.S. dollar also strengthened demand from (and limited supply to) non-US$ commodity consumers (and producers). Other factors include low investment in agriculture in the past, especially in extractive commodities (in turn a response to a prolonged period of low prices); capital markets activity by financial institutions including commodities in their portfolios; and geopolitical concerns, especially in energy markets. In the case of agricultural commodities, prices were affected by higher energy costs, increasingly frequent adverse weather conditions, and the diversion of some food commodities to the production of biofuels. These conditions led to global stock-to-use ratios of some agricultural commodities down to levels not seen since the early 1970s. Lastly, policy responses including export bans and prohibitive taxes to offset the impact of high world prices contributed to creating the conditions for what has been often called a ―perfect storm‖ (box table 3.1). Which drivers matters most for food commodity prices? A reduced-form econometric model applied to five food commodities (wheat, maize, rice, soybeans, and palm oil) using 1960-2012 data shows that crude oil price is the most important variable by far, explaining almost two-thirds of the post-2004 food price increases. Stocks-to-use (S/U) ratio is also important, accounting for about 15 percent, as is exchange rate, accounting for 10 percent. The remaining 15 percent reflects, among other drivers, policies (details can be found in Baffes and Dennis 2013). As an example, consider wheat. Between 1997-2004 and 2005-12 (roughly, the pre-and post boom periods), wheat prices increased by 81 percent; the S/U ratio declined by 17 percent; oil prices increased 228 percent; and the U.S. dollar depreciated 12 percent against the SDR. The three significantly different from zero estimated elasticities were: -0.50 (S/U ratio), 0.28 (crude oil), and –0.86 (exchange rate). These elasticity estimates are consistent with the literature—see FAO (2008), Bobenrieth, Wright, and Zeng (2012) for the S/U ratio, Gardner (1981) and Gilbert (1989) for exchange rates, and Borensztein and Reinhart (1994) and Baffes (2007) for oil prices. When these elasticities are applied to changes in the respective drivers, they give an 83 percent increase of the price of wheat during these two periods [-0.50*(-17%) + 0.28*228% -0.86*(-11.8%) = 8.7% + 64.3% + 10.2% = 83.2%]. These changes imply an 11 percent contribution by the S/U ratio, 77 percent contribution by oil, and 12 percent by exchange rate movements. Using related methodology, von Witzke and Noleppa (2011) arrived at a remarkably similar conclusions. World Bank (2012) used similar methodology. Box table 3.1 Most of the post-2004 “perfect storm” conditions are still in place 1997-2004 2005-12 Change Food price index (nominal, 2005 = 100) 89 154 73% MACROECONOMIC DRIVERS GDP growth (middle income countries, % p.a.) 4.6 6.2 35% Industrial production growth (middle income countries, % p.a.) 5.4 7.3 35% Crude oil price (nominal, US$/barrel) 25 79 216% Exchange rate (US$ against a broad index of currencies, 1997 = 100) 118 104 -12% Interest rate (10-year US Treasury bill, %) 5.2 3.6 -31% Funds invested in commodities (US$ billion) 57 230 304% SECTORAL DRIVERS Stocks (total of maize, wheat, and rice, months of consumption) 3.5 2.5 -29% Biofuel production (tousand b/d of crude oil equivalent) 231 892 286% Fertilizer price index (nominal, 2005 = 100) 69 207 200% Growth in yields (average of wheat, maize, and rice, % p.a.) 1.4 0.5 -64% Yields (average of wheat, maize, and rice, tons/hectare) 3.7 4.0 8% Natural disasters (droughts, floods, and extreme temperatures) 174 207 19% Policies (Producer NPC for OECD countries, %) 1.3 1.1 -15% Source: Barclays Capital, Center for Research for the Epidemiology of Disasters, Federal Reserve Bank of St. Louis, Organization of Economic Cooperation and Development, US Department of Agriculture, U.S. Treasury, World Bank, and author’s calculations. Note: 2012 data for some variables are preliminary. 17 Commodity Market Outlook January 2013 risk of adequate supplies, which in turn depends technological developments within existing on weather. biofuel crops (especially maize, edible oils, and sugar cane) or new crops increase the energy Lastly, despite an only marginal increase in content of these crops, thus making them more global biofuel production in 2011 and 2012, the attractive sources of energy. Thus, high energy outlook assumes biofuel production will prices in combination with technological continue to play a key role in the behavior of improvements may pose upside risks for food agricultural commodity markets. Currently, prices in the long term. biofuels account for 1.3/bbl of crude oil equivalent (figure 20). The 2012 joint OECD- FAO Agricultural Outlook expects global Fertilizers biofuel production to expand at an annual rate of Fertilizers, a key input to the production of most more than 5 percent over the next decade (from agricultural commodities especially grains and 140 billion liters in 2012 to 222 billion liters in oilseeds, experienced one of the largest price 2021). Thus, it is feasible that at the beginning of increases during the post-2005 commodity boom the 2020s, between 3 and 4 percent of the (figure 21). For example, between 2003 and world‘s land area could be allocated to grains 2008, the World Bank‘s fertilizer price index and oilseeds (evaluated at average world yields). increased five-fold. In addition to demand, most On the other hand, policy makers are if the fertilizer prices increases are due o increasingly realizing that the environmental and increases in energy prices, especially natural energy security benefits of producing biofuels gas—some fertilizers are made directly out of may not outweigh their costs (in terms of higher natural gas. The fertilizer price index declined food prices), thus subsidies and mandates that marginally in 2012 (down 3 percent form 211). have supported the biofuel sectors of many The declined were led by DAP and TSP, 13 and countries may ease. 14 percent down (potassium price was up 4.5 Yet, the likely long-term impact of biofuels on percent). food prices is complex, as it goes far beyond the Fertilizer prices are expected to ease almost 6 land diversion, subsidies, and mandates. The percent in 2013, and decline another 5 percent in impact is likely to depend more on the following the next two years. The key reason behind the factors: (i) the level at which crude oil prices declining path of fertilizer prices is the assumed make biofuels profitable and (ii) whether moderation of natural gas prices. Figure 20. Biofuel production Figure 21. Fertilizer prices mbd of oil equivalent US$/mt 1.4 1,400 DAP 1.2 1,200 Urea Potasium Chloride 1.0 1,000 0.8 800 0.6 600 0.4 400 0.2 200 0.0 1990 1993 1996 1999 2002 2005 2008 2011 0 Jan-06 May-07 Sep-08 Jan-10 May-11 Sep-12 Source: BP Statistical Review of World Energy and OECD. Source: World Bank. 18 Commodity Market Outlook January 2013 References France. Morck, Randall, Bernard Yeung, and Wayne Yu. Baffes, John. 2011. ―Cotton Subsidies, the WTO, 2000. ―The Information Content of Stock and the ‗Cotton Problem‘.‖ The World Economy Markets: Why Do Emerging Markets Have 34: 1534-56. Synchronous Stock Price Movements?‖ Baffes John. 2007. ―Oil Spills on Other Journal of Financial Economics 58: 215-60. Commodities.‖ Resources Policy 32: 126-34. Von Witzke, Harald, and Steffen Noleppa. 2011. Baffes, John, and Allen Dennis. 2013. ―Long ―Why Speculation is Not the Prime Cause of Term Drivers of Food Prices.‖ Unpublished High and Volatile International Agricultural paper, World Bank, Washington, DC. Commodity Prices: An Economic Analysis of the 2007-08 Price Spike.‖ Humboldt Forum for Bobenrieth, Eugenio, Brian Wright, and Zi Zeng. Food and Agriculture Working Paper. 2012. ―Stocks-to-Use Ratios as Indicator of Vulnerability to Spikes in Global Cereal World Bank. 2012. Responding to Higher and Markets.‖ Paper presented at the FAO, more Volatile Food Prices. Report no. 68420- Agricultural Marketing Information System GLB. Washington, DC: World Bank. (AMIS) meeting, October 2012. Borensztein, Eduardo, and Carmen M. Reinhart. 1994. ―The Macroeconomic Determinants of Commodity Prices.‖ IMF Staff Papers 41: 236- 61. FAO, Food and Agriculture Organization of the United Nations. 2008. ―Soaring Food Prices: Facts, Perspectives, Impacts, and Actions Required.‖ Technical report discussed at the High Level Conference on World Food Security: The Challenges of Climate Change and Bioenergy. Rome: FAO Gardner, Bruce. 1981. ―On the Power of Macroeconomic Linkages to Explain Events in U.S. Agriculture.‖ American Journal of Agricultural Economics 63: 871-78. Gilbert, Christopher L. 1989. ―The Impact of Exchange Rates and Developing Country Debt on Commodity Prices.‖ Economic Journal 99: 773–83. Gilbert, Christopher L., and C. W. Morgan. 2010. ―Food Price Volatility.‖ Philosophical Transactions of the Royal Society [Biological Sciences] 365: 3023-34. Hicks, John R. 1932. The Theory of Wages. London: Macmillan. ICAC, International Cotton Advisory Committee. 2012. Cotton: Review of the Word Situation, November-December. Washington, DC: ICAC. IEA, International Energy Agency. 2012. World Energy Outlook 2012. OECD/IEA, Paris, 19 Table A1. Commodity price data Annual averages Quarterly averages Monthly averages Jan-Dec Jan-Dec Jan-Dec Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Oct Nov Dec Commodity Unit 2010 2011 2012 2011 2012 2012 2012 2012 2012 2012 2012 Energy Coal, Australia a/ $/mt 98.97 121.45 96.36 114.91 113.65 95.54 89.40 86.87 81.85 85.89 92.88 Coal, Colombia $/mt 77.97 111.50 83.95 101.18 91.77 82.22 82.68 79.14 77.46 78.85 81.10 Coal, South Africa $/mt 91.62 116.30 92.92 106.85 105.00 93.47 87.42 85.79 82.80 85.74 88.84 Crude oil, average a/ $/bbl 79.04 104.01 105.01 103.16 112.52 102.83 102.77 101.93 103.41 101.17 101.19 Crude oil, Brent a/ $/bbl 79.64 110.94 111.97 109.29 118.60 108.86 109.95 110.45 111.97 109.71 109.68 Crude oil, Dubai a/ $/bbl 78.06 106.03 108.90 106.16 116.07 106.18 106.18 107.19 108.73 107.13 105.69 Crude oil, West Texas Int. a/ $/bbl 79.43 95.05 94.16 94.03 102.88 93.44 92.17 88.14 89.52 86.68 88.22 Natural gas Index a/ 2005=100 91.1 107.3 108.3 111.3 106.4 106.3 108.0 112.6 110.7 113.6 113.6 Natural gas, Europe a/ $/mmbtu 8.29 10.52 11.47 11.42 11.51 11.52 11.13 11.73 11.58 11.83 11.79 Natural gas, US a/ $/mmbtu 4.39 4.00 2.75 3.32 2.46 2.28 2.88 3.40 3.32 3.54 3.34 Natural gas LNG a/ $/mmbtu 10.85 14.66 16.67 16.58 16.36 17.06 17.56 15.69 15.30 15.28 16.49 Non Energy Agriculture Beverages Cocoa b/ ¢/kg 313.3 298.0 239.2 246.8 234.1 228.2 249.4 245.1 246.4 247.8 241.0 Coffee, arabica b/ ¢/kg 432.0 597.6 411.1 536.2 486.9 400.4 400.0 357.1 382.1 352.5 336.7 Coffee, robusta b/ ¢/kg 173.6 240.8 226.7 215.9 222.1 231.0 234.1 219.5 230.3 215.3 212.9 Tea, auctions (3) avg. b/ ¢/kg 288.5 292.1 289.8 279.5 254.9 292.2 308.4 303.6 300.9 301.7 308.3 Tea, Colombo auctions b/ ¢/kg 329.0 326.4 306.3 316.7 292.7 304.7 308.1 319.5 315.9 311.6 331.0 Tea, Kolkata auctions b/ ¢/kg 280.5 277.9 275.0 256.4 205.3 289.9 313.4 291.4 298.9 289.2 286.2 Tea, Mombasa auctions b/ ¢/kg 256.0 271.9 288.1 265.4 266.7 282.0 303.5 300.0 288.0 304.3 307.7 Food Fats and Oils Coconut oil b/ $/mt 1,124 1,730 1,111 1,377 1,400 1,187 1,013 844 898 848 785 Copra $/mt 750 1,157 741 917 933 793 672 565 591 577 526 Groundnuts $/mt 1,284 2,086 2,175 2,646 2,800 2,617 1,858 1,424 1,488 1,418 1,367 Groundnut oil b/ $/mt 1,404 1,988 n.a. 2,245 n.a. n.a. 2,476 2,298 2,375 2,303 2,216 Palm oil b/ $/mt 901 1,125 999 1,025 1,107 1,088 993 809 839 813 776 Palmkernel oil $/mt 1,184 1,648 1,110 1,250 1,366 1,242 1,020 813 862 815 762 Soybean meal b/ $/mt 378 398 524 357 392 488 630 587 601 579 580 Soybean oil b/ $/mt 1,005 1,299 1,226 1,214 1,253 1,236 1,258 1,158 1,175 1,135 1,163 Soybeans b/ $/mt 450 541 591 488 518 572 672 604 617 589 607 Grains Barley b/ $/mt 158.4 207.2 240.3 210.9 215.6 237.8 258.4 249.3 252.9 252.1 242.9 Maize b/ $/mt 185.9 291.7 298.4 269.3 277.7 270.2 328.6 317.2 321.2 321.6 308.6 Rice, Thailand, 5% b/ $/mt 488.9 543.0 562.9 600.1 542.5 582.8 568.3 558.2 558.3 559.3 557.0 Rice, Thailand, 25% $/mt 441.5 506.0 n.a. 570.0 534.0 n.a. 547.9 531 532.5 530 530 Rice,Thai, A.1 $/mt 383.7 458.6 525.3 527.6 520.4 545.4 513.3 522.0 520.3 523.0 522.7 Rice, Vietnam 5% $/mt 429.2 513.6 434.5 551.2 436.9 428.7 433.6 438.8 453.7 448.3 414.3 Sorghum $/mt 165.4 268.7 271.9 261.8 269.6 259.4 273.4 285.4 283.1 289.0 284.0 Wheat, Canada $/mt 312.4 439.6 n.a. 405.2 378.1 n.a. n.a. n.a. n.a. n.a. n.a. Wheat, US, HRW b/ $/mt 223.6 316.3 313.2 279.7 278.8 269.0 349.5 355.7 358.2 360.8 348.0 Wheat, US, SRW $/mt 229.7 285.9 295.4 250.5 258.9 251.8 333.4 337.3 340.2 346.5 325.2 Other Food Bananas, Europe $/mt 1,002 1,125 1,100 968 1,143 1,171 982 1,103 1,117 1,068 1,123 Bananas, US b/ $/mt 868 968 984 951 1,052 979 960 945 956 934 944 Fishmeal $/mt 1,688 1,537 1,558 1,336 1,300 1,481 1,677 1,776 1,635 1,812 1,880 Meat, beef b/ ¢/kg 335.1 404.2 414.2 407.2 424.7 413.0 400.1 419.1 401.0 424.7 431.6 Meat, chicken b/ ¢/kg 189.2 192.6 207.9 197.0 201.6 207.1 209.7 213.2 211.3 213.0 215.3 Meat, sheep ¢/kg 531.4 663.1 609.1 660.2 644.5 618.3 587.5 586.2 586.6 582.7 589.3 Oranges b/ $/mt 1,033 891 868 824 771 844 995 862 981 847 758 Shrimp ¢/kg 1,004 1,193 1,006 1,085 1,055 977 970 1,024 981 1,025 1,066 Sugar, EU b/ ¢/kg 44.18 45.46 42.01 44.01 42.85 41.93 40.90 42.38 42.35 41.93 42.87 Sugar, US b/ ¢/kg 79.25 83.92 63.56 82.09 75.66 66.63 61.50 50.46 52.54 49.65 49.20 Sugar, world b/ ¢/kg 46.93 57.32 47.49 53.29 52.75 47.05 46.85 43.33 44.78 42.64 42.57 Raw Materials Timber Logs, Cameroon $/cum 428.6 484.8 451.4 483.0 463.6 452.6 436.2 453.2 450.7 449.3 459.4 Logs, Malaysia b/ $/cum 278.2 390.5 360.5 409.0 373.3 361.0 355.1 352.7 350.2 353.0 354.8 Plywood ¢/sheets 569.1 607.5 610.3 617.5 612.8 609.9 607.1 611.5 610.2 611.5 612.9 Sawnwood, Cameroon $/cum 812.7 825.8 759.3 774.6 755.5 760.7 755.2 765.9 766.5 761.3 770.0 Sawnwood, Malaysia b/ $/cum 848.3 939.4 876.3 911.8 882.9 883.8 864.3 874.4 873.4 870.0 879.9 Woodpulp $/mt 866.8 899.6 762.8 834.6 781.1 786.8 735.2 748.3 726.0 746.8 771.9 20 Table A1. Commodity price data Annual averages Quarterly averages Monthly averages Jan-Dec Jan-Dec Jan-Dec Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Oct Nov Dec Commodity Unit 2010 2011 2012 2011 2012 2012 2012 2012 2012 2012 2012 Other Raw Materials Cotton b/ ¢/kg 228.3 332.9 196.7 228.4 221.5 198.9 185.6 180.9 180.7 178.3 183.8 Rubber, RSS3 b/ ¢/kg 365.4 482.3 337.7 360.6 385.3 359.1 297.0 309.6 320.4 297.4 311.0 Rubber, TSR20 ¢/kg 338.1 451.9 315.6 358.7 368.8 330.1 275.0 288.3 295.4 280.0 289.6 Fertilizers DAP b/ $/mt 500.7 618.9 539.8 605.7 516.6 545.2 565.0 532.3 573.0 524.8 499.0 Phosphate rock b/ $/mt 123.0 184.9 185.9 201.3 195.8 179.4 183.3 185.0 185.0 185.0 185.0 Potassium chloride b/ $/mt 331.9 435.3 459.0 473.0 479.8 461.3 464.8 430.1 440.2 425.0 425.0 TSP b/ $/mt 381.9 538.3 462.0 564.2 440.4 470.4 485.0 452.2 474.0 447.5 435.0 Urea b/ $/mt 288.6 421.0 405.4 437.3 387.3 470.0 381.3 383.0 396.0 374.2 378.8 Metals and Minerals Aluminum b/ $/mt 2,173 2,401 2,023 2,094 2,179 1,982 1,929 2,003 1,974 1,949 2,087 Copper b/ $/mt 7,535 8,828 7,962 7,514 8,318 7,889 7,729 7,913 8,062 7,711 7,966 Iron ore $/dmt 145.9 167.8 128.5 140.8 141.8 139.6 111.6 120.9 114.0 120.4 128.5 Lead b/ ¢/kg 214.8 240.1 206.5 199.2 209.1 197.9 198.7 220.1 214.2 218.2 228.0 Nickel b/ $/mt 21,809 22,910 17,548 18,393 19,636 17,186 16,384 16,984 17,169 16,335 17,449 Tin b/ ¢/kg 2,041 2,605 2,113 2,085 2,291 2,063 1,936 2,161 2,123 2,071 2,288 Zinc b/ ¢/kg 216.1 219.4 195.0 190.4 202.5 193.2 189.2 195.2 190.4 191.2 204.0 Precious Metals Gold $/toz 1,225 1,569 1,670 1,682 1,692 1,612 1,656 1,718 1,747 1,722 1,685 Platinum $/toz 1,610 1,719 1,551 1,529 1,604 1,500 1,501 1,598 1,636 1,576 1,582 Silver ¢/toz 2,015 3,522 3,114 3,179 3,258 2,941 2,995 3,261 3,319 3,277 3,187 World Bank commodity price indices for low and middle income countries ( 2005 =100) Energy 144.7 188.2 187.4 186.6 200.8 183.7 183.2 182.1 183.7 180.9 181.6 Non Energy 173.9 209.9 190.0 188.8 192.9 189.3 191.0 186.9 188.8 184.9 186.9 Agriculture 170.4 209.0 194.0 190.7 192.6 191.7 200.6 191.1 194.2 190.1 188.9 Beverages 182.1 208.2 166.2 183.7 171.7 162.7 169.7 160.8 165.4 160.3 156.9 Food 169.6 210.1 211.6 197.6 203.6 206.9 225.2 210.7 214.4 210.2 207.6 Fats and Oils 184.5 222.7 230.0 202.5 216.9 231.1 250.2 221.9 227.8 219.4 218.6 Grains 171.8 238.5 244.2 229.3 226.8 227.2 264.0 258.8 261.1 261.8 253.7 Other Food 148.2 167.8 157.9 162.2 165.2 156.8 157.1 152.4 154.4 151.5 151.4 Raw Materials 166.3 206.7 165.3 177.8 176.5 169.3 156.6 158.7 160.0 156.3 159.8 Timber 130.5 153.5 142.7 152.2 144.9 143.7 140.7 141.7 141.3 141.2 142.5 Other Raw Materials 205.4 264.8 189.9 205.8 211.0 197.4 173.9 177.4 180.5 172.9 178.7 Fertilizers 187.2 267.0 259.2 284.2 260.1 270.0 256.9 249.9 256.0 247.1 246.6 Metals and Minerals c/ 179.6 205.5 174.0 174.0 185.7 175.4 163.9 171.1 170.0 167.3 176.1 Base Metals d/ 169.2 193.2 168.6 164.1 178.2 166.2 162.1 167.7 168.8 163.2 171.1 Precious Metals (NEW) 272.2 371.9 378.3 382.0 386.1 363.6 372.7 390.7 397.4 391.7 383.0 a/ Included in the energy index (2005=100) b/ Included in the non-energy index (2005=100) c/ base metals plus iron ore d/ Includes aluminum, copper, lead, nickel, tin and zinc $ = US dollar ¢ = US cent bbl = barrel cum = cubic meter dmt = dry metric ton dmtu = dry metric ton unit kg = kilogram mmbtu = million British thermal units mt = metric ton toz = troy oz n.a. = not available n.q. = no quotation 21 Table A2. Commodity Prices and Price Forecast in Nominal US Dollars Actual Forecast Commodity Unit 1980 1990 2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 Energy Coal, Australian $/mt 40.1 39.7 26.3 99.0 121.4 96.4 93.0 91.0 90.0 91.0 91.9 92.9 93.9 94.9 100.0 Crude oil, avg, spot $/bbl 36.9 22.9 28.2 79.0 104.0 105.0 102.0 102.2 102.1 101.9 101.7 101.5 101.4 101.2 101.5 Natural gas, European $/mmbtu 4.2 2.8 3.9 8.3 10.5 11.5 11.2 11.1 11.0 10.9 10.8 10.7 10.6 10.5 10.0 Natural gas, US $/mmbtu 1.6 1.7 4.3 4.4 4.0 2.8 3.5 4.0 4.5 5.0 5.3 5.5 5.8 6.0 7.0 LNG, Japanese $/mmbtu 5.7 3.6 4.7 10.8 14.7 16.7 16.0 15.5 15.0 14.8 14.5 14.3 14.0 13.8 12.5 Non Energy Commodities Agriculture Beverages Cocoa ¢/kg 260 127 91 313 298 239 235 232 230 229 228 227 226 225 220 Coffee, Arabica ¢/kg 347 197 192 432 598 411 380 370 360 359 358 357 356 355 350 Coffee, robusta ¢/kg 324 118 91 174 241 227 205 190 185 183 182 180 179 177 170 Tea, auctions (3) ave ¢/kg 166 206 188 288 292 290 285 288 291 295 298 301 305 308 325 Food Fats and Oils Coconut oil $/mt 674 337 450 1,124 1,730 1,111 950 940 930 927 924 921 918 915 900 Groundnut oil $/mt 859 964 714 1,404 1,988 2,436 2,150 1,950 1,900 1,895 1,890 1,885 1,880 1,875 1,850 Palm oil $/mt 584 290 310 901 1,125 999 930 910 900 889 879 869 859 849 800 Soybean meal $/mt 262 200 189 378 398 524 520 460 410 407 404 401 398 395 380 Soybean oil $/mt 598 447 338 1,005 1,299 1,226 1,200 1,100 1,050 1,045 1,040 1,035 1,030 1,025 1,000 Soybeans $/mt 296 247 212 450 541 591 570 540 520 519 518 517 516 515 510 Grains Barley $/mt 78 80 77 158 207 240 230 215 200 198 197 195 194 192 185 Maize $/mt 125 109 89 186 292 298 290 270 250 248 246 244 242 240 230 Rice, Thai, 5% $/mt 411 271 202 489 543 563 540 520 500 498 496 494 492 490 480 Wheat, US, HRW $/mt 173 136 114 224 316 313 320 300 270 270 271 271 272 272 275 Other Food Bananas US $/mt 377 541 424 868 968 984 980 970 950 947 944 941 938 935 920 Meat, beef ¢/kg 276 256 193 335 404 414 410 360 315 323 330 338 347 355 390 Meat, chicken ¢/kg 76 108 131 189 193 208 201 201 201 202 203 203 204 204 205 Oranges $/mt 400 531 363 1,033 891 868 845 860 900 903 906 909 912 915 930 Shrimp ¢/kg 1,152 1,069 1,515 1,004 1,193 1,006 1,005 1,035 1,100 1,110 1,120 1,130 1,140 1,150 1,200 Sugar, world ¢/kg 63.2 27.7 18.0 46.9 57.3 47.5 45.0 40.0 38.0 37.7 37.4 37.1 36.8 36.5 35.0 Agricultural Raw Materials Timber Logs, Cameroonian $/cum 252 343 275 429 485 451 450 457 465 473 481 489 497 505 535 Logs, Malaysian $/cum 196 177 190 278 391 361 356 362 368 374 381 387 393 400 425 Sawnwood, Malaysian $/cum 396 533 595 848 939 876 875 885 902 919 937 955 974 1,000 1,080 Other Raw Materials Cotton A Index ¢/kg 206 182 130 228 333 197 180 190 200 205 209 214 219 224 250 Rubber, Malaysian ¢/kg 142 86 67 365 482 338 330 325 320 318 316 314 312 310 300 Tobacco $/mt 2,276 3,392 2,976 4,333 4,485 4,294 4,200 4,100 4,000 4,010 4,020 4,030 4,040 4,050 4,100 Fertilizers DAP $/mt 222 171 154 501 619 540 500 490 480 478 476 474 472 470 460 Phosphate rock $/mt 47 41 44 123 185 186 175 160 150 145 140 135 130 125 105 Pottasium chloride $/mt 116 98 123 332 435 459 430 410 380 375 369 364 359 354 330 TSP $/mt 180 132 138 382 538 462 430 425 420 415 409 404 399 394 370 Urea $/mt 192 119 101 289 421 405 390 370 350 345 339 334 329 324 300 Metals and Minerals Aluminum $/mt 1,775 1,639 1,549 2,173 2,401 2,023 2,200 2,400 2,500 2,537 2,575 2,614 2,653 2,693 2,900 Copper $/mt 2,182 2,661 1,813 7,535 8,828 7,962 7,800 7,400 7,000 6,980 6,960 6,939 6,919 6,899 6,800 Iron ore ¢/dmtu 28 33 29 146 168 128 130 132 135 136 138 139 141 142 150 Lead ¢/kg 91 81 45 215 240 206 210 215 220 221 222 223 224 225 230 Nickel $/mt 6,519 8,864 8,638 21,809 22,910 17,548 18,000 18,200 18,500 18,948 19,407 19,877 20,358 20,851 23,500 Tin ¢/kg 1,677 609 544 2,041 2,605 2,113 2,200 2,250 2,300 2,346 2,392 2,440 2,488 2,538 2,800 Zinc ¢/kg 76 151 113 216 219 195 210 220 230 232 234 236 238 240 250 Precious Metals Gold $/toz 608 383 279 1,225 1,569 1,670 1,600 1,550 1,500 1,479 1,458 1,437 1,417 1,396 1,300 Silver c/toz 2,080 483 495 2,015 3,522 3,114 3,100 2,950 2,800 2,768 2,737 2,706 2,676 2,646 2,500 Platinum $/toz 679 472 545 1,610 1,719 1,551 1,544 1,469 1,395 1,379 1,363 1,348 1,333 1,318 1,245 a/ iron ore unit for years 1980 to 2005 is cents/ dmtu, thereafter is $/dmt. Source: World Bank, Development Prospects Group. 22 Table A3. Commodity Prices and Price Forecast in Real 2005 US Dollars Actual Forecast Commodity Unit 1980 1990 2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 Energy Coal, Australian $/mt 52.7 41.0 29.4 87.6 98.7 79.9 75.7 72.5 70.4 69.8 69.3 68.9 68.4 67.9 65.4 Crude oil, avg, spot $/bbl 48.4 23.7 31.6 70.0 84.6 87.1 83.0 81.4 79.8 78.3 76.8 75.3 73.8 72.4 66.3 Natural gas, European $/mmbtu 5.5 2.9 4.3 7.3 8.5 9.5 9.1 8.8 8.6 8.4 8.1 7.9 7.7 7.5 6.5 Natural gas, US $/mmbtu 2.1 1.8 4.8 3.9 3.3 2.3 2.8 3.2 3.5 3.8 4.0 4.1 4.2 4.3 4.6 LNG, Japanese $/mmbtu 7.5 3.8 5.3 9.6 11.9 13.8 13.0 12.3 11.7 11.3 10.9 10.6 10.2 9.8 8.2 Non Energy Commodities Agriculture Beverages Cocoa ¢/kg 342 131 101 277 242 198 191 185 180 176 172 168 165 161 144 Coffee, Arabica ¢/kg 455 204 215 383 486 341 309 295 281 276 270 265 259 254 229 Coffee, robusta ¢/kg 426 122 102 154 196 188 167 151 145 141 137 134 130 127 111 Tea, auctions (3) ave ¢/kg 218 213 210 255 237 240 232 230 228 226 225 223 222 220 212 Food Fats and Oils Coconut oil $/mt 884 348 504 995 1,406 921 773 749 727 712 697 683 668 654 588 Groundnut oil $/mt 1,127 997 799 1,243 1,616 2,019 1,750 1,554 1,485 1,455 1,426 1,397 1,369 1,341 1,209 Palm oil $/mt 766 300 347 798 915 828 757 725 704 683 663 644 625 607 523 Soybean meal $/mt 344 207 212 335 324 434 423 367 321 312 305 297 290 282 248 Soybean oil $/mt 784 463 378 890 1,056 1,017 977 876 821 802 784 767 750 733 654 Soybeans $/mt 389 255 237 398 440 490 464 430 407 398 391 383 376 368 333 Grains Barley $/mt 103 83 86 140 168 199 187 171 156 152 149 145 141 138 121 Maize $/mt 164 113 99 165 237 247 236 215 195 190 185 181 176 172 150 Rice, Thai, 5% $/mt 539 280 227 433 441 467 440 414 391 382 374 366 358 350 314 Wheat, US, HRW $/mt 227 140 128 198 257 260 260 239 211 208 204 201 198 195 180 Other Food Bananas US $/mt 495 559 475 769 787 816 798 773 743 727 712 697 683 669 601 Meat, beef ¢/kg 362 265 216 297 329 343 334 287 246 248 249 251 252 254 255 Meat, chicken ¢/kg 99 112 147 168 157 172 164 160 158 155 153 151 148 146 134 Oranges $/mt 525 549 407 915 724 720 688 685 704 693 683 674 664 655 608 Shrimp ¢/kg 1,511 1,106 1,696 889 970 834 818 825 860 852 845 837 830 823 784 Sugar, world ¢/kg 82.9 28.6 20.2 41.6 46.6 39.4 36.6 31.9 29.7 28.9 28.2 27.5 26.8 26.1 22.9 Agricultural Raw Materials Timber Logs, Cameroonian $/cum 330 355 308 379 394 374 366 364 364 363 363 362 362 361 350 Logs, Malaysian $/cum 257 183 213 246 317 299 290 288 288 287 287 287 286 286 278 Sawnwood, Malaysian $/cum 520 551 666 751 764 727 712 705 705 706 707 708 709 715 706 Other Raw Materials Cotton A Index ¢/kg 271 188 146 202 271 163 147 151 156 157 158 159 159 160 163 Rubber, Malaysian ¢/kg 187 89 75 324 392 280 269 259 250 244 238 233 227 222 196 Tobacco $/mt 2,986 3,508 3,332 3,837 3,646 3,560 3,419 3,267 3,127 3,079 3,033 2,987 2,942 2,897 2,679 Fertilizers DAP $/mt 292 177 173 443 503 447 407 390 375 367 359 351 344 336 301 Phosphate rock $/mt 61 42 49 109 150 154 142 127 117 111 105 100 95 90 69 Pottasium chloride $/mt 152 101 137 294 354 380 350 327 297 288 279 270 262 253 216 TSP $/mt 237 136 154 338 438 383 350 339 328 318 309 300 291 282 242 Urea $/mt 252 123 113 256 342 336 317 295 274 265 256 248 240 232 196 Metals and Minerals Aluminum $/mt 2,329 1,695 1,734 1,924 1,952 1,677 1,791 1,912 1,954 1,948 1,943 1,937 1,932 1,926 1,895 Copper $/mt 2,863 2,752 2,030 6,672 7,177 6,601 6,349 5,896 5,472 5,359 5,250 5,144 5,039 4,936 4,444 Iron ore ¢/dmtu 37 34 32 129 136 107 106 105 106 105 104 103 103 102 98 Lead ¢/kg 119 84 51 190 195 171 171 171 172 170 167 165 163 161 150 Nickel $/mt 8,553 9,167 9,669 19,312 18,625 14,548 14,651 14,501 14,463 14,549 14,640 14,733 14,825 14,916 15,357 Tin ¢/kg 2,201 629 608 1,807 2,118 1,751 1,791 1,793 1,798 1,801 1,805 1,808 1,812 1,815 1,830 Zinc ¢/kg 100 157 126 191 178 162 171 175 180 178 176 175 173 172 163 Metals and Minerals Gold $/toz 798 397 312 1,084 1,276 1,384 1,302 1,235 1,173 1,135 1,100 1,065 1,032 999 850 Silver c/toz 2,730 500 554 1,785 2,864 2,581 2,523 2,350 2,189 2,126 2,065 2,006 1,949 1,893 1,634 Platinum $/toz 891 488 610 1,425 1,398 1,286 1,257 1,171 1,090 1,059 1,029 999 971 943 814 a/ iron ore unit for years 1980 to 2005 is cents/ dmtu, thereafter is $/dmt. Source: World Bank, Development Prospects Group. 23 Table A4. Weighted Indices of Commodity Prices and Inflation, 2005=100 Actual Projection 1980 1990 2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 Price indices in nominal US dollars Energy 66.0 43.4 53.2 144.7 188.2 187.4 182.6 182.8 182.8 182.8 182.7 182.5 182.4 182.3 183.4 Non-energy commodities 102.2 84.0 72.2 173.9 209.9 190.0 186.2 180.4 175.4 175.6 175.7 175.9 176.2 176.5 177.7 Agriculture 119.6 90.5 78.7 170.4 209.0 194.0 187.8 179.6 173.2 173.1 173.0 173.0 173.0 173.1 172.7 Beverages 157.7 90.5 76.8 182.1 208.2 166.2 158.4 155.3 153.3 153.1 152.9 152.8 152.6 152.4 151.7 Food 124.6 90.6 76.6 169.6 210.1 211.6 204.8 191.7 181.3 180.5 179.8 179.1 178.4 177.7 174.0 Fats and oils 120.4 82.3 76.6 184.5 222.7 230.0 220.5 206.0 196.0 194.6 193.3 191.9 190.6 189.3 182.8 Grains 126.8 99.4 79.9 171.8 238.5 244.2 239.0 224.7 208.8 207.7 206.7 205.6 204.6 203.6 198.6 Other food 128.0 93.6 73.8 148.2 167.8 157.9 153.1 143.0 137.0 137.4 137.8 138.1 138.6 139.0 140.2 Raw materials 88.0 90.2 84.7 166.3 206.7 165.3 161.7 162.4 163.5 165.1 166.7 168.4 170.1 172.4 180.1 Timber 68.1 82.3 90.9 130.5 153.5 142.7 142.1 143.9 146.6 149.3 152.1 154.9 157.8 161.6 173.8 Other Raw Materials 109.9 98.9 77.9 205.4 264.8 189.9 183.1 182.6 182.0 182.4 182.8 183.2 183.6 184.1 186.9 Fertilizers 89.1 65.4 67.0 187.2 267.0 259.2 244.8 231.9 219.8 215.4 211.2 207.0 203.0 199.0 180.6 Metals and minerals a/ 68.1 72.8 59.5 179.6 205.5 174.0 176.3 176.1 174.9 176.1 177.3 178.5 179.8 181.0 187.7 Base Metals b/ 73.9 78.1 63.0 169.2 193.2 168.6 170.8 169.9 167.3 168.2 169.2 170.2 171.2 172.2 177.7 Precious Metals 162.7 81.3 63.6 272.2 371.9 378.3 378.3 352.8 339.9 335.3 330.8 326.3 321.9 317.5 296.6 Price indices in real 2005 US dollars c/ Energy 86.6 44.9 59.5 128.1 153.0 155.4 148.7 145.6 142.9 140.4 137.8 135.3 132.8 130.4 119.9 Non-energy commodities 134.1 86.9 80.8 154.0 170.7 157.5 151.6 143.7 137.1 134.8 132.6 130.4 128.3 126.3 116.1 Agriculture 156.9 93.6 88.1 150.9 169.9 160.8 152.9 143.1 135.4 132.9 130.5 128.2 125.9 123.8 112.8 Beverages 207.0 93.6 86.0 161.3 169.3 137.8 128.9 123.7 119.8 117.6 115.4 113.2 111.1 109.0 99.1 Food 163.4 93.7 85.8 150.2 170.8 175.4 166.7 152.7 141.7 138.6 135.6 132.7 129.9 127.1 113.7 Fats and oils 158.0 85.1 85.7 163.4 181.1 190.7 179.4 164.1 153.2 149.5 145.8 142.3 138.8 135.4 119.5 Grains 166.4 102.8 89.5 152.1 193.9 202.4 194.5 179.0 163.2 159.5 155.9 152.4 149.0 145.7 129.8 Other food 167.9 96.8 82.6 131.2 136.4 130.9 124.6 113.9 107.1 105.5 103.9 102.4 100.9 99.4 91.6 Raw materials 115.5 93.3 94.8 147.2 168.0 137.0 131.6 129.4 127.8 126.8 125.8 124.8 123.9 123.3 117.7 Timber 89.3 85.1 101.8 115.5 124.8 118.3 115.7 114.7 114.6 114.7 114.7 114.8 114.9 115.6 113.6 Other Raw Materials 144.2 102.2 87.2 181.9 215.3 157.4 149.1 145.5 142.3 140.0 137.9 135.8 133.7 131.7 122.1 Fertilizers 116.9 67.7 75.1 165.7 217.0 214.9 199.3 184.8 171.8 165.4 159.3 153.4 147.8 142.4 118.0 Metals and minerals a/ 89.4 75.3 66.6 159.1 167.0 144.3 143.5 140.3 136.7 135.2 133.7 132.3 130.9 129.5 122.7 Base Metals b/ 97.0 80.8 70.6 149.8 157.1 139.7 139.0 135.3 130.8 129.2 127.6 126.1 124.7 123.2 116.1 Precious Metals 213.4 84.1 71.2 241.1 302.4 313.6 307.9 281.1 265.8 257.5 249.5 241.9 234.4 227.2 193.9 Inflation indices, 2005=100 d/ MUV index e/ 76.2 96.7 89.3 112.9 123.0 120.6 122.9 125.5 127.9 130.2 132.6 134.9 137.3 139.8 153.0 % change per annum 2.4 -0.8 2.4 8.9 -1.9 1.9 2.2 1.9 1.8 1.8 1.8 1.8 1.8 1.8 US GDP deflator 47.8 72.3 88.7 111.0 113.4 115.5 117.0 119.5 122.1 124.7 127.4 130.2 133.0 135.9 151.3 % change per annum 4.2 2.1 2.3 2.1 1.9 1.3 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 a/ Base metals plus iron ore. b/ Includes aluminum, copper, lead, nickel, tin and zinc. c/ Real price indices are computed from unrounded data and deflated by the MUV index. d/ Inflation indices for 2011-2025 are projections. Growth rates for years 1990, 2000 and 2010 refer to compound annual rate of change between adjacent end-point years; all others are annual growth rates from the previous year. e/ Unit value index of manufacture exports (MUV) in US dollar terms for fifteen countries (Brazil, Canada, China, Germany, France, India, Italy, Japan, Mexico, Republic of Korea, South Africa, Spain, Thailand, United Kingdom, and United States). Please see the MUV Index and its compilation methodology online. Source: World Bank, Development Prospects Group. Historical US GDP deflator: US Department of Commerce. 24 Description of price series Coffee (ICO), International Coffee Organiza- tion indicator price, Robustas, average New Coal (Australia), thermal, f.o.b. piers, Newcastle/ York and Le Havre/Marseilles markets, ex- Port Kembla, 6,700 kcal/kg, 90 days forward de- dock. livery beginning year 2011; for period 2002- 2010, 6,300 kcal/kg (11,340 btu/lb); prior to year Tea , average three auctions, arithmetic average 2002, 6,667 kcal/kg (12,000 btu/lb). of quotations at Kolkata, Colombo and Mom- basa/Nairobi. Coal (Colombia), thermal, f.o.b. Bolivar, 6,450 kcal/kg, (11,200 btu/lb) ; during years 2002-July Tea (Colombo auctions), Sri Lankan origin, all 2005 11,600 btu/lb, less than .8% sulfur, 9% ash , tea, arithmetic average of weekly quotes. 90 days forward delivery Tea (Kolkata auctions), leaf, include excise duty, Coal (South Africa), thermal, f.o.b. Richards Bay, arithmetic average of weekly quotes. 90 days forward delivery; 6,000 kcal/kg, during Tea (Mombasa/Nairobi auctions), African origin, 2002-2005, 6,200 kcal/kg (11,200 btu/lb); during all tea, arithmetic average of weekly quotes. 1990-2001 6390 kcal/kg (11,500 btu/lb) Crude oil, average price of Brent, Dubai and Coconut oil (Philippines/Indonesia), bulk, c.i.f. West Texas Intermediate, equally weighed. Rotterdam. Crude oil, U.K. Brent 38` API. Copra (Philippines/Indonesia), bulk, c.i.f. N.W. Europe. Crude oil, Dubai Fateh 32` API. Groundnuts (US), Runners 40/50, shelled basis, Crude oil, West Texas Intermediate (WTI) 40` c.i.f. Rotterdam API. Groundnut oil (any origin), c.i.f. Rotterdam. Natural Gas Index (Laspeyres), weights based on 5-year consumption volumes for Europe, US and Palm oil (Malaysia), 5% bulk, c.i.f. N. W. Japan (LNG), updated every 5 years, except the Europe. 11-year period 1960-70. Palmkernel Oil (Malaysia), c.I.f. Rotterdam. Natural Gas (Europe), average import border price, including UK. As of April 2010 includes a Soybean meal (any origin), Argentine 45/46% spot price component. Between June 2000 - extraction, c.i.f. Rotterdam beginning 1990; pre- March 2010 excludes UK. viously US 44%. Natural Gas (U.S.), spot price at Henry Hub, Soybean oil (Any origin), crude, f.o.b. ex-mill Louisiana. Netherlands. Natural gas LNG (Japan), import price, cif, recent Soybeans (US), c.i.f. Rotterdam. two months' averages are estimates. Barley (US) feed, No. 2, spot, 20 days To- Cocoa (ICCO), International Cocoa Organization Arrive, delivered Minneapolis from May 2012 daily price, average of the first three positions on onwards; during 1980 - 2012 April Canadian, the terminal markets of New York and London, feed, Western No. 1, Winnipeg Commodity Ex- nearest three future trading months. change, spot, wholesale farmers' price Coffee (ICO), International Coffee Organization Maize (US), no. 2, yellow, f.o.b. US Gulf ports. indicator price, other mild Arabicas, average New York and Bremen/Hamburg markets, ex-dock. Rice (Thailand), 5% broken, white rice (WR), milled, indicative price based on weekly sur- 25 veys of export transactions, government stan- Meat, sheep (New Zealand), frozen whole car- dard, f.o.b. Bangkok. casses Prime Medium (PM) wholesale, Smith- field, London beginning January 2006; previ- Rice (Thailand), 25% broken, WR, milled in- ously Prime Light (PL). dicative survey price, government standard, f.o.b. Bangkok. Oranges (Mediterranean exporters) navel, EEC indicative import price, c.i.f. Paris. Rice (Thailand), 100% broken, A.1 Super from 2006 onwards, government standard, f.o.b. Shrimp , (Mexico), west coast, frozen, white, Bangkok; prior to 2006, A1 Special, a slightly No. 1, shell-on, headless, 26 to 30 count per lower grade than A1 Super. pound, wholesale price at New York. Rice (Vietnam), 5% broken, WR, milled, weekly Sugar (EU), European Union negotiated import indicative survey price, Minimum Export Price, price for raw unpackaged sugar from African, f.o.b. Hanoi. Caribbean and Pacific (ACP) under Lome Con- ventions, c.I.f. European ports. Sorghum (US), no. 2 milo yellow, f.o.b. Gulf ports. Sugar (US), nearby futures contract, c.i.f. Wheat (Canada), no. 1, Western Red Spring Sugar (world), International Sugar Agreement (CWRS), in store, St. Lawrence, export price. (ISA) daily price, raw, f.o.b. and stowed at greater Caribbean ports. Wheat (US), no. 1, hard red winter, ordinary pro- tein, export price delivered at the US Gulf port for prompt or 30 days shipment. Wheat (US), no. 2, soft red winter, export price delivered at the US Gulf port for prompt or 30 days shipment. Bananas (Central & South America), major brands, free on truck (f.o.t.) Southern Europe, including duties; prior to October 2006, f.o.t. Hamburg. Bananas (Central & South America), major brands, US import price, f.o.t. US Gulf ports. Fishmeal (any origin), 64-65%, c&f Bremen, estimates based on wholesale price, beginning 2004; previously c&f Hamburg. Meat, beef (Australia/New Zealand), chucks and cow forequarters, frozen boneless, 85% chemi- cal lean, c.i.f. U.S. port (East Coast), ex-dock, beginning November 2002; previously cow forequarters. Meat, chicken (US), broiler/fryer, whole birds, 2 -1/2 to 3 pounds, USDA grade "A", ice-packed, Georgia Dock preliminary weighted average, wholesale. 26