VOLUME 7 1 19880 1 2 3 eloctober 1999 UV GLOBAL COMMODITY MARKETS a comprehensive review and price forecast THE WORLD BANK Commodities Team Development Prospects Group ISSN 1020-721X VOLUME 7 I1 --E october 1999 GLOBAL COMMODITY MARKETS a comprehensive review and price forecast * THE WORLD BANK Washington, D.C. Copyright © 1999 The International Bank for Reconstruction and Development/ The World Bank 1818 H StreetN.W., Washington, D.C. 20433, USA All rights reserved. Manufactured in the United States of America. You may not copy, reproduce, publish, distribute, transmit, create derivative works, or in any way exploit any part of the contents of this publication without prior written permission from the Office of the Publisher at the address above. The contents of this publication may not be used to construct any kind of database. The World Bank does not guarantee the accuracy of the data and forecasts presented in this report, and accepts no responsibility whatsoever for any consequence of their use. ISSN 1020-721X ISBN 0-8213-4575-3 Contents Summary ................... 5 Regional Price Indices. . . ................ 7 Special Features Contracts Are Not Guarantees: . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Falloutfrom Large Commodity Price Changes Economic Outlook ................... 10 Ocean Freight ................... 11 COMMODITIES Energy Coal ..................... 14 Natural Gas .16 Petroleurn ..................................... 18 Non-Energy Agriculture Beverages C ocoa . . .. ... . .. .. .. .. . . . . . . . . . . . . .. . 22 C offee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 24 Tea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Fats, Oils, and Oilseeds Fats and Oils ................................... 28 Coconut Oil ................................... 30 Palm Oil .....................................32 Soybean Oil ................................... 34 Soybeans ................ 36 Grains G rains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 M aize . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 40 R ice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 42 W heat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 44 o cto b er 1999 3 Contents (continued) Agriculture (continued) Other Food Bananas ...................... . 46 Shrim p . . . . . . . . . . . . . . . . . . . . . . . .. 48 Sugar ... 50 Agricultural Raw Materials Cotton ...................................... 52 Rubber ............ 54 Tropical Timber ................................ 56 Fertilizers Nitrogen ............... 58 Phosphates ............... 60 Potash ............... 62 Metals and Minerals Aluminum ............... 64 Copper ............... 66 Gold. . .............. 68 Iron Ore and Steel. . ............. 70 APPENDIX Commodity Price Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Commodity Prices and Price Projections in Current Dollars. ... ... 76 Confidence Intervals for Price Projections in Current Dollars ........ 77 Commodity Prices and Price Projections in Constant 1990 Dollars . . . . . 78 Confidence Intervals for Price Projections in Constant 1990 Dollars . . . . 79 Weighted Indices of Commodity Prices and Inflation . . . . . . . . . . . . . 80 Description of Price Series ............... 81 Definitions and Notes ................................. 83 Acronyms and Abbreviations ............................. 84 This report was prepared by the Commodities Team of the World Bank's Development Pros- pects Group. The core team includes Donald Mitchell (Team Leader), John Baffes and Shane Streifel (Economists), Betty Dow (Senior Information Analyst), Jean-Charles Le Vallee (Consultant), and Katherine Rollins (Team Assistant). The report was prepared with the assistance of Margaret Moss of G.I.Global, Inc. Questions or comments should be e-mailed to gcm@worldbank.org or visit us on the web at http://www.worldbank.org/prospects/ GLOBAL COMMODITY MARKETS SUMMARY prices up 8.6% compared to the previous quarter. Sig- Summary nificant cutbacks in US copper production in late June Commodity prices were mixed in the third and early July initiated a rally that included most met- quarter, with energy and metals increasing als prices, although supply shortfalls in other metals because of production cuts, while agricultural (notably nickel) and the recovery of demand in Asia andfertilizer producesontiu cuts, whilfagultl ocontributed to the price increases. Copper prices were and fertilizer prices continued to fall on up nearly 15% on the announced cutbacks, but stocks abundant supplies. Oil prices could rise in the remain near all-time highs. Nickel prices rose 22% near-term, but are expected to decline next year mainly because of shortfalls in supply, including a strike due to higher production. Metals prices are in Canada and problems bringing on new capacity in expected to continue rising due to improved Australia. global economic prospects and cuts in supplies, Gold prices surged above $3 00/toz in late Sep- while agricultural prices are expected to remain tember on the unexpected agreement by European low for at least another year. central banks to limit sales during the next five years to 2,000 tons. Large short-covering contributed to Petroleum prices have continued to recover, with the price spike that exceeded $325 in early October. crude oil prices up 28% from the second quarter. Prices The market also drew strength from the IMF deci- surged to $24/bbl in September in anticipation of the sion to abandon its plan to sell a portion of its re- OPEC decision not to raise production quotas before serves on the open market and instead revalue 14 next March. Stocks, particularly US crude oil, are million ounces of its gold reserves and conduct off- beginning to decline and are expected to fall sharply market sales to help fund the debt relief initiative this winter in the absence of higher production. This for poor countries. While gold prices may remain could lead to a spike in prices; but if this occurs, oil volatile in the near-term, they are expected to settle producers are expected to raise output either formally back under $300/oz, partly because central bank sales or through relaxation of existing quotas. By next year, will likely continue. prices are expected to fall as production increases faster Agricultural prices fell an additional 4.7% during than demand. the quarter as large supplies continue to depress prices. Metals prices continued to recover mainly be- Most beverage prices are still declining, with cocoa cause of reductions in supply, with the index of metals prices falling to a new low in August and coffee prices Non-Energy Commodity Price Index (US $) (1990 100) 130 110 ------ ---;-A----: 9 0 . ... ........... ... 70 ------------ 50... ... ... ..- 30 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 Source: World Bank o c t o b e r 1999 5 SUMMARY reaching new lows in September. Grains prices were out strong direction. also lower, with rice prices falling to a new low in Fertilizer prices have shown divergent trends over September and maize and wheat prices unable to sus- the last several years, with nitrogen fertilizer prices tain the rally which began in July. Oilseed and veg- falling sharply while phosphate and potash prices re- etable oil prices were generally lower, with palm oil mained firm because of supply control programs of down 23% compared to last quarter, soybean oil down major exporters. This finally showed signs of chang- 5%, and coconut oil down 18%. The weakness in ing in the third quarter as phosphate fertilizer prices vegetable oil prices was due to both large supplies and fell sharply. Diammonium phosphate (DAP) prices the reduction in the Indonesian palm oil export tax. fell 8% and triple super phosphate (TSP) prices fell Soybean prices were only down 2% for the quarter 7% in what appears to be the start of a more extended and are expected to increase next quarter as supply decline due to surplus capacity and weak demand due prospects have improved and import demand is ex- to low grain prices. Potash fertilizer prices remained pected to increase. firm as major producers continued to match supplies Other foods prices were about unchanged over- to demand. all for the quarter and face mixed prospects over The overall index of non-energy commodity the near-term. Beef prices were up 10% for the prices appears to have stabilized as shown by the quarter because of improved demand from the Asia chart below. The decline since the cyclical peak in region. Shrimp prices rose 1.0% due to stronger May 1996, has now totaled 30% and extended for Asian demand. Sugar prices rose 3.4%, but from 37 months. This compares with the previous two extremely depressed levels and despite the massive cyclical declines which averaged 34 months in length global surplus of sugar. and had prices decline by an average of 25% - mak- Agricultural raw materials were mixed, with ing this decline longer and deeper than either of the cotton and rubber prices falling to new lows while previous declines. The recovery of prices is ex- timber prices continued to recover. Overall, agri- pected to be slow, with an increase of 2.8% in the cultural prices have not given clear signs that they index in 2000 and 4.2% in 2001. That would make can sustain a price increase, as stocks are large and the current price recovery similar to that following they may preclude a significant price rise. How- the decline which began in June 1988 rather than ever, most agricultural commodities also appear to the more rapid price recovery which followed the be near or past their lows and prices may drift with- February 1980 price decline. Current and Previous Declines of Non-Energy Commodity Price Indices (Peak= 100) 105 February 1980-January 1985 95 ~~~~~~May 1996-_ 95 '''s' ' ' ' ' ' e''''''''''''''-------------------------------------------......... 85 70 7 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - _-.-.- 0 12 24 36 48 60 Months from Peak Source: World Bank 6 GLOBAL COMMODITY MARKETS REGIONAL PRICE INDICES Regional Price Indices 120i East Asia and Pacific Although prices of various commodities rallied in the latter part of the quarter, prices 105, ------__------------------------- of developing countries' non-energy e World commodity exports declined an additional 90? 1. 7%. Price declines among regions varied East Asia and Pacific from 1.1% to 2.7%. 75;--- The export price index of the East Asia and Pa- cific region had the largest decline of the four regions 60i at 2.7%. The declines in prices of the major exports in the region came from palm oil (-22.9%), natural Latin America and Caribbean rubber (-6.9%), and tin (-3.1%), while higher prices 140Latin America and of maj or commodity exports came from tropical tim- Caribbean ber (logs up 9.8% and sawnwood up 8.6%) and cop- 120 ------------ ------------------ per up 14.5%. The Latin America and Caribbean region's price 100 - - - --- - - index of non-energy commodity exports declined 2% compared to the second quarter. Losses from the de- World cline in arabica coffee (-15.6%) were partially offset 80 _-_- _-_-_-_-_-- by price increases of other major commodity exports such as copper(14.5%), aluminum (10.5%), soybean 60 meal (8.8%), and sugar (3.4%). Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 South Asia had the smallest decline in its export South Asia price index among the developing country regions, with 120 a decline of 1 .1%. The big price movers over the quar- ter were tea (15.3%, Colombo), cotton (-12.1%), and 105 - -___ -__ --___ --___ --________ robusta coffee (-9.2%). Very little movement was seen South Asia in other major exports such as iron ore (0.0%), rice 90- (-0.1%), or in the other tea auctions (0.1% and 0.4% in Calcutta and Mombassa, respectively). 75 World - The non-energy commodity export price index of the Sub-Saharan Africa region had a smaller de- cline of 1.4% this quarter versus 6.2% last quarter 60 due mainly to the rise in sugar export prices. The Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 price changes of major commodity exports also fol- Sub-Saharan Africa lowed similar trends from last quarter with declines in robusta coffee (-9.2%), cocoa (-7.0%) and increases for copper (14.5%) and aluminum (10.5%). The ex- 105 - --------------__-__-__ port prices of the major commodity not following the World trend from last quarter were sugar prices which in- 90- creased 3.4% compared to a loss of 18% last quarter, contributing to the smaller overall decline for the re- gion this quarter. Sub-Saharan Africa NVote: The regional price indices use the US $ non-energy com- 60 _ modity export basket of each region to compute the price index. Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 This index is then compared with the index using global exports. o c t o b e r 1999 7 SPECIAL FEATURE Contracts are not paid loans. The problem cannot be blamed on farm- ers since they exercised their contract options. How- Guarantees ever, poorly structured contracts which did not con- sider the potential for maize prices doubling led to se- Fallout from Large vere financial problems for Midwestern banks.2 Commodity Price Changes The Case of Indian Palm Oil Importers Following the East Asian crisis, palm oil prices re- mained at high levels as Indonesia imposed a ban on its The sharp fall in commodity prices over the palm oil exports (to be replaced later by an export tax). past two years was extreme, but not unprecedented. Indonesia's absence from the export market kept palm oil When prices change dramatically, the stress on con- prices strong until the end of 1998. When Indonesia tract obligations can be large and often leads to returnedtotheexportmarket(whichalsocoincidedwith defaults. This seems to be true whether the con- forecasts for a big palm oil crop), palm oil prices plum- tracts are in India, Malaysia, or the United States; metedto$319/toninJuly 1999, from $703/ton lOmonths and whether the contracts are signed between pri- earlier. vate entities, governments or between the two. In India is the dominant palm oil importer, ac- many cases, defaults are voluntary in order to re- counting for more than 20% of global imports most ceive better prices (or in general higher returns). of which come from Malaysia. Following the drop From the examples shown, we can draw some les- in palm oil prices, a number of Indian palm oil im- sons of why contracts are not honored and what porters abandoned their purchase contracts (agreed changes could reduce the chances of default. As to when palm oil prices were high) and instead bought long as the benefits from non-compliance exceed palm oil at the spot market at substantially lower the benefits from complying, defaults will not be prices. Despite concessions offered by Malaysian entirely eliminated. However, with the benefit of traders (reducing prices and deferring deliveries), hindsight, one can see that there is definitely room defaults may have been as high as Rs3O billion ($689 for improvement. million) according to an estimate cited in the Finan- cial Times (August 26, 1999). Again, large price Default on Contracts Among Private Parties changes created an opportunity for importers to aban- The case of the Midwest US grain elevators don their contracts, and the cost of this decision Many farmers in the Midwest US sign con- was small or insignificant to them since no deposits tracts with their grain elevators to sell grain for fu- had been made and laws were not expected to be ture delivery; in turn, the elevator operators hedge enforced. their future buying obligation from the producer by selling futures contracts on the futures exchange. 'Following the recent sharp rise in gold prices, Ashanti Goldfields Hedge-to-arrive contracts (HTAs), which were ex- obtained temporary agreement from creditor banks in early Octo- in the Midwest, are essentially for- ber not to demand margin calls (around $250 million) on its forward tensively used~~~~~~~ sales (see the gold section of this report, p. 68). ward contracts which allow the farmer the opportu- nity to change the delivery date, thereby adding risk 2Futures contracts are generally traded on Commodity Futures Trad- to elevator operators. ing Commission-approved (CFTC) commodity exchanges. Trading Maize prices doubled between May 1995 and is supervised, monitored, and regulated by the exchanges themselves as well as by CFTC. The CFTC had investigated that some of the May 1996. As prices soared, farmers opted not to HTA contracts maybe illegal off-exchange instruments. An admin- deliver the grain under their HTA agreement because istrative lawjudge ruled in November 1998 that some elevators that they had the option to deliver at a later date. This left allowed HTA contracts to roll forward out of the normal crop year the elevator operators locked into futures contracts with- were trading "illegal off-exchange futures" (Agriculture Online, out a physical offset. Some elevator operators could November 12, 1998). The HTA case was subject to a hearing by the Agriculture, Nutrition, and Forestry Committee of the US Sen- not meet the margin requirements, and their positions ate on May 15, 1996 (the material presented at the Committee can were liquidated, and they subsequently lost money.' be found inRogerG Ginder,"Local ProblemsAssociated With Hedge A number of them collapsed leaving banks with un- To Arrive Grain Contracts," Iowa State University). 8 GLOBAL COMMODITY MARKETS SPECIAL FEATURE Contracts Between Governments and Taxpayers January 1998. Dollar export earnings of the rubber The case of income supportpolicies producing countries fell and the countries demanded Large price changes often induce governments to that INRO intervene, but, the buffer-stock manager change policies in much the same way that private enti- could not intervene because the price indicator was ties abandoned their contracts. In our last report's Spe- above the intervention level. Following INRO's inac- cial Feature we examined the farn income support tion, Thailand and Malaysia withdrew - they are the schemes introduced by the US in 1996 and Mexico in first and third largest natural rubber producers account- 1994. The schemes would guarantee farmers a constant ing for 61% of INRO producers votes. Their with- stream of income not based on current prices; the schemes drawal eventually led to INRA III's termination (ef- also implied that the respective governments would not fective October 13, 1999), and this will certainly lead transfer any more money from taxpayers to producers, to INRO's dissolution. beyond what had been agreed on originally. In both the US and Mexico, however, recent policy Conclusion changes have reversed the government's policy. Be- Commodities experience extreme price changes cause of low cotton prices, the Mexican government which can lead to defaults on contracts between indi- recently announced an emergency assistance program viduals and corporations, or to policy changes by gov- of US $128/hectare to cotton producers for 1999 pro- ernments. This has occurred recently, as commodity duction (the assistance corresponds to about 15% of prices rose sharply during the mid-i 990s and declined the prices currently received by Mexican cotton pro- sharply in the last two years. Often, these defaults or ducers). In response to the recent decline in commod- policy changes result from the unexpected consequences ity prices, the US Congress has also authorized assis- of poorly designed contracts, and occur when the ben- tance to the farm sector exceeding US $8 billion. Again, efits of noncompliance exceed the benefits of compli- large price changes led to the changes in the policy ance. The consequence of the contract defaults and that support to farmers would not be based on current policy changes can be devastating to individuals, busi- prices and that no further transfers from taxpayers to nesses and financial institutions. consumers would be made. There are ways to reduce the chances of default, even if commodity prices remain as volatile as in the Contracts Among Governments past. Understanding the implications of extreme com- The eventual collapse of INRO modity price changes is essential. Developing con- International commodity agreements provide an- tracts which have reasonable termination limits would other case of failure to honor contracts when large be another improvement. In addition, contracts which price changes take place. The International Natural require a portion of the contract value to be paid upon Rubber Organization (INRO) is in charge of imple- signing would reduce the chances of noncompliance. menting the third International Natural Rubber Agree- However, this would only provide limited protection ment (INRA IH), the last UN-backed international com- when price moves are extreme. An additional safe- modity agreement. INRA III's membership included guard to ensure contact compliance would be to mark six rubber-producing countries (C6te d'Ivoire, Indo- the contract to market on a regular basis, as is done nesia, Malaysia, Nigeria, Sri Lanka, and Thailand) and with futures. This ensures that price changes are dealt 16 rubber-consuming countries, and was scheduled to with on an ongoing basis rather than only after the expire in the year 2002. Under the agreement, if the changes become so extreme so that noncompliance natural rubber price indicator - a price index expressed becomes an attractive option. in local currencies - moved outside a specified band Changes in government policies and international the buffer-stock manager would intervene in the mar- agreements, in response to extreme commodity price ket to bring prices back within the band. movements, could be reduced if bounds were included Following the 1997 devaluation of the East Asian in the policy or agreement. This could take the form currencies, the rubber indicator price increased in lo- of termination clauses or provide for revisions in re- cal currency. In response, producers supplied more sponse to price changes which exceed certain limits. rubber and that in turn depressed rubber dollar prices, This would allow policies and agreements to adjust which fell from 111¢/kg in June 1997 to 63¢/kg in more smoothly to the new environment. o c t o b e r 1999 9 ECONOMIC OUTLOOK the economy remains in a precarious state and the high Economic Outlook value of the Yen can be expected to take its toll on World economic activity continues to improve Japanese export growth and corporate profits. The main developing countries are projected by with fairly robust recovery in East Asla and Consensus to grow at around 3% this year, however strong growth in the US. The global recovery the recovery tends to mask the fragility and markedly is expected to continue, but significant risks to different patterns of growth and recovery across de- the forecast include a sharp slowdown in the veloping regions. Outside of EastAsia and SouthAsia US and a renewed bout of weakness in Japan. - largely reflecting continued growth in China and In- dia - real per capita incomes are expected to stagnate or decline this year over much of the developing world. Global economic activity continues to improve, Much of the improvement has occurred in East with output higher than anticipated in the East Asian Asia, as the five crisis countries are seen growing by crisis countries, the US, and Japan (although the Japa- 4.6% this year, compared with a decline of about 8% nese recovery remains fragile). Adjustments from the last year. The Republic of Korea is estimated to grow crises have been more favorable than expected in some by 7.5% (versus -5.8% in 1998) led by a strong recov- countries, such as in Russia and Brazil. Output de- ery in exports, but robust domestic consumption and clines in Russia have been limited by gains in domestic restocking by producers are also helping sustain indus- production for import substitution, though not yet by a trial activity. Outside of Indonesia, the other crisis coun- recovery of non-oil exports. Brazil emerged from the tries are all expected to show moderate recovery. crisis with greater resilience than expected, but growth The external environment for developing coun- worsened elsewhere in the region, partly due to dete- try growth is likely to show some improvement over rioration in intra-regional trade and private capital the course of the next couple of years, although a num- flows. ber of uncertainties remain. A pattern of more bal- World industrial production and trade appear to anced growth is likely to emerge, supported in part by be accelerating from recent troughs, with the rapid re- policies to achieve a 'soft landing' in the US, to stem covery in East Asia seen as the most important con- deflationary tendencies in Japan, and to revive busi- tributor to recovery in world trade. However, the vol- ness activity in Europe. Appreciation of currencies in ume of capital flows to developing countries has been developing Asia from post-crisis lows has helped to less than expected, and interest rate spreads remain restore a degree of puchasing power to these econo- high. The risks to the forecast have become more mies, and has provided an impetus to renewed growth balanced, but the most significant would be a large in exports. slump in the US economy - induced by a sharp stock For 2000, Consensus Forecasts projects world market correction - and renewed weakness in Japan. economic growth of more than 2.5%, slightly above Consensus Forecasts place world GDP growth the World Bank's March forecast. It shows only a at 2.6 % for 1999, higher than the World Bank's 1.8% slight slowdown inthe G-7 countries (excluding Japan) forecast of March 1999, presented in last quarter's to 2.7%, with Japan's GDP projected to increase only GCM. The US economy has continued to show re- marginally. Economic growth in all developing regions markable strength and played a major role in sustain- is expected to strengthen. GDP in the East Asian-5 is ing global economic activity following the outbreak of expected to increase by 5%, with a slight slowdown in the Asian crisis. GDP is expected to increase by nearly the Republic of Korea to 6% growth, while all other 4%, with renewed export growth from the recovery in crisis countries are projected to show significant im- world demand adding to the still buoyant consumer provement. In the other developing regions Consen- demand. Europe is showing signs of growth accelera- sus shows strong recovery in all regions, e.g., Latin tion, partly due to the increase in world trade, which America 3.3%, and Eastern Europe including Russia should lead to more balanced growth in the industrial- 2.5%. GDP in China and India are seen growing at ized countries and help improve export prospects in 7.4% and 6.7% respectively. developing countries. Japan has seen an upswing in The World Bank's long-term outlook, Global Eco- exports, driven by shipments to East Asia, however nomic Prospects, will be published in December, 1999. 10 GLOBAL COMMODITY MARKETS OCEAN FREIGHT O cean Freight with end-September rates at $5.60/ton. Rates for iron ore shipments were up 25%, with Brazil/Far East rates just Freight rates rose strongly, particularly for under $9/ton at end-September, while Brazil/Europe rates Capesize vessels on Atlantic routes. Rates are stood at $5.50/ton. expected to risefurther due to higher exports Panamax rates on average declined in the third quar- and Y2K-related stocking. ter, but Trans-Atlantic rates rebounded sharply in August and September and exceeded Trans-Pacific rates for the first time since last year (see graph). Trans-Atlantic round Dty bulk freight rates rose 5% in the third quarter, voyage rates, although down 7.5% for the quarter, were at due to strong demand for Capesize vessels and fairly tight $8,750/day at end-September - up 22% from end-June. availability, with the Atlantic routes for minerals showing Trans-Pacific round voyage rates declined 6% during the the largest gains. Sharply higher bunker-fuel costs have quarter, but also turned around sharply in September, end- also contributed to higher rates, as has additional stocking ing the quarter at $8,288/day, up more than 50% from to cushion possible Y2K problems. The quarterly growth lows earlier in the month. masks the steady increase in rates during the quarter, as the Handysize rates rose in both the Pacific and Atlantic, Baltic Freight Index (BFI) of rates for Capesize (80,000+ but Pacific rates posted the largest gains due to rising de- dwt) and Panamax (50,000-75,000 dwt) reached 1,273 at mand for scrap, metals, and some agricultural products. the end-September, the highest level since the beginning of Time charter rates for a Trans-Pacific round voyage rose 1998, and up 28% fromthe end ofJune. The Baltic Handy to $10,395/day at end-September, up more than 50% from Index (BHI) of Handysize vessels less than 43,000 dwt end-June. Trans-Atlantic round voyage rates increased to increased by just over 1% for the quarter, but rose 20% $8,273/day,up35%fromend-June. Tankerratesremained from the July low to end the quarter at 936. depressed because of production cutbacks by OPEC pro- Capesize rates for coal and iron ore rose significantly, ducers, howevertheir actions have causedmarine fuel costs with most ofthe strength occurring onAtlantic routes. Coal to more than double. shipments from South Africa to NW Europe rose 35% in Biffex futures were in contango at end-September the third quarter, with end-September rates of $6.78/ton, suggesting ample availability, but distant prices were much up more than 50% from end-June. Coal shipped from higher, reflecting expectations ofrising demand for exports Hampton Roads to Europe increased 23% for the quarter as global economic activity expands. Baltic Freight Index (1985=1000) and Biffex Futures 2,500- 2,000 .. .. .. . . . . . . .. . . .. . . . .. . .. . . Biffexas of end-September 1,500 .. . .. . .. . .. . --- - .. .. . ..............I..*. 1,000 , 8 . ........................................ ...... ...... .... ... ..... .... ..... .. .. .. ...... .. ...... . ,/ 5 0 0 -- - - - - - - - -- -- -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ........... . ... . Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Source: Baltic Exchange and LIFFE. BFI Time Charter Routes ($/day) BHI Time Charter Routes ($Iday) 11,000 13,000 ,rans-l Trans-Pacific Round Voyage Atlanti 9,000 - ,...... .... . --------,.............1,0X East .. 7,000 - - - J - X- - / + g ~~~~~~~11000 ---- ------------------------ 7,000 9.0 ............ 7,0-............. .... ., Trans-Atlantic Round Voyage L-iii C ntn t , \ . 3,000 1 L 5,000 At_ic Sep.97 Mar-98 Sep.98 Mar-99 Sep.99 Sep-97 Mar-98 Sep.98 Mar-99 Sep-99 Source. Baltic Exchange Source: Baltic Exchange o c t o b e r 1999 11 _______OMMODITIES ENERGY Coal 42 Monthly Prices ($1ton) International coal prices remain weak due to excess supply, while Asian demand is I9 recovering. Both coking and steam coal prices are expected to decline next year. 33 -=-- - - - - - - - -- - - - - - - - - - - International coal prices remained weak in the third quarter but there are signs that prices could be 30.. bottoming owing to a recovery in demand in Asia, cur- Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Source: Coal Week International rency stabilization in some producing countries, and closure of high-cost mines. However, the market re- World Balance (million tons) mains in surplus and upcoming contract negotiations 4,000 for next year for both coking coal and steam coal will be difficult. Producers desire at least a rollover or small 3,500 - _------------ increase in prices while buyers will try to obtain further Production o n reductions. Given that the market is over-supplied it is 3,000 - --------- --Consurnption possible that some producers may be willing to increase market share in exchange for lower prices. Conse- 2,500 ----------------------- ---------- quently prices for both steam and coking coal are ex- pected to decline slightly next year. 2,000 Exports from China, Poland, and Russia have 1970 1975 1980 1985 1990 1995 risen which has contributed to the weakness in spot Source: IEAand World Barik. markets. And while demand is recovering in Asia, it Exports (million tons) has not been sufficient to absorb excess supplies and 600 - lift prices. There have been closures of high cost mines, but there has not been the same degree of consolida- 450 -----.........----- .-- tion that has buoyed metals markets, such as copper Word and aluminum. 300-------------------.......... In the US, coal demand for power generation has been weak this year because of the mild winter and 150 ................................ high stocks. Electric utility coal demand is expected to decline by nearly 1% this year, in part because of the 0 restructuring of the power industry and sale of coal- 1970 1975 1980 1985 1990 1995 Source: IEA and World Bank. fired generation facilities to non-utilities. However, to- tal US power demand is expected to rise by 2.5% next US Annual Prices ($/ton) year. 80 Coal production is expected to fall short of the Constant Forecast record output in 1998, due to weak domestic demand, 65d,-65 ------- declining exports, and rising imports from lower-cost producers such as Colombia, Indonesia, South Africa 50 -so-------\-----.-.-.- and Venezuela. Metallurgical exports have fallen be- cause of the collapse in prices in the Asian market, 35 Current which has led to the closure of several mines. In- creased demand for low sulfur compliance coal and 20 the impending Clean Air Act Amendments' Phase It 1975 1980 1985 1990 1995 2000 2005 2010 emission requirements are expected to result in the con- Source: Coal Week International and World Bank forecasts. tinued growth of coal imports. 14 GLOBAL COMMODITY MARKETS COAL Other Developments * Royal Dutch/Shell plans to sell its coal subsidiary, an increase of 19% in August. The state's three big Shell Coal, by offering the company for sale by ten- ports - Dalrymple Bay, Hay Point, and Gladstone - der. The assets include five mining complexes in all experienced large increases in shipments during Australia plus a share in one mine and a develop- August. ment prospect in Venezuela. The sale could take up * Domestic coal demand in Poland was 10% less than to a year and Shell will explore mergers, tender sales planned at 38.4 mt, while exports were 2 mt higher and even a possible share market float for some of than expected, at 13.4 mt. the assets, depending on how the tender process pre- * China's coal exports rose 3 1% year-on-year during cedes. the first seven months to 20.1 mt. Imports are up * Colombia's plans to sell state coal company, Carbocol 65% to nearly 1.0 mt. SA, for as much as $600 million have been pushed * Russian coal output increased 4.3% in the first half back until early next year, partly due to a court ruling of this year to 124.4 mt. that forced the company to reassess the process. * US metallurgical coal exports fell by a third in the * Australia's coal exports rose 4.7% during the first first half of 1999 to 13.8 mt. The largest drop was eight months of 1999 to 109.4 million tons (mt), with to Asia where exports fell 50% to 2.9 mt. Production (million tons) Exports (million tons) 1995 1996 1997 1998 1995 1996 1997 1998 China 1,360.7 1,396.7 1,372.8 1,235.6 Australia 136.4 138.6 146.4 162.3 US 858.6 885.2 910.4 936.0 US 80.3 82.1 76.0 70.5 India 273.4 285.6 297.2 303.1 S. Africa, Rep. 59.7 60.2 63.4 67.1 S. Africa, Rep. 206.2 206.4 220.1 222.8 China 28.6 36.5 30.7 32.3 Australia 191.1 193.4 206.8 219.0 Indonesia 31.3 36.4 41.5 46.9 Russian Fed. 176.9 166.5 159.2 148.6 Canada 34.0 34.4 36.5 34.2 Poland 137.2 137.9 137.8 116.9 Poland 31.9 28.9 29.5 28.1 Ukraine 83.5 74.1 75.5 73.7 Russian Fed. 26.3 25.3 21.2 23.5 Kazakhstan 79.6 73.2 70.2 67.0 Colombia 18.3 24.8 26.5 29.6 Indonesia 41.1 50.2 55.1 59.7 Kazakhstan 12.9 21.7 n.a. n.a. Germany 58.9 53.2 51.2 45.3 Czech Rep. 7.0 6.7 6.6 n.a. UK 54.6 50.2 48.5 41.3 Venezuela 4.3 3.5 4.2 n.a. Canada 38.6 40.0 41.3 38.3 Netherlands 2.9 2.4 3.5 n.a. Colombia 25.7 30.1 30.7 33.8 Vietnam 1.8 4.4 4.2 3.5 Korea, D. R. 26.0 24.1 24.1 24.1 Ukraine 2.4 2.0 n.a. n.a. Czech Rep. 17.7 17.5 16.6 16.1 NewZealand 1.3 1.6 1.2 n.a. Vietnam 6.6 11.2 13.1 13.1 Belgium 0.8 1.2 1.5 1.3 Spain 13.7 13.7 13.8 12.5 UK 0.9 1.0 1.1 0.9 Venezuela 4.6 3.5 5.6 6.8 Germany 1.7 1.0 0.5 0.3 World 3,705.4 3,761.8 3,796.3 3,655.8 World 464.6 483.9 496.7 519.2 Source: IEA Source: [EA Global Summary Actual - Annual Growth Rate (lo)- World Balance (mil. tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-97 Production 2,185 2,807 3,561 3,762 3,796 3,657 2.8 2.8 1.2 Consumption 2,175 2,783 3,516 3,744 3,777 3,630 2.8 2.9 1.3 Exports 167 263 401 484 497 519 4.4 4.9 3.5 Actual Forecast Prices ($tton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 39.17 37.21 36.39 34.38 33.25 33.00 33.50 35.50 38.00 Constant 1990 32.86 32.58 33.58 33.00 32.11 31.09 30.79 29.70 28.13 Source: IEA and World Bank forecasts. october 1999 15 ENERGY Natural Gas - US 4.25 Monthly Prices (S/mmbtu) Gas prices rise on weather-related demand spot increases, lower storage injections, and 3.50 - -- declining US production. Inventories remain , . relatively high, but strong demand growth this 2.75-.. winter should result in somewhat higher prices. 2.00 - - NYMEX Futures* Natural gas prices rose 14% in the third quarter 1.25 - ,, ... I , ... due to rising demand, lower storage injections, and con- Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 cems about US production. Prices briefly exceeded $3.00 s are end-September. per million btus (mmbtu) in August, but receded back Balance (TnfM below $2.50/mmbtu by end-September as weather-re- 23 Balance (Tcf) lated demand moderated and storage injections increased. Demand rose during the summer due to increased 21 - .................. ...... air conditioning requirements, new gas-fired power gen- Consumption eration capacity, and higher oil prices which allowed 19 - the gas industry to recapture markets lost to fuel oil. Storage injections this summer fell below last Production year's levels as a result of peak demand for power 17 - generation, but injections recovered in late August as temperatures moderated. By October 1 storage levels 15 I were 89% full, versus 91% last year, and appear headed 1970 1975 1980 1985 1990 1995 to reach 3,100 billion cubic feel (Bcf) by the beginning Source: US DOE of the heating season, not far below last year's high 4 - Imports (Tcf) level of 3,176 Bcf. US production has declined by 1% this year fol- 3 -_--...-....-.....---.... lowing an extended period of low oil and gas prices and associated decline in investment and drilling activ- 2 --_-...-.... ..... ity. Higher oil and gas prices are leading to a rebound in drilling activity which is expected to begin reversing 1 - ............ the production decline next year. Large potential for new capacity exists in the deepwater Gulf of Mexico, 0 - but a key challenge will be to slow the production de- 1970 1975 1980 1985 1990 1995 cline in the shallow-water Gulf. Source: US DOE Imports from Canada could reach 3,600 Bcf next Annual Prices ($/mmbtu) year through new pipeline capacity, but the ability of 4 - Canadian producers to fill the new pipelines will de- Constant Forecast pend on storage and drilling activity, the latter being 3-- .................................. raised by higher prices. Assuming normal weather, gas demand this win- 2-- ---- ter is expected to rise significantly above last year's urrent levels, that were kept unusually low because of mild 1 ----- .................. ....... ...... temperatures. The combination of higher demand and lower US production should result in firmer prices in o - . l 2000, but a rebound in supply and growing imports 1970 1975 1980 1985 1990 1995 2000 2005 2010 from Canada are expected to prevent sustained up- Source: US DOE, WSJ, and World Bark forecasts. ward pressure on long-term real prices. 1 6 GLOBAL COMMODITY MARKETS NATURAL GAS Natural Gas - Europe 3.50 Monthly Prices ($/mmbtu) 3.0-European Gas prices rise in lagged response to the Border rebound in oilprices, and are expected to 3.00 - --------- continue rising this year. In the longer term, prices will be under downward pressure because of market liberalization and 2.00 ............... ............_.. increasing competition. l.SO - ....1..,1.,.. 1 ....... ... . Border prices for natural gas imported into Eu- Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 rope rose 10% in the third quarter- reaching US$2 .20/ Source: World Gas Intelligence mmbtu in September - slowly recovering with the re- Balance (BCM) bound in oil prices. Gas prices under long term con- 500 - tract are indexed to petroleum products, but with sev- eral months lag. This marks the first quarterly increase 400 ------------------------------------------- in nearly three years, and prices are expected to con- Conswnption tinue rising in response to the steep rise in oil prices. 300 - _-.-.- In the longer term, European gas prices are ex- pected to come under downward pressure from market 200 ... / . . . liberalization, abundant supplies, and increasing compe- Production tition. The EU Gas Directive comes into effect August 100 i i 2000, while enacted electricity market liberalization is 1970 1975 1980 1985 1990 1995 already beginning to affect fossil fuel markets. Source BPAmoco and World Bank estimates. In the deregulated UK market, spot prices ended FSU* Balance (BCM) the quarter at 9.1 pence per thermal unit (US$1.51/ 800 mmbtu), and were relatively weak because of mild Production weather and surplus supply. Forward prices for Janu- 600--.-.- .-----_ ary 2000 were over 14 pence per therm (near US$2.3 5 Consumption mmbtu) at end-September, reflecting anticipated 400- strength from peak winter demand. Exactly a year ago, January 1999 prices were near 19 pence pertherm, 200 1 ................... but by mid-December prices had dropped below 15 . pence per therm, due to oversupply and low continen- 1970 1975 1980 1985 1990 1995 tal gas prices that kept a lid on UK export prices. *Countries of the fonner Soviet Union The reversible-flow Interconnector pipeline be- Source: BPAmoco tween the UK and the mainland which began opera- Annual Prices ($/mmbtu) tion last fall will provide arbitrage opportunities depend- 8 -C t ing on relative gas prices between the UK and the con- Forecast tinent. With the upturn in oil prices, continental gas 6 - -; prices are likely to be above UK prices next year, but the export market may not provide much relief to UK producers because of surplus supply. 2 This may have partly prompted Russia's Gazprom to appoint Britain's main gas supplier, Centrica, to man- o - I C age its shipping rights through the Interconnector. 1970 1975 1980 1985 1990 1995 2000 2005 2010 Gazprom, which owns 10% of the pipeline s capacity, Sou(rce: World Gas Intelligence and World Bank forecasts may earn more money by renting out the capacity than using it for Russian gas exports. october 1999 17 ENERGY Petroleum Monthly Prices ($/bbl) 24 Prices reach $24/bbl on OPEC's decision not 24 * to raise output before next March. 20-- - -' IPE Brent Inventories are expected to decline sharply Spot* Futures this winter, and in the absence of higher 16 - - . -----------... production, prices could spike higher. 12 I Petroleum prices rose 28% in the third quarter 8 - .. . I I .. .1, .. due to declining stocks and OPEC's decision not to Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 raise production quotas. Prices peaked at around *World Bank average. Futures prices are end-September. Source: Bloomberg and IPE. $24/bbl in September and then receded slightly, World Balance (mb/d) partly due to investment fund liquidation after the 80 large run-up in prices, but also due to uncertainty about when producers might raise output. Invento- 70 --_----.-.-.-------------- ries are expected to decline sharply over the peak- Production sumption demand winter season in the absence of higher sup- 60 - _ ............... plies, and prices could spike sharply higher. Should this happen, it is likely that oil producers will raise 50 - ......................--. output to moderate the price rise, but the timing of such actions could be critically important. 40 I OPEC met September 22 and agreed to extend 1970 1975 1980 1985 1990 1995 production quotas through March of next year. This Source: BP, LEA, and World Bank. decision was widely anticipated and helped fuel the OECD Total Stocks (million bbl) price rally in August and September. OPEC next meets 2,900 - March 29, 2000 in Venezuela, but the Ministers from Mexico, Saudi Arabia and Venezuela - the group that 2,750 -------------------------------------- spearheaded three rounds of production cuts - plan to End-month* hold an informal meeting in November to review the 2,600 - ..... .... .. market situation, and possibly take action on produc- tion if deemed necessary. 2,450 - .................. Before raising quotas, producers have suggested 2 _300_-________ that they will want reliable statistical evidence that mar- 2,300 p-94 I . I . I .pI kets have sufficiently tightened, over above observing Sep-94 p95 Sep-96 S9 S-9 .. . . .......................... ~~*Septernber 1994 to August 1999. the prevailing level of prices. Apparently, the prime Source: IEA and World Bank. indicator is the level of inventories, but they will also Annual Prices ($/bbl) want to see growth in demand. The problem with 60 using "inventories" as an indicator is that the data are 'Forecast incomplete - only OECD data are reported regularly - 45  - -.- -----------. and they lag by 1-2 months. Given that prices can move substantially in very short periods of time, wait- 30 ------- --- - --------- ing for "solid" inventory data will be problematic, if the intention is to moderate a spike in prices. 1S Rather, OPEC will have to rely on a combination Current of prices, stock trends, and short-term forecasts. While 0 I I i the organization may not want to anticipate what fu- 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: API, Bloomberg, and World Bank forecasts. ture stock levels may be, it would have to make some judgement to prevent a spike in prices. 18 GLOBAL COMMODITY MARKETS PETROLEUM Petroleum (continued) Crude Oil Production (mb/d) OPEC has maintained fairly good compliance to 24 its quotas in recent months, although it slipped below 90% in September. OPEC production, excluding Iraq, 16 . ... fell by 0.2 mb/d in the third quarter, which is about 3.5 Sp O mb/d lower than in 1Q98 - before they moved to re- 8 duce output. However, production increased nearly us 0.4 mb/d in September, back toward average 2Q99 1970 1970 1975 1980 1985 1990 1995 levels. For the quarter, most countries were near quota, *Fonner Centrally Planned Economies. with Indonesia and Libya both 0.1 mb/d above quota. Source. API and EA. In September, all were at least marginally above quota, OPEC Crude Oil Production (mb/d) including Saudi Arabia and Kuwait when including their 24 - equal shares of Neutral Zone output. Other Iraq's production has steadily increased, ap- 18 _ proaching 2.9 mb/d in September. The UN Security Council agreed to raise the $5.3 billion revenue limit to 12 --. ................. $8.3 billion for the current 180-day period ending No- vember 20, because of higher oil prices. This allows 6 Iraq to continue exporting oil at relatively high levels Saudi (2.3 mb/d in September) under the oil-for-food pro- 0 - A gram. Differences remain in the Council regarding the 1970 1975 1980 1985 1990 1995 complete lifting of sanctions and weapons inspections Source: IEA and World Bank. inside Iraq. OPEC Oil Export Revenues ($ billions) Non-OPEC production rose 0.4 mb/d in the third 200 - quarter, and was also 0.4 mb/d higher than year earlier Other OPEC levels. North Sea output was up 0.15 mb/d, with the 150 - --.---- -------------- UK and Norway rebounding from summer mainte- nance. Production in the FSU has been edging up this 100 - - .. .. . year, rising by nearly 0.1 mb/d in the quarter, and Ca- nadian production is also on the increase partly due 50 higher production from the Hibemia field off the east Middle East coast. Non-OPEC supply is projected to increase by o - i 0.8 mb/d in the fourth quarter with much of the growth 1970 1975 1980 1985 1990 1995 in the OECD, however, output for 1999 will average Source: IEA and World Bank. 0.2 mb/d less than last year because of large declines World Oil Demand (mb/d) in the first half of this year in the OECD. 48 - World oil demand increased by 1.2% in the third quarter, with growth of 1% in the OECD, and 2.3% in 36 the non-OECD (outside the FSU where consumption continues to fall). Demand in the Republic of Korea 24 --.....-.... rose 9%, continuing the strong recovery this year. Else- Other where in Asia, China's apparent consumption was up 12 - ... .......... 3.5% and the rest of developing Asia grew by 3 %. OECD inventories moved up toward 2.7 billion 0- I I barrels in July/August, but preliminary data show a de- 1970 1975 1980 1985 1990 1995 cline in September which will likely result in a draw for Source: BoP and IEA the third quarter. This indicates that the balance is o c t o b e r 1999 19 ENERGY Petroleum (continued) Growth in Quarterly Demand (mb/d) tightening, as stocks typically build in the third quarter. ther* US stocks have recorded the largest decline, especially 1.0 for crude and gasoline, but heating oil stocks remain relatively large heading into the winter season. For the fourth quarter, TEA projections of supply 0.0 - -----------------------. ------l and demand show that inventories will fall by some Asia-Pacific 2.5 mb/d, assuming OPEC leaves its production rela- -1.0 - _ __.___ ,_E_.__ tively unchanged. It could place OECD inventories 3Q93 3Q94 3Q95 3Q96 3Q97 3Q98 3Q99 back near the low levels at end- 1996, when prices were 'Excludes countries of the former Soviet Union. similar to the recent highs. Source: IEA In the first quarter of 2000, IEA projections im- Quarterly Oil Production (mb/d) ply an extremely large inventory withdrawal of 3.5 mb/ On. d, again assuming little change to OPEC production. 36 - _ _ If this were to occur prices could rise substantially. However, it is felt that if oil prices do spike above $25 32 - K oil producers would raise production, either formally or through relaxation of existing quotas. 28 - _-,-. For the year 2000, the IEA projects oil demand to increase by 2.5% or 1.8 mb/d, with relatively strong 24 - I . I .I I .I growth in all regions. Non-OPEC supply-which is 3Q93 3Q94 3Q95 3Q96 3Q97 3Q98 3Q99 estimated to fall by about 0.15 mb/d this year because *ExCludes countries of the former Soviet Union. of the lengthy period of low prices-is poised to re- N America Crude Oil Stocks (mbbl) bound by 0.8 mb/d next year (although some forecast- 460 - - . . ers place the growth in the range of 1.0-1.5 mb/d). Higher output is expected in several areas, notably the 435 --_ ............................ North Sea, Mexico, Brazil, and several new develop- End-Month ments in the African countries of Angola, Sudan, and 410 ---------------------- i -V Congo. It is clear from these projections that the mar- 385 - -------------------- ket will need more oil from OPEC in 2000, particu- larly if stocks are at low levels at the beginning of 360 the year. An increase of 2 mb/d would help balance Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 the market and provide for some rebuilding of in- *September 1994 to August 1999. ventories. But if an increase of this size were not N. America Product Stock (mbbl) forthcoming until the second quarter, it would imply 750 - . .. . essentially no build in stocks for the year (see table), leaving inventories at low levels and prices relatively 700 7 - - - - - - high. \nd-MontY The impact on prices on will depend on the tim- 650 - .............. ....... ing and volume of additional OPEC production, but also on changes to demand, inventories, and non-OPEC 600 ....................... supplies. Just as OPEC's reduction of output has had a large upward impact on prices, an announcement to 550 I I I raise production could cause a large decline of prices Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 to well under $20/bbl, but they are unlikely to fall to *September 1994 to August 1999. the lows of earlier this year. 20 GLOBAL COMMODITY MARKETS PETROLEUM OPEC Crude Oil Production and Quotas Non-OPEC Oil Supply (Millions of barrels per day) (Millions of barrels per day) 3099- Pledged Change 1099 2Q99 3099 Quota Quota Cutbacks 1997 1998 2Q99 3Q99 2099-3099 Algeria 0.82 0.73 0.74 0.73 0.01 0.137 US 8.65 8.37 8.00 7.92 -0.08 Indonesia 1.29 1.28 1.31 1.19 0.12 0.193 Mexico 3.41 3.50 3.32 3.31 -0.01 Iran, Islamic R. 3.81 3.47 3.32 3.36 -0.04 0.569 Canada 2.57 2.67 2.51 2.57 0.06 Iraq 2.48 2.51 2.81 UK 2.74 2.84 2.82 2.89 0.07 Kuwait* 1.72 1.57 1.58 1.84 -0.26 0.369 Norway 3.28 3.14 2.99 3.05 0.06 Libya 1.36 1.33 1.33 1.23 0.10 0.226 Other OECD 1.42 1.36 1.28 1.36 0.08 Neutral Zone 0.57 0.50 0.50 0.50 Africa 2.73 2.73 2.72 2.80 0.08 Nigeria 2.01 2.01 1.90 1.89 0.01 0.373 China 3.19 3.19 3.19 3.16 -0.03 Qatar 0.67 0.60 0.62 0.59 0.03 0.107 Other Asia 2.12 2.14 2.21 2.26 0.05 Saudi Arabia* 7.87 7.35 7.40 7.44 -0.04 1.310 FSU 7.20 7.30 7.44 7.53 0.09 UAE 2.18 2.03 2.03 2.00 0.03 0.382 Eastern Europe 0.20 0.19 0.19 0.19 0.00 Venezuela 2.93 2.74 2.73 2.72 0.01 0.650 Latn America 3.44 3.70 3.83 3.84 0.01 Total Crude 27.71 26.12 26.23 22.98 0.44 4.316 Middle East 1.90 1.89 1.87 1.88 0.01 Excluding Iraq 25.23 23.61 23.42 22.98 0.44 4.316 Processing gain 1.57 1.64 1.65 1.65 0.00 NGLs 2.82 2.81 2.84 Total non-OPEC 44.42 44.65 44.02 44.40 0.38 Total OPEC 30.53 28.93 29.07 Note: Includes natural gas liquids (NGLs), unconventonal, *Quota includes share of Neutral Zone production. and other supply sources. Source: IEA and OPECNA. Source: IEA World Petroleum Demand and Supply (Millions of barrels per day) 1996 1997 1998 1Q99 2099 3Q99 4Q99 1999 1Q00 2Q00 3000 4Q00 2000 Demand OECD 45.9 46.7 46.9 48.8 45.4 47.2 49.3 47.7 49.6 46.5 48.0 50.3 48.6 FSU 4.4 4.4 4.1 4.2 3.6 3.8 3.8 3.8 4.3 3.9 3.9 3.7 4.0 Other 21.5 22.7 23.2 23.5 24.0 23.7 24.1 23.8 24.4 24.6 24.5 24.9 24.5 Total 71.8 73.8 74.2 76.5 73.0 74.7 77.2 75.3 78.3 75.0 76.4 78.9 77.1 Supply OECD 21.7 22.1 21.9 21.5 20.9 21.1 21.8 21.3 22.0 21.6 21.6 22.3 21.9 FSU 7.1 7.2 7.3 7.4 7.4 7.5 7.5 7.5 7.5 7.4 7.5 7.5 7.5 Other* 14.9 15.2 15.5 15.7 15.7 15.8 15.9 15.8 15.9 16.1 16.0 15.9 15.9 OPEC" 28.4 29.9 30.7 30.5 28.9 29.1 29.2 29.4 29.3 31.2 31.5 31.5 31.9 Total 72.1 74.4 75.4 75.1 72.9 73.5 74.4 74.0 74.7 76.3 76.6 77.2 77.2 Stock change OECD 0.0 0.3 0.3 -0.8 0.4 Other/misc."' 0.2 0.0 0.9 -0.5 -0.5 Total 0.3 0.6 1.2 -1.3 -0.1 -1.2 -2.8 -1.3 -3.6 1.3 0.2 -1.7 0.1 *Includes processing gains (1.6 mb/d in 1998 and 1.7 mb/d in 1999). **lncludes NGLs (2.8 mb/d in 1998 and 2.9 mb/d in 1999, -lncludes floating storage, oil in transit, and miscellaneous to balance. Note: Includes natural gas liquids (NGLs), nonconventional, and other supply sources. source: ItA data and estimates, and World bank torecasts. Global Summary Actual -Annual Growth Rate (%/) - World Balance (mb/d) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98 Production 48.5 63.9 66.9 72.1 74.4 75.4 2.9 1.0 1.6 Consumpton 46.7 62.7 66.4 71.8 73.8 74.2 3.1 1.0 1.5 Stock Change and Misc. 1.8 1.2 0.5 0.3 0.6 1.2 Actual Forecast Prices ($/bbl) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 17.18 20.42 19.17 13.07 18.00 18.50 18.00 18.00 19.00 Constant 1990 14.41 17.88 17.69 12.54 17.38 17.43 16.54 15.06 14.06 Source: BP and IEA, and World Bank forecasts. o c t o b e r 1999 21 AGRICULTURE Cocoa Monthly Prices (,lkg) 200 With a 1999/00 crop 6% higher than last season, the bearish market sentiment is likely 170 - .. . . to persistfor this year and possibly the next. 1 LIFFE Cote d'Ivoire's liberalization of its cocoa 14dicator0Futures* sector became effective ahead of its October I 110 - - - - - ... deadline. 80 - ........., , - ..... The recovery in June proved to be short-lived as Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 cocoa prices continued their fall in July; they reached a 6- Source: ICCO and LIFFEp year record low of 99.8¢/kg in August, only to recover a little in September. The third quarter average was 105.7¢/ 3.0 World Balance (million tons) kg, 6.9% lower than second quarter's average, and 37.6% lower than a year ago. The bearish mood was evident in 2.5 - _----..-- both NewYork and London futures which continued their Production weakness throughout most of the quarter. 2.0 . _ .. . . . . Some preliminary estimates for the new crop which ndings just began (October 1) indicate that another bumper crop 1.5 - ............................. may be on the horizon. LMC International's latest com- modity bulletin indicates that the 1999/00 crop may be 1.0 - as high as 2.94 million tons, almost 6% higher than last 1970 1975 1980 1985 1990 1995 season's crop. All four major Africa cocoa producers Source: ICCO are expected to register significant gains: Cameroon Ending Stocks (million tons) 4.2%, C6te d'Ivoire 3.8%, Ghana 10.4%, and Nigeria 2.0 - 8.6%. Indonesia, the world's third largest producer, is World also expected to increase its output by 1 0% despite ear- 1.5 e --------- lier reports of a production shortfall. Following a plunge to 35,000 tons in 1997/98 1.0 ----------------------------------l --------- (from 103,000 tons in 1996/97) due to El Nifio dam- age, Ecuador's production prospects are back on track. 0.5 -----...... in 1998/99 it produced 70,000 tons while it is expected ICCO to reach 95,000 tons in 1999/00. Brazil's output de- 0.0 - cline seems unstoppable as it is expected to register yet 1970 1975 1980 1985 1990 1995 another setback to 110,000 tons this season (from Source: ICCO 130,000 in 1998/99). The "witches' broom" disease Annual Prices (¢/kg) has taken a large toll pushing Brazil's production down 800 - to a 4-decade record low. Forecast C6te d'Ivoire's Caisse de Stabilisation (Caistab) 600 C- -nstant relinquished its marketing mandate in mid-August, one l 1\ 9: and a half month ahead of the initially scheduled Octo- 400 - _ .....; .. ber 1 deadline. Caistab currently assumes only market monitoring responsibilities. 200 - Following the recent estimates for the 1999/00 Current crop and the expected stock build-up, the bearish mood 0 - in the cocoa market is likely to persist for quite some 1970 1975 1980 1985 1990 1995 2000 2005 2010 time. We expect prices to average 11 7¢/kg for 1999. Source: ICCO and World Bank forecasts. We have also lowered next year's forecast to 125 ¢/kg. 22 GLOBAL COMMODITY MARKETS BEVERAGES COCOA Other Developments * ICCO begun working on the new Agreement. The tion of the ICCO buffer stocks was completed in current Agreement, originally set to expire at the 1998. end of September 1999, was extended for another * Italy and Spain came at odds with the EU Commis- two years. The main modification of the Agree- sion after failing to scrap laws which restrict the sale ment is the elimination of article 29 which calls of chocolate containing non-cocoa fats, according to for production management, according to The Bloomberg. Early this summer, the EU drafted a Public Ledger. Under the proposal, the role of proposal which would allow chocolate manufactur- ICCO will be more of a monitoring nature - along ers to use a certain amount of non-cocoa in choco- the lines of similar commodity bodies such as the lates, without changing the name. Currently, choco- ICAC and the IRSG. As of 1993, the Agreement late consumed in Italy containing non-cocoa fats had no buffer stock provision while the liquida- should be labeled as "chocolate substitute". Production and Grindings Trade 1995/96 1996/97 1997/98 1998/99 1995/96 1996/97 1997/98 1998/99 Gross Production (000 tons) Exports (000 tons) Cote d'lvoire 1,200 1,108 1,113 1,150 Cote d'lvoire 1,038 929 964 977 Ghana 404 323 409 370 Ghana 331 267 326 308 Indonesia 285 325 331 365 Indonesia 224 264 148 212 Nigeria 158 160 165 185 Nigeria 147 137 143 142 Brazil 231 185 170 130 Cameroon 93 95 84 91 Cameroon 135 126 115 125 Dominican R. 50 41 54 48 Malaysia 115 100 65 85 PNG 35 28 29 30 Ecuador 103 103 35 70 World 2,116 1,932 1,941 1,990 Dominican R. 55 52 58 48 Imports (000 tons) Colombia 50 50 45 46 US 445 353 427 408 Mexico 42 45 35 30 Netherlands 405 464 320 396 PNG 36 29 29 30 Germany 299 327 309 312 World 2,916 2,713 2,683 2,747 UK 248 176 193 206 Grindings (000 tons) France 117 111 108 112 Netherlands 385 402 425 435 Singapore 88 86 89 88 US 342 394 399 395 Russian Fed. 75 85 75 78 Cote d'lvoire 140 160 205 225 Italy 71 71 72 71 Germany 266 240 226 205 Bel-Lux 45 54 82 60 Brazil 205 180 188 195 Spain 50 49 66 55 UK 191 172 174 165 Estonia 5 65 78 49 France 113 106 103 107 Japan 49 54 43 49 Malaysia 95 95 100 100 Canada 39 34 53 42 World 2,713 2,736 2,795 2,790 World 2,229 2,219 2,218 2,222 Source: ICCO Source: ICCO and World Bank. Global Summary Actual - Est.- -Annual Growth Rate (lo) - World Balance (000 tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98 Gross Producton 1,554 1,695 2,506 2,713 2,683 2,747 0.9 3.9 0.7 Grindings 1,418 1,556 2,335 2,736 2,795 2,790 0.9 4.1 1.4 Exports 1,186 1,126 1,733 1,932 1,941 1,990 -0.5 4.3 1.1 Ending Stocks 497 675 1,791 1,399 1,225 1,150 3.1 9.8 -3.5 Actual Forecast Prices (¢/kg) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 143.2 145.6 161.9 167.6 117.0 125.0 130.0 170.0 190.0 Constant 1990 120.2 127.7 149.4 160.9 113.0 117.8 119.5 142.2 140.7 Note: Quantites refer to cocoa beans. Crop year begins October 1. Source: ICCO and World Bank. october 1999 23 AGRICULTURE Coffee 600 Monthly Prices (¢/kg) Prices took a further downturn, and - with Arabica another surplus season almost a reality - the 450 . . ... CSCE CSCE bearish sentiment is expected to persistfor Futures* some time. The 1994 Coffee Agreement was 300 - . ......... extendedfor a 2-year period. Robusta LIFFE The arabica price indicator fell to 185.9¢/kg in oFutures* September, bringing the third quarter average down S to 1 98.8¢/kg, 15.6% lower than last quarter and 23.3% *Futures prces are end-September expressed in ¢/kg. lower than a year ago. Robusta prices followed a simi- Source: ICO, LIFFE, and CSCE. lar path, reaching a low of 131.3¢/kg in September, 120 World Balance (million tons) with an average of 135 .4¢/kg during the third quarter, Production 9.2% down from last quarter and 22% lower than a 100 - -------- year ago. The bearish mood was evident in both New York and London, especially after it became clear that 8 . i a Brazilian frost was out of the question. Early estimates for the 1999/00 crop point to yet l - \/-Exports another surplus year. The latest USDA forecasts put the global production for the 1999/00 season at 104.5 million bags,just 1% below last season's bumper crop. 1970 1975 1980 1985 1990 1995 With the exception of Brazil, whose crops estimate is Source: ICO and USDA. projected at 26.5 million bags (down from last season's Arabica Annual Prices (g/kg) 34.5 million bags), other major coffee producers are 1,000 - expected to increase their output and thus make up for Constant the difference: Colombia by 10%, Mexico by 18%, 750 -- - V-(1990 and Vietnam by 13%. With consumption expected not to exceed 99 million bags, a further stock buildup is an 500 - ......... inevitable market outcome. Consumption in the US grew by almost 1% in 250 - the 12-month period ending September, according to LMC International while in Europe it declined by 0.4% Current over the same period. In Brazil, the second largest 1970 1975 1980 1985 1990 1995 2000 2005 2010 consumer, consumption declined by 2.1 %, not surpris- Source: ICO and World Bank forecasts. ingly since the devaluation of the real, coffee has be- Robusta Annual Prices (¢/kg) come more expensive in the domestic market and more 1,000 - attractive in the export market. 'Forecast Constant With another surplus season becoming a reality - 750 - - - ------ and consequently further stock buildup - prices are likely to remain weak for the rest of 1999 and most of 500 - .........--..--..--..--..-............ 2000. On a more important note, however, some pre- liminary estimates put Brazil's 2000/01 crop as high 250 - . ...... as 40 million bags. While it is too early for such a Current figure to carry any significant weight (as it serves only 0 I as an upper limit at the moment), it does send the sig- 1970 1975 1980 1985 1990 1995 2000 2005 2010 nal that even the medium-term market outlook is likely Source: ICO and World Bank forecasts. to be dominated by the current bearish sentiment. 24 GLOBAL COMMODITY MARKETS BEVERAGES COFFEE Other Developments * The 1994 International Coffee Agreement was ex- Consultative Board to "act in a consultative and ad- tended for a 2-year period until September 30, 2001 visory capacity to the Executive Board and Council while "a Negotiating Group shall be established to of the Organization on matters of concern to the draft the text of a new International Coffee Agree- world coffee industry." ment by 30 September 2000, thus giving a full year * The Association of Coffee Producing Countries for such a text to be ratified by Member countries" (ACPC) increased Brazil's export quotaby 13% (from according to a July 22 resolution issued by the ICO 15 million bags in 1999/00 to 17 million bags in 2000/ Executive Director. Two other resolutions called 01) and it reduced it by 6% for all other members. for (a) an international coffee conference to be held According to many analysts, however, compliance to regularly and (b) the creation of a Private Sector ACPC's quotas is expected to be limited. Production (000 bags) Stocks and Consumption 1996/97 1997/98 1998/99 1999/00 1995/96 1996/97 1997/98 1998/99 BrazilA 27,663 22,756 34,547 26,500 Ending Stocks (000 bags) Colombia 10,876 12,211 11,500 12,700 Brazil 16,000 14,128 11,278 15,278 Indonesia"A 8,296 7,756 7,589 7,200 Colombia 6,328 4,420 3,929 3,669 Vietnam* 5,705 6,893 6,200 7,000 Germany 2,400 2,200 2,400 1,800 Mexico 5,324 5,116 4,400 5,200 US 2,608 1,611 2,294 1,680 C6te d'lvoire* 4,528 3,682 2,742 5,000 Italy 1,259 1,327 1,257 1,133 India 3,469 4,718 3,833 4,500 Japan 1,350 1,083 1,067 1,067 Uganda* 4,297 3,032 3,600 3,600 Congo, D. R. 239 365 790 765 Ethiopia 3,270 2,916 3,867 3,500 Costa Rica 1,149 1,200 1,050 760 Guatemala 4,524 4,218 3,400 3,345 Bel-Lux 731 434 1,192 755 Honduras 2,004 2,564 2,300 2,850 World 43,717 37,957 35,938 35,921 Costa Rica 2,126 2,489 2,376 2,550 Consumption (000 bags) El Salvador 2,534 2,157 1,840 2,272 US 18,138 17,847 18,194 18,290 PeruA 1,802 1,916 2,066 2,150 Brazil 10,230 10,880 10,880 11,320 EcuadorA 1,993 1,191 1,260 1,800 Germany 9,761 9,709 9,038 9,300 Cameroon* 1,432 889 1,333 1,300 Japan 5,999 6,369 5,900 5,710 Venezuela 1,200 975 1,400 1,250 France 5,519 5,623 5,317 5,300 Kenya 1,246 882 1,133 1,250 Italy 4,718 4,857 4,843 4,700 PNGA 1,089 1,076 1,340 1,150 Spain 2,930 3,029 2,968 2,976 Nicaragua 793 1,086 1,044 1,100 UK 2,452 2,296 2,565 2,419 Thailand* 1,403 1,293 993 1,000 Canada 2,800 2,960 2,920 2,291 World 102,411 96,438 105,140 104,457 World 96,300 99,500 99,400 98,000 Source: ICO and USDA Source: ICO and USDA. Global Summary Actual -Est. - -Annual Growth Rate (%1)- World Balance (000 bags) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98 Production 64,161 86,174 88,749 102,411 96,438 105,140 2.9 0.3 1.4 Consumption 71,536 79,100 96,300 99,500 99,400 98,000 1.0 2.0 0.1 Exports 54,186 60,995 76,163 84,248 77,264 79,771 1.2 2.2 0.4 Ending Stocks 53,661 42,471 54,992 37,957 35,938 35,921 -2.3 2.6 -3.4 Actual Forecast Arabica Prices (0/kg) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 333.2 269.4 416.8 297.6 215.0 209.4 220.5 254.0 265.0 Constant 1990 279.6 236.4 384.6 285.7 208.6 197.3 202.6 212.5 196.2 Robusta Prices (0/kg) Current 277.1 180.6 173.6 181.9 147.7 147.7 158.7 186.1 192.0 Constant 1990 232.4 158.4 160.2 174.6 142.6 139.2 145.9 155.7 142.1 * Entirely or predominantly robusta producer. A Crop year begins April 1 (otherwise October 1). One bag equals 60 kg. Source: ICO, USDA, and World Bank. o c I o b e r 1 999 25 AGRICULTURE Tea 260 Monthly Prices (¢/kg) The global crop shortffall owing to adverse .Auerio weather conditions in India and Kenya coupled 230 - ---- -------- ;...-.---.--- with declining stocks, have allowed the two tea auctions'prices to recover during the third 200 ....\.;;.... ... quarter lifting all except Colombo auctions above lastyear's levels. 170 - ............ Although Mombassa tea auctions prices increased 140 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 16.9% in September, average prices over the quarter re- Source: ITC mained even with an 0.4% increase from last quarter. World Balance (million tons) Average prices also remained even for the Calcutta auc- 3.5 tions, increasing only 0. 1 % over the quarter. In spite of a 15.3% price increase on average over the second quarter, 2.8 - _---..-....-...-....-... -.. ---- prices at the Colombo auctions have remained weak com- Production pared to third quarter prices in 1998 (down 14.7%). 2.0 - _-...------................. Global crop shortfall as of July 1999 is estimated atN 110 thousand tons and with the information at hand we 1.3 ' Net.Impor[s expect 1999 production to be substantially lower than the record 2.86 million tons of 1998. India's cumulative out- 0.5 s put up to July is down by 52 thousand tons (-12.5%) 1970 1975 1980 1985 1990 1995 compared to the period in 1998. Despite reports from Source: FAO and ITC. the United Planters' Association of South India that inI-UK Ending Stocks (thousand tons) creases have taken place in August and September, the 100 1999 crop is unlikely to exceed 830 thousand tons. No- Warehouses table declines have also been reported for the other major 75------------------- producers: Kenya 42.2 thousand tons, Indonesia 10.1, Bangladesh 7.3, and Malawi 3.3 for 1999 up to July. \ According to the Sri Lanka Tea Board, the country's W olesalers output for the first eight months of 1999 reached 184.2 25 olesaler thousand tons, compared to 185.3 thousand tons in 1998. 25 Because of low tea prices, Sri Lanka's export earnings have been disappointing despite steady increase in export vol- 0 - ume. Forthe 8-month period endingAugust, Sri Lanka's 1970 1975 1980 1985 1990 1995 Source: ITC tea exports were $401 million, compared to $487 million Annual Prices (0Ikg) for the same period of 1998. Sri Lanka's 1999 output is 450Annt likely to be about the same as last year. Forecast On the demand side, the Russian Federation, the 350 ------- ----A---------------------- world's dominant tea importer, is still pressured by the ruble crisis and is currently purchasing mostly low grade 250 - ............-.- teas. Also, weak Russian demand has been compounded by the increase of import duty on packet tea to 20%. 150 - ----- Despite of the global crop shortfall, demand pros- Current pects are still weak, especially if one adds the political 50 I . uncertainty in Pakistan, the world's third largest tea im- 1970 1975 1980 1985 1990 1995 2000 2005 2010 porter. We expect the three-auctions average to be at Source: ITC and World Bank forecasts. $183/ton with no prospects of recovery for next year. 26 GLOBAL COMMODITY MARKETS BEVERAGES TEA Other Developments * The Indian Tea Board has considered establishing a 90% reduction on prevailing tariff on all commodi- tea futures exchange. A similar attempt by tea bro- ties (including tea) with member countries, and to kers in London some 30 years ago failed according zero tariff by year 2000. Kenya stands to gain with to the Financial Times. While the idea is still at the tea duty currently at 3%, as compared to 30 to 40% drawing board, analysts content that successful for non-members. launching of a tea contract will be a difficult task. As * The Indian government imposed an excise duty of the main impediments, they cite (i) the lack of a Rs 2/kg on all tea produced; this is likely to weaken "dominant" or "standard" tea variety, (ii) quality de- domestic demand. termination of tea requires actual tasting, and (iii) tea * The privatization of five tea factories in the Nyeri stocks do not retain their original quality for long. District of Kenya has been completed successfully * Egypt joined the Common Market for Eastern and and they are now being run by growers reported Af- South Africa in January 1999 and committed to a rica News Service. Production and Yields Trade 1995 1996 1997 1998 1995 1996 1997 1998 Production (000 tons) Exports (000 tons) India 756 780 811 870 Sri Lanka 235 234 258 265 China 588 617 638 648 Kenya 237 244 198 263 Kenya 245 257 221 294 China 167 173 205 220 Sn Lanka 246 259 277 281 India 164 160 203 206 Indonesia 144 166 154 166 Indonesia 79 102 67 70 Turkey 103 115 140 115 Argentina 41 41 56 59 Japan 85 89 91 82 Malawi 33 37 49 41 Iran, Islam. R. 55 58 60 60 Uganda 11 15 18 23 Bangladesh 48 53 54 56 Bangladesh 25 26 25 22 Argentina 32 43 55 55 Tanzania 21 18 19 22 Vietnam 40 40 42 42 World 1,079 1,112 1,180 1,255 Malawi 35 38 44 40 Net Imports (000 tons) Uganda 13 17 21 26 Russian Fed. 110 111 148 135 Tanzania 24 19 23 24 UK 136 148 151 147 Taiwan, China 21 23 24 23 Pakistan 116 115 98 112 Zimbabwe 16 17 17 18 US 83 89 81 97 World 2,521 2,665 2,761 2,863 Egypt 80 73 78 66 Major Auction Volumes Japan 45 49 52 45 Colombo 229 230 255 229 Iraq 1 2 17 40 Mombasa 174 190 167 207 Morroco 38 28 35 41 Calcutta 93 85 87 79 Iran, Islam. R. 30 27 30 29 Chittagong 43 46 43 43 Poland 31 27 32 27 Jakarta 15 13 30 35 Afganistan 22 48 38 24 All Auctions 894 941 969 987 World 1,074 1,122 1,174 1,166 Source: FAO and ITC. Source: FAO and ITC. Global Summary Actual -Est.- -Annual Growth Rate (%)- World Balance (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-97 Production 1,287 1,894 2,526 2,665 2,761 2,863 4.2 3.2 0.9 Net Imports 640 859 1,099 1,122 1,174 1,166 3.0 2.9 1.1 Yields (tons/hectare) 0.77 0.80 1.12 1.13 1.16 1.22 0.2 4.3 1.0 Actual Forecast Prices (¢/kg) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 148.9 166.1 206.0 204.7 183.0 174.0 177.0 179.0 198.0 Constant 1990 124.9 145.4 190.1 196.4 176.7 163.9 162.7 149.8 146.6 Source: ITC, FAO, and World Bank forecasts. o ct o b e r 1999 27 AGRICULTURE Fats and Oils Monthly Prices ($/ton) The World Bank oils index dropped below Weighted $390/ton in July but it reached $440/ton in 670 - - - ......... September mostly due to recovery in soybean and palm oil markets. Ample supplies of 570 - ... most oils will make further recovery unlikely. 470 - ...................I.,,.. -- 370 .. . . . . .. . . . . . . . . . . . . . Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 The World Bank's oil weighted price averaged Source: World Bank and Oil World. $41 7/ton the third quarter, down 16% from the sec- World Balance million tons ond quarter's average and 33% lower that a year 120 ago. According to Oil World, global output of the 90 -.-----------------------------: major fats and oils is expected to reach yet another Production record level, estimated currently at 109 million tons. 60 ......... ... Most of the output growth is expected to take place in coconut oil (22%), palm oil (5%), and rapeseed 30 - ------- oil (12%). Output of soybean oil, however, may Exports not increase as originally anticipated following the 0 - October USDA forecasts which put US soybean crop 1970 1975 1980 1985 1990 1995 at 73.38 million tons, down from their September Source: Oil World forecast of 75.62 million tons. Ending Stocks (million tons) Global trade expected to gain another 5% with 13 - Malaysia leading the way. Malaysia accounts for Wo 27% of world oil exports (almost exclusively palm 10 --.---- oil). Argentina and India follow by accounting for about 13% each. As discussed in the following oil 7 - ...... .............. sections of our report, the import market is domi- l nated by India, which currently is estimated to im- 4 - . port 4.36 million tons of vegetable oils,just 1 10 thou- U and EU sand tons below the EU but 1.2 million higher than I China. Rising disposable incomes, low import du- 1970 1975 1980 1985 1990 1995 ties, combined with an inefficient domestic crushing Source: Oil World industry have all contributed to this surge, which is Annual Prices ($/ton) expected to continue unless some import duty or 2,000- Constant other quantitative restriction is imposed. (1990) Forecast Despite the recent USDA downward forecast 1,5oo --- -------------------.-- of the US soybean crop, the world oil market is expected to be dominated by plentiful supplies of 1,000 ................ ........ the most important vegatable oils. Furthermore, import demand from Pakistan, the fifth major oil 500 importer, is likely to shrink following the recent po- Current litical developments. Therefore, we expect the oil 0 - i i l index to remain considerably below $500/ton for both 1970 1975 1980 1985 1990 1995 2000 2005 2010 1999 and 2000, unless some adverse weather de- Source: WorldBank velopment dictate otherwise. 28 GLOBAL COMMODITY MARKETS FATS, OILS, AND OILSEEDS FATS AND OILS Other Developments * ln response to the recent record of vegetable oil im- from the imposition of such duty, the Solvent Extrac- ports, the Indian Ministry of Agriculture has called for tors Association of hidia is pushing for the establish- an immediate increase in edible oil tariffs, according to ment of a variable duty on refined and crude edible oils the USDAJuly update. Among other groups to benefit as well as a reduction in the tariff of oilseed imports. Exports of the 17 Major Fats and Oils (million tons) Imports of the 17 Major Fats and Oils (million tons) 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Malaysia 8.45 8.58 9.20 9.56 EU 4.35 4.53 4.52 4.74 Argentina 3.95 3.96 5.09 4.86 India 1.98 2.18 4.28 4.63 Indonesia 3.49 3.41 3.54 4.42 China 4.56 4.09 3.08 3.46 US 3.10 4.05 3.67 3.79 US 1.68 1.82 1.52 1.76 EU 2.73 2.93 2.85 2.95 Pakistan 1.32 1.52 1.55 1.59 Brazil 1.38 1.30 1.47 1.32 Iran, Islamic R. 0.79 1.05 1.16 0.98 Canada 0.93 0.99 1.00 1.07 Mexico 0.86 0.90 0.93 0.96 Philippines 0.96 1.40 0.52 0.86 Turkey 0.86 0.90 0.80 0.88 World 31.90 33.15 33.03 34.59 World 31.39 33.18 33.12 34.73 Source: Oil World Source: Oil Wodd Production, Exports, and Stocks of the 17 Major Fats and Oils - Production (million tons)- -Exports (million tons) - Stock-to-Use Ratio Fats and Oils 1997/98 1998/99 1999/00 1997/98 1998/99 1999/00 1997/98 1998/99 1999/00 Soybean 23.15 24.36 24.59 7.66 7.53 7.14 0.11 0.11 0.11 Palm 16.96 18.83 19.84 11.69 12.46 13.45 0.14 0.17 0.17 Rapeseed 12.21 12.52 14.02 2.10 1.88 2.19 0.10 0.08 0.09 Sunflower 8.62 9.20 9.51 3.00 3.10 3.21 0.10 0.11 0.11 Tallow 7.69 8.00 7.93 2.21 2.41 2.27 0.08 0.07 0.07 Lard 6.20 6.41 6.42 0.17 0.19 0.18 0.07 0.06 0.06 Butter 5.73 5.81 5.90 0.59 0.57 0.60 0.12 0.11 0.11 Groundnut 4.38 4.67 4.33 0.26 0.25 0.25 0.09 0.09 0.08 Cotton 4.08 3.81 3.84 0.22 0.17 0.19 0.07 0.07 0.07 Coconut 3.45 2.46 3.20 2.12 1.07 1.67 0.19 0.11 0.15 Palm Kernel 2.19 2.37 2.48 1.07 1.16 1.20 0.13 0.11 0.12 Corn 1.93 1.95 1.99 0.77 0.73 0.75 0.07 0.08 0.09 Olive 2.56 2.43 1.97 0.46 0.52 0.47 0.43 0.42 0.24 Fish 0.84 1.18 1.17 0.43 0.63 0.65 0.15 0.20 0.17 Linseed 0.68 0.73 0.78 0.12 0.13 0.15 0.14 0.15 0.15 Sesame 0.74 0.71 0.68 0.02 0.02 0.02 0.06 0.06 0.06 Castor 0.46 0.45 0.41 0.26 0.23 0.21 0.12 0.12 0.08 Total 101.86 105.86 109.06 33.15 33.03 34.59 0.11 0.12 0.11 Source: Oil World Global Summary Actual -Est.- -Annual Growth Rate (%o)- World Balance (mil. tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98 Production 39.78 58.09 80.84 101.86 105.86 109.06 3.8 3.3 2.2 Consumption 39.82 56.80 80.77 102.20 105.47 108.92 3.6 3.5 2.1 Exports 8.83 17.76 26.89 33.15 33.03 34.59 7.0 4.1 1.6 Ending Stocks 5.18 9.25 12.15 11.70 12.19 12.47 5.8 2.7 0.0 Actual Forecast Weighted Price ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 638.8 569.7 574.0 658.6 494.5 491.2 506.9 507.6 520.2 Constant 1990 535.9 498.9 529.6 632.1 471.7 461.2 464.5 420.9 381.5 Note: Crop year begins October 1. The price is a trade weighted average of soybean, palm, coconut, and groundnut oils. Source: Oil World and World Bank. o c t o b e r 1999 29 AGRICULTURE Coconut Oil Monthly Prices ($/ton) Following a 15-year record high in May, c.i.f. prices retreated in July but picked up again in 800 - ...................... September on news of drought in the 700 Philippines. India's Cochin Oil Merchants 700 Association plans to relaunch the coconut oil futures contract. 600 .. .... .. . ........ Following last May's 15-year record high of $874/ 500 . ........ .... .... .....S .. Sep-95 Sep-96 Sep-97 Se-p-98 Sep-99 ton, coconut oil prices fell to $656/ton in July but re- Source: World Bank and Oil World. covered to $704/ton in September on news of exten- World Balance (million tons) sive drought in the Philippines. The third quarter aver- 3a5 age was $681.3/ton, 18.1 % lower than the second quar- ter. However, prices later picked up. Prices of palm 2.8 kernel oil, a close substitute to coconut oil, averaged Production $675.7/ton during the third quarter, down 9.9% from 2.0 - ....... .............. ....... . second quarter and 5.4% lower than a year ago. Exports According to the latest Oil World estimates, new 1.3 - .............. season's coconut oil production (October 1999 to Sep- tember 2000) is expected to be 3.16 million tons, up 0.5 - I 23% from last season (the year when the El Nifno's full 1970 1975 1980 1985 1990 1995 impact was felt), but still 8% lower than the 1997/98 Source: Oil World season. Early estimates projected a full recovery from Ending Stocks (million tons) El Nifmo; however, extensive drought in the Philippines, 0.8 the dominant producer, lowered its 1999/00 output by World almost 25%, according to the United CoconutAssocia- 0.6 - ----- tions of the Philippines. Full recovery, however, is expected in Indonesia with a projected output of 0.79 0.4 - million tons, up from 0.51 million tons in 1998/99. us Global coconut oil exports are expected to reach 1.65 0.2 - _---.-.-......-...-..........-----.. million tons, with the Philippines and Indonesia account- ing for almost 85%. 0.0 o Global palm kernel oil production, which follows 1970 1975 1980 1985 1990 1995 the same pattern as palm oil, is expected to reach 2.53 Source: Oil 'orld million tons, up 9% from last season's output, with Annual Prices ($/ton) Malaysia and Indonesia, the top producers, experienc- 2,500 - ing each 8% and 19% increases. Exports of palm ker- 'Forecast nel oil are expected to increase 13% over 1998/99 with 1,900 Constant the EU accounting for almost half the imports. Following improved production prospects in both 1,300 - ---------------------------------- top producing countries and buyers willingness to switch to palm kernel oil, prices are likely to average about $700/ton in the year 2000, down from $750/ton cur- Current rently projected for 1999. We should also stress that 100 - y _Current large premiums of lauric over other vegetable oils (of 1970 1975 1980 1985 1990 1995 2000 2005 2010 the magnitude observed earlier this year) usually are Source: World Bank not sustained for long periods. 30 GLOBAL COMMODITY MARKETS FATS, OILS, AND OILSEEDS COCONUT OIL Other Developments *hidia's Cochin Oil Merchants Association (Coma) and trading altogether. India is the third largest coconut oil the First Commodity Clearing Corporation of India producer, accounting for 14% of global production. have signed an agreement to jointly launch a coconut * Rainfall in the Philippines, the most significant factor oil futures contract according to The Public Ledger. in copra production has improved significantly in the Coma, whichlcurrentlyhandles spottransactions, used first part of 1999 following the 1997 and 1998 to operate a coconut oil futures contract since 1931. drought. Given that copra crushings follow with a In 1956 the hidian government took control of fu- 15-month lag, coconut oil output is expected to actu- tures operations and in 1971 banned coconut futures ally pick up in early 2000, according to Oil World. Coconut Oil Palm Kernel Oil 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Production (000 tons) Philippines 1,257 1,628 913 1,161 Malaysia 1,157 1,127 1,230 1,325 Indonesia 756 652 509 788 Indonesia 506 543 557 661 India 419 439 431 440 Nigeria 181 180 183 187 Mexico 134 128 123 125 Thailand 36 35 37 40 Vietnam 57 69 73 87 Colombia 33 33 36 39 World 3,151 3,451 2,572 3,168 World 2,167 2,189 2,313 2,527 Ending Stocks (000 tons) Ending Stocks (000 tons) Philippines 87 32 70 90 Malaysia 144 149 167 155 US 68 178 60 70 Indonesia 40 35 47 60 Indonesia 35 40 45 65 US 23 29 27 35 India 31 32 30 31 EU 15 23 19 35 World 382 598 347 460 World 263 281 300 322 Exports (000 tons) Exports (000 tons) Philippines 950 1,386 575 820 Malaysia 483 476 545 630 Indonesia 603 511 365 600 Indonesia 435 474 467 540 World 1,753 2,119 1,153 1,651 World 1,036 1,067 1,120 1,270 Imports (000 tons) Imports (000 tons) EU 639 755 555 610 EU 427 419 464 531 US 539 653 380 520 US 178 163 160 190 China 42 34 46 52 Japan 54 53 54 58 Korea, Rep. 44 40 39 42 Brazil 51 45 47 49 World 1,695 2,114 1,203 1,650 World 1,055 1,047 1,123 1,255 Source: Oil World Source: Oil World Global Summary Actual - Est.- -Annual Growth Rate (6)-- Coconut Oil (000 tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98 Production 2,020 2,842 3,377 3,451 2,572 3,168 3.4 1.7 -2.2 Consumption 2,021 2,688 3,169 3,230 2,874 3,054 2.9 1.6 -0.8 Exports 608 1,215 1,701 2,119 1,153 1,651 6.9 3.4 -3.1 Ending Stocks 292 509 641 598 347 460 5.6 2.3 -4.9 Palm Kernel Oil (000 tons) Production 378 570 1,449 2,189 2,313 2,527 4.1 9.3 3.7 Consumption 387 528 1,375 2,151 2,296 2,490 3.1 9.6 4.1 Exports 160 402 907 1,067 1,120 1,270 9.2 8.1 1.7 Ending Stocks 45 134 256 281 300 322 10.9 6.5 1.3 Actual Forecast Prices - Coconut ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 669.7 751.6 656.8 657.9 750.0 700.0 650.0 620.0 650.0 Constant 1990 561.7 659.3 606.1 631.5 724.2 659.4 597.4 518.8 481.2 Note: Crop year begins October 1. Source: Oil World and World Bank. o c to b e r 1999 31 AGRICULTURE Palm Oil 750 Monthly Prices ($/ton) With another record crop becoming a reality, the weakness in prices is expected to persist 625 ...... throughout the 1999/00 season. India has 5 \ emerged as the dominant palm oil importer KLCE ahead of the EU and China. Futures* 375-. . . . . . . . . . . . . ... .. .. V - ; . - - . Palm oil prices reached a low of $319/ton in July 250 ....I.. - I (down from $703/ton 9 months earlier) but picked up in Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 August and especially in September thanks to strong *utures prices are end-September expressed in $/ton. buying activity by India. Third quarter's average stood Source: World Bank, Oil WVorld, and KLCE. at $353.7/ton, 23% lower than the second quarter aver- 20 World Balance (million tons) age and almost 50% lower than a year ago. Palm oil a close substitute to soybean oil, is expected to account 15 .-------..---...-..--------------- for 18.2% of global production and 39% of global trade Production of the 17 major fats and oils. About 68% of global 10 ---.----------------- production is internationally traded. Exports The new figures regarding the 1999/00 crop pub- 5 - - Exports lished last month by Oil World indicate that the industry is heading towards another record output, estimated at 0 v I 19.8 million tons, 5% higher than season's level. Both 1970 1975 1980 1985 1990 1995 major producers are expected to register increases: Source: Oil World Malaysia 2% and Indonesia 11%. Minor producers (Co- Ending Stocks (million tons) lombia, C6te d'Ivoire, Ecuador, Nigeria, PN(, and Thai- 3.2 land) are expected to follow suit. World On the demand side, India has emerged as the 2.4 - _ ..... dominant player in the import market. During 1999/ 00 it is expected to import 2.75 million tons, up from 1.6 --_-----...- ....---- --.-----..-.. last season's 2.55 million tons. India's palm oil im- port growth has been impressive, more than doubling 0.8 - _ ............................ in the last four seasons. According to the USDA, Indonesia during the eighth month period ending May 1999, o.o - / I India imported 2.16 million tons of vegetable oils 1970 1975 1980 1985 1990 1995 versus 0.74 million tons over the same period of Source: Oil World last year. Palm oil imports grew from 0.66 to 1.17 Annual Prices ($/ton) million tons. China, the third palm oil importer fol- 1,700 lowing the EU, is expected to increase imports by Forecast Constant 13% in 1999/00, which although considerable, is be- 1,300 - . ..Constant low earlier expectations according to many analysts. (1990) Because of import quotas designed to protect the do- 9-0 mestic crushing industry, China is turning from a veg- etable oil importer to an oilseed importer. 10 ..... We expect palm oil prices not to exceed $450/ton 500urr in 1999. Unless some weather anomalies take place - Current not unlikely given the sporadic drought spells in Malay- 100 - l 1 sia earlier this year - we expect the 2000 average to be 1970 1975 1980 1985 1990 1995 2000 2005 2010 about $465/ton, the same forecast as in our last report. Source: World Bank 32 GLOBAL COMMODITY MARKETS FATS, OILS, AND OILSEEDS PALM OIL Other Developments * Following the low palm oil prices in July, a num- a $32 million investment agreement with an Indone- ber of palm oil importers, particularly from India, sian Palm oil plantation and processing company, defaulted on their contracts. According to the Fi- according to The Public Ledger. CDC currently nancial Times, the defaults may be as high as Rs30 manages a portfolio of $200 million in Indonesia. billion ($689 million). Many of the contracts were According to Oil World, global palm oil area is ex- signed when palm oil was traded close to $700/ pected to be 6.3 million hectares in the year 2000, ton, while at delivery the spot price was just above another record high. Between 1996 and 2000, ma- $300/ton. In the absence of contract enforcing ture area in Indonesia and Malaysia is expected to mechanisms (such as margin calls in the organized increase by 49% and 23%, respectively. Yields, how- futures exchanges), breaching of contracts is not ever, have remained constant at around 3.36 tons/ an unlikely outcome. hectare, thus all production growth has been ac- * The UK's Commonwealth Corporation (CDC) signed counted for by area expansion. Production and Stocks Trade and Ending Stocks 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Exports (000 tons) Malaysia 9,000 8,509 9,691 9,883 Malaysia 7,794 7,847 8,350 8,720 Indonesia 5,078 5,086 5,661 6,279 Indonesia 2,419 2,416 2,710 3,280 Nigeria 678 688 705 733 PNG 281 228 242 265 Colombia 440 437 453 489 Singapore 286 253 264 225 Thailand 386 363 389 427 World 11,875 11,693 12,458 13,450 Cote d'lvoire 250 266 270 274 Imports (000 tons) PNG 276 232 247 270 India 1,395 1,684 2,550 2,750 Ecuador 201 203 215 238 EU 1,957 2,028 2,164 2,265 World 17,487 16,957 18,828 19,839 China 1,851 1,490 1,435 1,680 Consumption (000 tons) Pakistan 1,020 1,210 1,010 1,120 Indonesia 2,699 2,770 2,859 2,919 Egypt 374 374 463 500 India 1,275 1,797 2,395 2,763 Singapore 402 351 420 380 EU 1,897 1,951 2,067 2,165 Japan 382 355 362 370 China 1,663 1,545 1,507 1,620 Myanmar 290 246 275 290 Malaysia 1,217 1,088 1,155 1,203 World 11,729 11,820 12,316 13,420 Pakistan 1,087 1,175 1,015 1,110 Ending Stocks (000 tons) Nigeria 728 775 769 801 Malaysia 907 719 1,160 1,240 Egypt 367 364 433 483 Indonesia 605 535 630 740 Colombia 384 381 375 393 India 285 180 340 340 Thailand 387 363 355 388 China 280 175 100 150 World 17,090 17,671 18,035 19,480 World 3,009 2,422 3,072 3,400 Source: Oil World Source: Oil World Global Summary Actual -Est.- -Annual Growth Rate (%)- World Balance (000 tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98 Production 1,742 4,587 10,976 16,957 18,828 19,839 9.7 8.7 4.3 Consumption 1,685 4,822 11,041 17,671 18,035 19,480 10.5 8.3 3.9 Exports 920 3,793 8,639 11,693 12,458 13,450 14.2 8.2 2.9 Ending Stocks 247 992 2,551 2,422 3,072 3,400 13.9 9.4 1.5 Yields 2.50 2.91 3.19 3.33 2.96 3.07 1.5 0.9 -0.6 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 628.0 530.9 545.8 671.1 449.0 465.0 470.0 460.0 460.0 Constant 1990 526.8 465.8 503.6 644.1 434.0 438.1 432.0 384.9 340.5 Note: Crop year begins October 1. Source: Oil World and Word Bank. o c t o b e r 1999 33 AGRICULTURE Soybean Oil Monthly Prices ($/ton) 700- Despite a small price recovery in August and also some demand growth, plentiful (Dutch) availability of soybean oil and other competing oils are expected to keep prices 500 - . CBOT weak. Trade is expected to shrink 5% this FuT season. Third quarter soybean oil prices averaged $406/ton, 300-... down 4.8% from last quarter and 33% lower than the Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 down 4.8% from last quarter and 33% lower than the*Futur-es prices are end-September expressed in V,ton. same quarter of 1998/99. Soybean oil, a close substitute Source: World Bank and CBOT. to palm oil, accounts for one-quarter of global vegetable World Balance (million tons) oil production - one-third is intemationally traded. 26 The recently released figures by Oil World for the 1999/00 season outlook indicate that global soy- Production bean oil output will be 24.59 million tons, another record level, about 1% higher than last season's level. Most 13 -- _ ...................... of the gains are expected to take place in the US which Exports is expected to reach 8.44 million tons, up from 8.13 7 . . million tons last season. Despite increased output, exports of soybean oil 0 are expected to shrink by 5% according to USDA (from 1970 1975 1980 1985 1990 1995 7.46 million tons in 1998/99 to 7.14 million tons in Source: Oil World 1999/00), with declines expected to be experienced by Ending Stocks (million tons) both Argentina and Brazil, the leading exporters. On 2.8 - the import side, the Islamic Republic of Iran and World Bangladesh will considerably reduce their imports. 2.1 - ------- China, still the dominant importer, absorbed one-third of global exports in 1996/97. This season China is 1.4 - _------............. expected to absorb less than 15% of global exports. US Because its tariff structure is designed to protect do- mestic crushers, in recent years China has turned from a major oil importer to an oilseed importer. According 1970 1975 1980 1985 1990 1995 to the October USDA update, for example, this season Source Oil World China is expected to import some 4.30 million tons of Annual Prices ($/ton) soybeans (up from 2.94 million tons in 1997/98) and 2,100 - 2.1 million tons of rapeseed (up from 288 thousand Forecast tons in 1997/98). 1,600 -._ .... . Despite some signs of moderate demand growth Constant (expected to increase between 1% to 2% this season, 1,100 . . .......... thus keeping up with production growth), the outlook is still dominated by plentiful availability of soybean oil 600 and other competing oils, especially palm oil. Thus, CufTent we expect that the pressure on prices will persist for 100 the rest of 1999 and at least the first half of 2000. Our 1970 1975 1980 1985 1990 1995 2000 2005 2010 latest forecasts indicate an average of $440/ton for 1999 Source: World Bank with a small recovery to $450/ton taking place in 2000. 34 GLOBAL COMMODITY MARKETS FATS, OILS, AND OILSEEDS SOYBEAN OIL Other Developments * It appears that the debate on the genetically modi- USDA reported that there are growing concerns fled organisms (GMOs) has been elevated at a glo- over GMOs, prompted by EU customers of pro- bal level and has begun to affect countries other cessed food from Thailand. While having GMO- than the dominant-players such as Brazil, EU, and related regulations for seeds, the country has no the US. In its recent FAS Report on Thailand, such regulations on trade. Soybean Oil Soybean Meal 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Production (000 tons) US 7,145 8,227 8,133 8,439 US 31,036 34,606 33,995 35,261 Brazil 3,760 3,790 4,038 4,044 Brazil 15,640 15,637 16,592 16,715 Argentina 1,966 2,281 3,137 2,945 Argentina 8,867 10,353 13,959 13,215 EU 2,730 2,936 2,905 2,930 EU 11,998 12,808 12,653 12,678 China 1,410 1,655 1,741 1,848 China 7,069 8,252 8,675 9,106 India 607 787 790 675 India 2,787 3,611 3,627 3,088 World 21,033 23,147 24,361 24,589 World 92,567 100,733 105,550 106,527 Ending Stocks (000 tons) Ending Stocks (000 tons) US 690 627 710 875 Brazil 759 1,124 1,020 1,000 Brazil 311 346 320 345 Argentina 412 700 695 600 China 455 340 190 210 China 755 1,100 450 470 World 2,441 2,453 2,660 2,686 World 4,049 4,985 4,441 4,351 Exports (000 tons) Exports (000 tons) Argentna 2,019 2,128 3,120 2,850 Argentina 8,684 9,705 13,580 12,900 Brazil 1,297 1,228 1,406 1,250 Brazil 10,927 9,818 10,822 10,720 US 924 1,433 1,045 1,150 US 6,345 8,470 6,545 7,670 EU 867 1,040 989 967 India 2,156 2,787 2,850 2,140 World 6,662 7,655 7,525 7,140 World 30,510 33,764 36,953 36,640 Imports (000 tons) Imports (000 tons) China 2,041 1,850 1,030 1,135 EU 11,370 13,025 17,200 16,250 India 84 254 860 893 East Europe 2,140 2,464 2,354 2,431 Iran, Islamic R. 408 699 915 700 China 3,750 3,609 1,530 2,250 Bangladesh 279 240 495 355 Thailand 1,059 956 1,150 1,160 H.K., China 591 767 178 165 Korea, Rep. 818 881 1,140 1,100 World 6,508 7,503 7,625 7,317 World 30,401 33,329 36,779 37,078 Source: Oil World Source: Oil World Global Summary Actual -Est.- -Annual Growth Rate (%) - Soybean Oil (000 tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98 Production 6,477 13,417 16,141 23,147 24,361 24,589 7.3 1.8 3.3 Consumption 6,245 12,730 16,149 22,981 24,254 24,740 7.1 2.4 3.3 Exports 1,140 3,303 3,800 7,655 7,525 7,140 10.6 1.4 5.5 Ending Stocks 653 2,094 2,119 2,453 2,660 2,686 11.7 0.1 1.8 Soybean Meal (000 tons) Production 29,265 59,379 70,528 100,733 105,550 106,527 3.1 0.7 3.2 Consumption 29,012 57,744 69,653 99,364 105,919 107,056 3.0 0.8 3.4 Exports 5,636 18,201 26,649 33,764 36,953 36,640 5.1 1.7 2.6 Ending Stocks 602 1,992 3,217 4,985 4,441 4,351 5.2 2.1 2.6 Actual Forecast Soybean Oil Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 625.0 551.5 564.8 625.9 440.0 450.0 470.0 525.0 550.0 Constant 1990 524.3 483.8 521.1 600.8 424.9 423.9 432.0 439.3 407.1 Note: Crop year begins October 1. Source: Oil World and World Bank. o c to b e r 1999 35 AGRICULTURE Soybeans 350 Monthly Prices ($/ton) Soybean pricesfell about 2% in the third Rotterdam quarter, but began to increase toward the end 300 - ----------------------------------- of the quarter on news of a smaller than expected US crop. Global import demand 250CBOT improved and contributed to the price Futures* increase. 200 150 - Before rising in August and September, soybean Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 prices fell to $184/ton in July (c.i.f. Rotterdam), the *Futres prices are end-September expressed in S/ton. lowest level since December 1972 on the expectation Source: USDAhistoricalprices of large US and world soybean crops. However, a 200 World Balance (million tons) late-season drought cut USDA's production estimate for the 1999/00 US crop from 79.9 million tons in June 150 --------------------------------------------- to 75.6 million tons in September. The estimate of global production fell from 159.0 to 155.0 million tons 100 Production--- over the same period. Ending stocks are now pro- Consumption jected to total 15.5 million tons compared to the June 50 - . .. .. estimate of 19.0 million tons. If ending stocks totaled 15.5 million tons, this would be the largest stocks since o 1985, when ending stocks werel8.1 million tons. 1970 1975 1980 1985 1990 1995 Comparing the current marketing year with 1986/ Source: USDA 87 provides some useful insights and raises the poten- Ending Stocks (million tons) tial that prices will rise more than projected. The level 20 - of ending stocks in 1986/87 was 15.3 million tons com- .o_l pared to the projected 15.5 million tons this year. Soy- 15 - -...... ....ts...... bean prices averaged $208 (per ton) in 1986 compared to an estimated $202 in 1999. The US held 77.7% of 10 global stocks in 1986/87 and an estimated 80.7% in 1999/00. 5 The ratio of soybeans to maize prices was 2.37 in 1986 compared to 2.24 in 1999. The ratio of soy- 0 1 1 1 1 1 bean meal to maize prices was 2.11 in 1986 compared Source: USDA to 1.67 in 1999. This suggests that soybeans are cheap relative to maize, and soybean meal is especially cheap Annual Prices ($/ton) relative to maize. Soybean prices averaged $216 in 1000 - 1987 compared to our projected $194 in 2000. If the 'Forecast ratio of soybeans to maize prices were to return to the 750 - . ......... recent 10-year average and maize prices rose to $95/ constant ton as projected, then soybean prices would increase 500 - -------------------..-.-. to $226/ton rather than the $194 we forecast. Soy- bean meal prices would rise to $184/ton in 2000 if they 250 - returned to their 10 year average relative to maize com- Current pared to the estimated 1999 price of $150/ton and the 0 (cif. Rotterdam) projected price of $160/ton in 2000. Prices do not 1970 1975 1980 1985 1990 1995 2000 2005 2010 always follow historical relationships in the short-run, Source: USDA historical data and World Bank forecasts. but they tend to in the long-run. 36 GLOBAL COMMODITY MARKETS FATS, OILS, AND OILSEEDS SOYBEANS Other Developments * Global soybean yields fell slightly in 1999/00 from There is growing public debate over the use of ge- the previous year, but are still expected to remain netically modified soybeans. These concerns are above the long-tenn trend. Since 1980, world soy- partly prompted by worries expressed by EU cus- bean yields have increased by an average of 1.48% tomers of Thai processed foods. Although Thai im- per year, while yields in the US have increased by porters are trying to ensure their customers that soy- 1.50% per year over the same period and yields in beans are not genetically modified, the country does Brazil have increased by 2.05% per year. not currently have policies or regulations governing * Thailand is one of the most recent soybean import- the use or trade of GMs. Consequently, future trade ers to express concern over genetically modified crops. of soybeans may be affected. Production and Crush Trade and Ending stocks 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Exports (000 tons) US 64,780 73,176 74,598 73,381 US 23,999 23,687 22,099 23,950 Brazil 27,300 32,500 31,000 30,500 Brazil 8,340 9,300 9,500 9,300 Argentna 11,200 19,200 19,000 18,000 Argentna 750 3,231 3,300 2,500 China 13,220 14,728 15,000 14,000 Paraguay 2,150 2,390 2,500 2,250 India 4,100 5,350 6,000 5,500 World 36,886 40,976 40,355 40,879 Paraguay 2,771 2,988 3,100 2,850 Imports (000 tons) EU 1,144 1,570 1,535 1,413 EU 15,311 16,297 16,143 16,153 Indonesia 1,460 1,306 1,300 1,300 Japan 5,043 4,873 4,650 4,600 World 132,193 157,752 158,371 153,859 China 2,309 2,975 3,735 4,335 Crush (000 tons) Mexico 2,680 3,479 3,600 3,700 US 39,080 43,464 43,332 44,361 Taiwan, China 2,632 2,387 2,200 2,300 Brazil 18,910 21,800 20,400 20,600 Korea, Rep. 1,486 1,340 1,450 1,500 Argentna 10,550 16,800 16,000 15,300 Brazil 1,450 500 700 900 China 8,690 10,728 11,700 11,500 Indonesia 684 810 1,150 1,200 India 3,650 4,770 5,400 4,900 World 37,135 38,790 39,461 41,288 Mexico 2,690 3,600 3,720 3,785 Ending Stocks (000 tons) Japan 3,810 3,720 3,680 3,520 US 3,588 5,438 9,471 10,491 Taiwan, China 2,362 2,043 1,900 2,000 Brazil 475 585 595 455 Korea, Rep. 1,246 1,100 1,150 1,200 Argentina 266 407 254 344 World 113,853 131,653 130,747 131,406 World 6,814 8,869 12,661 13,472 Source: USDA Source: USDA Note: All quantities are in local marketng years. Prices are in calendar year. Global Summary Actual _ Est -_Annual Growth Rate (%.o). World Balance (mil. tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98 Production 44.3 81.0 104.2 157.8 158.4 153.9 7.1 2.5 5.3 Consumption 48.0 84.3 104.0 153.6 152.6 152.8 6.7 2.3 4.9 Ending Stocks 3.6 11.5 13.0 8.9 12.7 13.5 14.3 1.6 -3.2 Crop Area (mil. hectares) 30.0 49.9 54.3 69.0 70.7 70.0 5.4 1.2 3.3 Yields (tons/hectares) 1.48 1.63 1.92 2.29 2.23 2.21 1.6 1.3 2.0 Actual__ Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 259.3 304.8 295.4 243.3 202.0 215.0 225.0 250.0 275.0 Constant 1990 217.3 267.4 272.6 233.5 195.1 202.5 206.8 208.8 202.8 Note: All quantities are in local marketing years. Prices are for US soybeans, c.i.f. Rotterdam in calendar years. Source: USDA historical data and World Bank price forecasts. o c to b e r 1999 37 AGRICULTURE Grains 260 Monthly Prices ($/ton) Trade Weighted World grain production is projected to be down Export Price 1.6% in the 1999/00 marketingyear and 220 ..-- ............ . ending-stocks are expected to fall 6.5% . This should cause prices to rise over the nextyear. 180 - --..-.....-.... 140 --- - - - - -- - World grain export prices are expected to aver- age $11 6/ton on a trade weighted basis in calendar year 100 - ......... . d.. ... 1999 compared to $13 1 /ton last year and a recent high Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 of $201/ton in 1996. World production has fallen for Source: USDAdataandWorldBank calculations. the second consecutive year in response to the lower prices. However, the decline in production has been 2,000 World Balance (million tons) small compared to the price changes. Total grain pro- duction was only down 30.0 million tons in 1999/00 1,750 - ----.----. ------- compared to 1998/99, and most of the decline was due Production* to cuts by the two largest exporters - US production 1,500 - _. .................. fell 15.6 million tons and EU production fell 10.7 mil- Consumption lion tons. Ending-stocks are a key measure of the demand/ 1,250 .................. .. supply balance in the world grain markets. In recent 1 . I years, the critical levels which have caused grain prices 1970 1975 1980 1985 1990 1995 to rise have been about 280-300 million tons of world *Includes milled rice. stocks and 90-100 million tons of stocks in the major Source USDA exporting countries. Total world grain ending-stocks 500 Ending Stocks (million tons) are expected to total 316 million tons at the end of the World 1999/00 marketing year. Stocks in the major grain 375 - . . . ..... exporters (Argentina, Australia, Canada, EU, and US) are expected to total 129 million tons. These stocks 250 are above critical levels and provide reasonable as- Major surance that grain prices will not rise significantly this 125 Exporters* year. However, the margins are not large enough to ensure two years of low prices. If the next crop, which o is harvested in the fall of 2000 in the Northern Hemi- 1970 1975 1980 1985 1990 1995 sphere, were reduced significantly because of drought *Argentina, Australia, Canada, EU, and US. or other natural disaster, prices could begin to rise as Annual Prices ($Iton) soon as mid-2000. 500 - Over the medium-term, global production capac- Constant Forecast ity appears adequate to meet likely demand increases. 375 - ............. ... .. The five major grain exporting countries have reduced grain area by 15 million tons since 1996 and the pro- 250 ----------- --- duction capacity of this land is about 70 million tons based on current yields. Exports have been stagnant 125 at about 210 million tons for nearly two decades. Most urrent of this idled land could quickly be returned to produc- 0 o tion. Therefore, our forecast is for grain prices to re- 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: USDA hiatoncal data and World Banlk forecasts. main low during the next decade, except for the occa- sional increase which accompanies a poor harvest. 38 GLOBAL COMMODITY MARKETS GRAINS Other Developments * Consumer resistance to genetically modified (GM) in the next round of World Trade Organization (WTO) crops continues to grow. European consumers have negotiations in Seattle. Canadian agricultural minis- strongly resisted GM crops, and the Japanese gov- ter Lyle Vancleif said Canada will try to obtain an emnment has recently decided that GM foods should agreement to eliminate all agricultural export subsi- be labeled. The Republic of Korea is expected to dies as quickly as possible according to The Puiblic require labeling of GM crops in the near future. The Ledger. Mr. Vancleif said that Canada would also decision to require labeling will cause importers and urge that other forms of government export credit, exporters to segregate GM crops or buy from coun- credit guarantee programs, export market promotions, tries which do not use GM seeds. food aid, and other forms of export assistance not * Exports subsidies are expected to come under pressure become a substitute for export subsidies. Production and Stocks Trade 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Exports (000 tons) China 388,458 378,443 390,150 389,100 US 81,333 76,352 87,029 86,148 US 333,154 333,730 347,101 331,498 EU 62,472 55,413 61,701 64,516 EU 203,991 205,356 210,205 199,493 Australia 24,298 19,374 20,715 21,290 India 177,758 182,602 181,731 186,500 Canada 24,899 23,880 17,490 20,825 Russian Fed. 66,799 85,265 46,065 53,115 Argentina 22,525 24,941 17,050 19,600 Canada 57,995 49,395 50,896 50,625 China 5,884 11,076 5,810 7,650 Brazil 46,260 39,465 43,142 44,087 Thailand 5,296 6,474 5,825 5,775 Indonesia 38,034 36,334 38,600 37,900 World 214,390 213,840 217,430 216,000 Argentina 35,611 40,125 30,315 33,545 Imports (000 tons) Australia 34,921 29,892 30,967 31,105 EU 41,580 43,888 42,465 43,568 Mexico 29,865 27,031 28,075 29,250 Japan 27,469 27,653 27,173 27,010 Turkey 26,110 26,270 29,307 26,735 Korea, Rep. 12,185 11,591 12,794 13,165 Poland 25,296 25,403 27,150 25,580 Mexico 7,634 10,454 11,520 11,315 World 1,872,253 1,876,631 1,861,742 1,831,729 Egypt 10,184 10,490 11,215 11,275 Ending Stocks (000 tons) Iran, Isl. Rep. 10,030 7,307 4,306 9,600 China 96,261 87,190 91,330 88,430 Brazil 7,258 9,431 7,850 8,250 US 39,949 58,693 75,520 77,160 Saudi Arabia 7,633 5,145 6,975 6,850 EU 27,514 38,941 44,544 36,222 Algeria 4,869 6,482 6,040 6,245 India 17,520 21,301 22,478 25,778 Taiwan, China 7,057 5,788 5,778 5,428 World 293,258 328,445 338,635 316,863 World 214,390 213,840 217,430 216,000 Source: USDA Source: USDA Global Summary Actual - Est.- -Annual Growth Rate (%)- World Balance (mil. tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-97 Production 1,078.7 1,429.6 1,768.8 1,876.7 1,861.8 1,831.7 2.8 1.6 0.9 Consumption 1,130.8 1,475.5 1,743.2 1,841.4 1,851.5 1,853.5 2.6 1.7 0.9 Exports 109.6 214.7 202.1 213.8 217.4 216.0 6.6 0.1 0.1 Ending Stocks 192.8 287.9 338.9 328.4 338.6 316.9 6.0 1.0 -2.2 Crop Area (mil. hectares) 663.0 722.1 694.3 689.5 683.0 672.8 0.9 -0.5 -0.1 Yields (tons/hectare) 1.78 2.16 2.79 2.99 3.00 3.01 1.9 2.3 1.1 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 166.5 201.0 153.7 131.0 115.9 123.7 134.2 158.3 167.9 Constant1990 139.7 176.0 141.8 125.7 111.9 116.5 123.3 132.2 123.8 Note: Quantities are in local marketing years. Production and yields are based on milled rice. Prices are the trade weighted average of US maize, US HRW wheat, and Thai 5% broken white rice in calendar years. Source: USDA historical data and estimates and World Bank price forecasts. o c to b e r 1999 39 AGRICULTURE Maize Monthly Prices ($/ton) 160 Maize prices are near 12-year lows, with weak 2 import demand and surplus capacity adding to 135 - o.b .................... the recent price weakness. Ending-stocks are CBOT expected to remain about constant this year 1 Futures* compared to last, but prices are expected to increase slightly in 2000 due to higher - soybeans and wheat prices. 60 -_,,,,,,_____. I_.,,,,I___ Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 US maize export prices fell to a 12-year low of *Futures prices are end-September expressed in $/ton. $84/ton in July before increasing slightlyto $86.5/ton in September (f.o.b. US Gulf). The prospects for a signifi- 700 World Balance (million tons) cant price recovery in the next year remain small with adequate global production, moderately large stocks and 575 --_----..........-----..---- stagnant import demand. Nevertheless, slightly higher Production prices are expected as prices of major substitute crops Y such as wheat and soybeans are expected to increase. World maize production in the 1999/00 marketing conupfion year is expected to be down slightly from the previous 325 -. year but still adequate to meet expected consumption. Production of other coarse grains, which account for 200 - about 32% of total coarse grains production, will also be 1970 1975 1980 1985 1990 1995 Source- USDA slightly lower. Global ending-stocks of maize are ex- Ending Stocks (million tons) pected to remain constant in 1999/00 compared to 1998/ 180 99 while total coarse grain stocks should fall because of lower barley stocks. Ending-stocks of coarse grain, held 135 - ------------------------- .. by the traditional grain exporters (Argentina, Australia, World Canada, EU and US), are expected to total 78 million 90 - - tons compared to an average of 62.5 million tons over the previous 1 0 years and 80 million tons last year. 45 - ..... The global demand for coarse grain imports has remained stagnant at an average of 93 million tons since Major Exporters* the late 1970s. During this time, production capacity has 1970 1975 1980 1985 1990 1995 increased substantially in the major exporting countries as * Argentina, South Africa, and US. yields have increased. Coarse grain yields in the US, the Source USDA Annual Prices ($/ton) largest exporter, increased by 1.9% per year fiom 1978 400 Constat to 1998 while domestic consumption grew by only 1.5% (1990) Forecast per year. As a result, coarse grain area fell by 16%. The 300 - ...... ............ second largest exporter, the EU, saw yields grow by 1.8% per annum and coarse grain area fall 25% over the same 200 ........ ..... period. With stagnant import demand and increasing yields, the surplus capacity far exceeds likely import de- 100 - . . mand for the medium-term; and therefore prices are not (Current likely to increase significantly. The five largest exporters 0 - No 2) havereducedareaby 19 million hectares since 1978 and 1970 1975 1980 1985 1990 1995 2000 2005 2010 the production potential of this land is about 110 million Source: USDAhistorical data and World Bank forecasts. tons - more than twice the current level of world exports. 40 GLOBAL COMMODITY MARKETS GRAINS MAIZE Other Developments * In addition to low prices and near record maize duction grown from traditional seeds. This means production, US farmers face a new problem. They there could be an abundance of maize grown from must decide whether to separate their maize crops traditional varieties if farmers segregate their pro- into the portion grown using genetically modified duction. Farners who segregate their crops expect (GM) seeds and the portion grown with traditional a higher price. seeds. The resistance to GM crops by some con- * The EU is forecast to export a record 9.0 million sumers in Europe and Japan has made it necessary tons of barley in 1999/00 according to the USDA's to segregate crops in order to export to those coun- Grain: World Markets and Trade (August). Ex- tries. Only 20% of US maize production will be ports will go to the Middle East which has been hit exported this year compared with 60% of US pro- hard by drought. Production and Stocks Trade 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Exports (000 tons) US 234,518 233,864 247,943 238,287 US 45,655 38,214 50,421 46,992 China 127,470 104,300 133,000 125,000 Argentna 10,203 12,756 8,200 8,500 EU 34,794 38,470 34,486 35,785 China 3,892 6,173 3,500 5,000 Brazil 35,700 30,080 32,110 34,000 Hungary 1,122 1,289 1,800 1,700 Mexico 18,922 16,934 17,800 19,000 S. Afca, Rep. 2,200 1,041 1,000 750 Argentna 15,500 19,360 13,500 15,500 Ubrld 67,074 62,891 68,175 65,795 India 10,612 10,852 10,780 10,500 Imports (000 tons) Romania 9,610 12,680 8,500 9,000 Japan 15,963 16,422 16,500 16,250 Canada 7,380 7,180 8,900 8,500 Korea, Rep. 8,336 7,528 7,750 8,250 S. Africa, Rep. 10,136 7,544 7,100 8,000 Mexico 3,141 4,376 5,500 5,000 World 591,940 573,423 602,802 591,843 Taiwan, China 5,741 4,474 4,500 4,200 Ending Stocks (000 tons) Egypt 3,196 3,259 4,100 4,000 US 22,433 33,220 43,154 45,337 EU 2,595 2,065 3,000 2,500 China 45,000 26,000 38,850 38,850 Malaysia 2,485 2,145 2,100 2,100 EU 3,280 4,343 3,685 2,830 Colombia 1,674 1,694 1,700 1,800 S. Africa, Rep. 2,450 1,550 1,400 1,250 Saudi Arabia 1,272 1,234 1,500 1,500 Brazil 2,633 809 844 1,144 Venezuela 1,494 1,161 1,200 1,250 Argentna 750 1,612 713 714 Peru 840 1,228 1,150 1,200 Thailand 222 134 284 134 Brazil 513 1,324 1,000 1,000 World 92,940 86,354 104,697 104,298 Wbrld 67,074 62,891 68,175 65,795 Source: USDA Source: USDA Global Summary Actual - Est.- -Annual Growth Rate (%o)- World Balance (ml. tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98 Producton 268.1 408.5 482.4 573.4 602.8 591.8 4.2 1.2 2.7 Consumpton 273.0 421.9 475.0 580.0 584.5 592.2 4.1 1.6 2.7 Exports* 32.2 84.9 64.5 71.9 75.5 75.2 9.5 -0.7 1.4 Ending Stocks 36.1 85.5 80.9 86.4 104.7 104.3 10.8 -0.7 1.5 Crop Area (mil. hectares) 112.5 131.1 128.5 135.3 138.3 138.7 1.5 -0.1 0.9 Yields (tons/hectare) 2.38 3.12 3.75 4.24 4.36 4.27 2.7 1.3 1.8 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 123.5 165.8 117.1 102.0 85.0 90.0 100.0 120.0 125.0 Constant 1990 103.6 145.5 108.0 97.9 82.1 84.8 91.9 100.2 92.2 *Includes intra-EU trade. Note: Quantites are in local marketng years. Prices are for US No. 2 maize, f.o.b. US Gulf in calendar years. Source: USDA historical data and estimates and World Bank price forecasts. o c t o b e r 1999 41 AGRICULTURE Rice Monthly Prices ($/ton) 400 - Rice prices fell to new lows in September as Thai 5% import demand weakened. Prices are expected 325CBOT to remain low in 2000 as most major exporters Futures* 2 5 0 - -- - - -- - - - ............... ................^ ... ... and importers are expecting good-to-excellent crops. Concern remains that global stocks are 175 - -- at 26-year lows relative to consumption, but this is not expected to support prices. 100 -oo .,,,,,,,,,, I I Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Thai 5% broken white rice prices fell to $229/ *Futes prices are end-Sep. expressed on a milled basis in ;ton. ton, f.o.b. Bangkok in September - the lowest level Source: USDA since mid-1993. The price decline was due mostly to 400 World Balance (million tons) the unexpected ban by the Indonesian government of private sector imports of low and medium quality rice. 350 - . ...... The ban, announced in early September, was in re- Consumption sponse to larger than expected government purchases 300- Production. of rice under its price support program and the con- (Milled) cern that some of the rice was actually imported by the 250 - -- .. private sector and sold to the government as domestic production. The ban on Indonesian imports comes at a 200 time when global export supplies are plentiful. 1970 1975 1980 1985 1990 1995 Most of the major rice exporting countries have Source: USDA record or near record crops and are expected to have large supplies available for export. Thailand, the largest 80 Ending Stocks (million tons) exporter, is expected to harvest a near record crop and exportroughly 6.0 million tons. Vietnam, expects arecord 60 - _ . . harvest and exports of about 3.8 million tons. Other ex- World porters such as China, India, Pakistan, and the United 40 - _ . .. States are all expected to have large exports. Imports are not expected to increase enough to 20 . _ absorb the abundant export supplies, and prices are likely to remain depressed in the coming year. Indonesia, the 0 - largest importer in recent years, is expected to import 1970 1975 1980 1985 1990 1995 about 3.0 million tons of rice in 2000 compared to 3.2 Source: USDA million tons in 1999 and more than 6.0 million tons in Annual Prices ($/ton) 1998 when production was affected by El Nifio. 1,600- Bangladesh and Philippines, both historically large im- Constant Forecast (1990) porters, are expecting good harvests and smaller irnports. 1,200 -------------------------------*-*- Prices are expected to average $250/ton in 1999 for Thai 5% broken, fo.b. Bangkok, and increase 800.................. slightly in 2000. The longer-term rice price forecast is being reduced in light of continued weakness in rice 400 - prices relative to wheat and other grains, the devalua- C (Tha 5 tion of the Thai baht which has reduced the US dollar 0 - Crent 5 I price of rice and made Thailand a more competitive 1970 1975 1980 1985 1990 1995 2000 2005 2010 exporter, and the emergence of China and India as regu- Source: USDAhistorical data and World Bank forecasts. lar exporters. 42 GLOBAL COMMODITY MARKETS GRAINS RICE Other Developments * The European Union is funding the development of content, according to The Public Ledger. a new variety of rice which will help prevent severe Varieties of basmati rice are being DNA tested by the vitanmin A deficiency in countries which rely on rice UK Ministry of Agriculture to make sure they have as their basic staple. The new rice, called Carotene the genetic characteristics of basmati rice according Plus, has been genetically modified to incorporate to The Public Ledger. If they don't meet the test, the production of B-carotene. Free access to the seed then they cannot be sold as basmati rice in the UK. is to be given to subsistence farmers in developing Two popular varieties - Pusa No. 1 from India and countries following testing. The new rice variety has Pak-3 85 from Pakistan have failed the test, along a distinctive yellow color as a result of the carotene with Texmati from the US. Production and Stocks Trade 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons of paddy) Exports (000 tons) China 195,100 200,700 192,857 197,143 Thailand 5,216 6,367 5,700 5,700 India 121,980 123,462 127,123 126,763 Vietnam 3,327 3,776 3,700 3,850 Indonesia 49,360 48,472 50,791 50,791 US 2,292 3,165 2,750 3,000 Vietnam 27,277 28,390 29,289 29,394 India 1,954 4,491 2,750 2,200 Bangladesh 28,326 28,296 28,653 29,253 China 938 3,734 2,000 2,100 Thailand 20,700 23,500 22,800 23,333 Pakistan 1,982 1,800 2,000 2,000 Myanmar 15,517 15,345 16,034 16,466 Uruguay 640 639 725 700 Philippines 11,177 9,982 10,268 11,385 World 18,788 27,428 22,965 22,981 Japan 12,930 12,532 11,201 10,989 Imports(O0Otons) Brazil 9,504 8,551 11,353 10,551 Indonesia 808 6,081 3,200 3,000 US 7,783 8,301 8,529 9,622 Bangladesh 44 2,499 1,800 1,000 Pakistan 6,461 6,500 7,012 7,201 Brazil 845 1,457 850 1,000 World 563,722 573,036 574,472 582,155 Philippines 814 2,187 1,200 900 Ending Stocks (000 tons) Iran, Islamic R. 973 500 650 900 China 25,556 26,723 23,173 21,473 Nigeria 731 800 800 800 India 9,500 10,500 11,000 11,000 Saudi Arabia 660 775 750 800 Indonesia 1,530 3,045 2,841 2,241 Japan 546 479 725 750 Philippines 1,590 1,273 1,747 1,847 EU 839 800 700 750 Thailand 708 851 1,099 1,599 Iraq 684 610 700 700 Korea, Rep. 390 805 980 1,360 Malaysia 645 593 650 675 World 51,187 53,719 52,000 50,489 World 18,788 27,428 22,965 22,981 Source: USDA Source: USDA Global Summary Actual -Est. - -Annual Growth Rate (%/) - World Balance (mil. tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970.80 1980-90 1990-98 Producton (milled) 213.0 270.0 352.0 386.1 386.8 392.0 2.6 2.5 1.4 Consumption 210.6 275.0 347.4 383.5 388.6 393.6 2.5 2.3 1.4 Exports* 8.6 12.7 12.2 27.4 23.0 23.0 4.9 2.6 7.0 Ending Stocks 28.8 48.5 59.1 53.7 52.0 50.5 8.4 1.8 -1.5 Crop Area (mil. hectares) 132.7 144.5 146.6 151.2 152.0 153.4 0.9 0.2 0.2 Yields (tons/hectare) 2.35 2.75 3.55 3.79 3.78 3.79 1.7 2.3 1.0 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 321.0 338.9 303.5 304.2 250.0 260.0 275.0 315.0 345.0 Constant 1990 269.2 297.3 280.0 291.9 241.4 244.9 252.8 263.0 254.4 *Milled basis in calendar years. Note: Production and yields are paddy in marketng years. Consumption and stocks are on a milled basis in marketing years. Trade is on a milled basis in calendar year. Prces are for Thai 5% broken WR, milled, f.o.b. Bangkok in calendar years. Source: USDA historical data and estimates and World Bank price forecasts. o c t o b e r 1 9 9 9 43 AGRICULTURE Wheat Monthly Prices ($Iton) Wheat prices are expected to increase about f HRW $10/ton next year because of lower global 165CBOT production and stocks. However, stocks held Futures* by the major exporters remain high and will dampen the price recovery. World wheat production is estimated to be down 60 - ,,,,,,,,,,, I, .,,,,, I l l ., about 2.0% in the current marketing year (1999/00) Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 while consumption is about unchanged from the pre- *Futures prices are end-September expressed in $/ton. vious year. This will cause global stocks to fall about Source: USDA 12 million tons to 124.4 million tons and should lead to World Balance (million tons) higher wheat prices. Global imports are not expected to increase significantly from the very narrow range of 540 - ..-.-.----------- 98-102 million tons over the last several years. Stocks Production of the five maj or grain exporters (Argentina, Australia, 460 --_----............ I ........... Canada, EU, and US) are expected to fall from 55.2 Consumption million tons at the end of the 1998/99 marketing year 380 - - .......... .......... to 48.7 million tons at the end of the 1999/00 market- ing year. Both global stocks and the stocks of the ma- 300 I jor exporters are well above the levels which caused 1970 1975 1980 1985 1990 1995 prices to rise in 1994-96 and this largely precludes a Source: USDA significant price increase in the remainder of 1999 or in Ending Stocks (million tons) the first half of 2000. 200 - Imports are expected to remain stagnant for an- World other year as few countries have major production 150--_ .......... shortfalls. The Middle East, which has suffered a ma- jor drought, is expected to increase imports by about 4 100 .. million tons. The Islamic Republic of Iran was the 'or most affected by drought and is expected to import 3.0 50 'xorters* million tons more than in the previous year. Produc- tion was also lower in Eastern Europe and this region o- is expected to increase imports, but only marginally. 1970 1975 1980 1985 1990 1995 Offsetting these increases are lower imports into South eCanada, EU, and US. Asia following a record wheat harvest in India. Annual Prices ($/ton) Wheat prices are expected to continue rising for 500 Constant several years beyond the 1999/00 marketing year as -') Forecast production and stock levels fall in response to current 375 ---------- --------------------- . . low prices. By 2001, we project the US HRW#1 ex- port price to be $13 5/ton compared to $115/ton in 1999. 250 - ------------- However, surplus capacity in major exporting coun- tries combined with stagnant exports will prevent prices 125 from rising sharply. Wheat area in the major exporters Current from rising ~~~~~~~~~(US HRW) has declined by 6.1 million hectares since 1997 and the o - production potential of this land is about 20 million 1970 1975 1980 1985 1990 1995 2000 2005 2010 tons - more than enough to meet likely demand in- Source: USDA historical data and World Bank forecasts. creases. 44 GLOBAL COMMODITY MARKETS GRAINS WHEAT Other Developments * Russia is requesting 5 million tons of food aid from kets and Trade (August). The AWB is transforming the United States according to US Agriculture Secre- itself from a statutory authority to a grower owned tar) Dan Glickman. The Russian grain harvest is and controlled organization. It has a parent com- expected to total 60 million tons compared to last years pany responsbile for all funding of shared business disastrous 47.8 million tons, but this is still not enough and corporate services, and two subsidiaries which to rebuild stocks according to The Washington Post. focus on domestic and international operations. * The Australian Wheat Board (AWB) was privatized AWB (Australia) Limited will be responsible for on July 1st, 1999 and is now the Australian Wheat domestic wheat and other grain trading as well as Board Ltd. reports the USDA's Grain: World Mar- the export of other grains. Production and stocks Trade 1996/97 1997/98 1998/99 1999/00 1996197 1997/98 1998/99 1999/00 Production (000 tons) Exports (000 tons) China 110,570 123,300 110,000 115,000 Us 27,039 28,090 29,035 30,500 EU 98,506 94,181 103,471 96,350 Australia 18,223 15,398 16,000 17,500 India 62,097 69,350 65,907 71,500 Canada 18,167 21,283 14,500 17,500 US 61,980 67,534 69,410 62,777 EU 17,834 14,196 16,000 16,000 Russian Fed. 34,900 44,200 26,900 31,000 Argentina 10,073 9,566 8,700 9,000 Canada 29,801 24,280 24,400 25,000 Kazakhstan 2,250 1,889 1,000 1,800 Australia 23,702 19,417 21,000 22,500 Turkey 967 1,306 3,000 1,500 Pakistan 16,907 16,650 18,700 18,000 \brld 101,533 100,896 100,202 100,685 Turkey 16,000 16,000 18,500 16,500 Imports (000 tons) Ukraine 13,550 18,404 14,937 14,000 Egypt 6,897 7,156 7,300 7,200 Argentna 15,900 14,800 11,500 12,700 Brazil 5,573 6,194 6,300 6,500 Kazakhstan 7,700 8,950 4,700 6,500 Iran, Islamic R 7,048 3,587 3,000 6,000 Mexico 3,107 3,639 3,250 3,100 Japan 6,264 6,200 5,883 5,900 Vobrld 583,551 609,897 588,185 576,850 Korea, Rep. 3,465 3,917 4,689 4,500 Ending Stocks (000 tons) Algeda 3,628 5,221 4,400 4,500 China 24,166 33,366 28,106 27,106 Pakistan 3,012 3,562 3,200 3,000 US 12,073 19,663 25,717 24,483 Mexico 1,940 2,166 2,500 2,500 EU 14,758 16,050 20,447 15,703 Iraq 1,135 2,707 2,500 2,500 India 7,000 10,081 10,638 14,188 Russian Fed. 2,548 2,631 2,500 2,200 Canada 9,047 6,009 7,365 6,865 Yemen, Rep. 2,292 2,366 2,100 2,000 Australia 2,395 1,348 1,400 1,325 China 2,692 1,914 1,000 1,500 World 113,849 139,198 135,846 124,388 Mbrld 101,533 100,896 100,202 100,685 Source: USDA Source: USDA Global Summary Actual -Est.- - Annual Growth Rate - World Balance (mil. tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970.80 1980.90 1990-98 Production 306.5 436.3 588.0 609.9 588.2 576.9 3.3 2.2 0.6 Consumption 329.5 444.0 561.9 584.5 591.5 588.3 3.0 2.4 0.7 Exports 55.0 94.1 101.1 100.9 100.2 100.7 4.7 0.6 -1.1 Ending Stocks 80.5 113.9 145.0 139.2 135.8 124.4 5.3 1.1 -1.4 Crop Areas (mil. hectares) 207.0 237.1 231.4 228.3 224.9 218.4 1.2 -0.7 0.1 Yields (tons/hectare) 1.48 1.84 2.54 2.67 2.61 2.64 2.0 2.9 0.5 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 177.0 207.6 159.5 126.1 115.0 125.0 135.0 160.0 170.0 Constantl990 148.5 182.1 147.2 121.1 111.1 117.8 124.1 133.6 125.4 Note: Quantities are in local marketing years. Prices are for US HRW No. 2 wheat, f.o.b. US Gulf in calendar years. Source: USDA historical data and estimates and World Bank price forecasts. o e I o b e r 1999 45 AGRICULTURE Bananas 750 Monthly Prices ($/ton) Prices fellfor the third consecutive quarter and probably reached bottom; mild recovery 650 --;-- ....US f.or. US is projectedfor 2000. Following the failure ports of the EU ministers to reach agreement on 550 - ... . t .... the banana dispute, the Commission warned that "the only solution will be to opt for a 450 - .. --- tariff only system ". 350 ... ... ... . Banana prices (f.o.r. US ports) averaged $406/ Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 ton during the third quarter, down from last quarter's Gross Exports million tons average of $444/ton, and 11% lower than the third 14 - quarter of 1998. Prices appear to have reached bot- tom for this year and if the past cyclical behavior is 11------------------------- any guide, prices are expected to remain at this level during the next quarter. 8 --_ ............ During the first 8 months of 1999, banana ex- ports from Ecuador, the world's dominant exporter, Latin dropped 1.6% (from 2.57 to 2.53 million tons), ac- America cording to Sopisco News. Because of lower prices, however, Ecuador's banana export earnings declined 2 - 190 1 l by 13% during the same period (from $725 million Source: FAO to $642 million), which added more stress to Net Imports (million tons) Ecuador's woes. 12 Ecuadorian banana exports to Russia increased by 11% this August (from 9,882 to 11,141 tons), 9 - _- .-.-.---.-. the second monthly increase (following the one in March) since the financial crisis hit the country last 6 ..--- year. While it is too early to tell whether such a turnaround will be sustained for long, it is as good 3 --==-,--- as it could get, according to several analysts. In us 1997 Russia imported 623 thousand tons from Ec- 0 - . uador while its 1998 imports dropped to 290 thou- 1970 1975 1980 1985 1990 1995 sand tons. Russia is the fourth largest banana im- Source: FAO porter following the US, EU, and Japan. On the Annual Prices ($/ton) other hand, Ecuadorian exports to South America 900 - appear to be healthy this year. In the first 8 months Forecast of 1999 South America imported 223 thousand tons, 700 - Constant 18% higher than the same period of last year. Ac- (1990) cording to FA0 data, South America imported 317 500 - thousand tons of bananas in 1997 and 304 thou- sand tons in 1998. 300 We expect prices to average $435/ton for 1999. Current For 2000, a small recovery (pushing prices to over 100 - $440/ton) is expected to take place as exports from 1970 1975 1980 1985 1990 1995 2000 2005 2010 Ecuador may decline a little due to a cold weather Source: World Bank caused by La Nifia. 46 GLOBAL COMMODITY MARKETS OTHER FOOD BANANAS Other Developments * Following the EU foreign ministers' failure to reach * Hurricane Mitch and low banana prices, in addition a consensus on how to reform the controversial ba- to taking a toll on the export earnings of banana pro- nana import policy on their September 13 meeting, ducing countries, are taking a toll on multinational the Commission warned that in the absence of an corporations. Dole Food Co. reported that its opera- agreement, "the only solution will be to opt for a tions will break even at best during the third quarter tariffs only system." A tariff-only regime, however, Sopisco News. Chiquita also said that it will cut its has been rejected by France, Italy, Spain, Portugal, staff by 15% (about 200 jobs). and the UK. Meanwhile, the $191 million worth of * The European Court dismissed two cases of banana tariffs imposed by the US on imported items from wholesalers claiming compensation due to losses sup- the EU - following the WTO ruling lastApril - is still posedly attributed to the import quota system. The in effect. Although some hope that the newly ap- cases were dismissed on the grounds that when the pointed EU Trade Commissioner, Pascal Lamy, will firuit-ripening facilities were built, the companies were push for a final solution before the next round of well aware of the quota system, Sopisco News re- WTO talks start this November, this seems unlikely. ported. Gross Exports (000 tons) Net Imports (000 tons) 1995 1996 1997 1998 1995 1996 1997 1998 Ecuador 3,737 3,842 4,446 3,848 US 3,266 3,368 3,354 3,498 Costa Rica 2,033 1,933 1,835 2,099 EU 3,125 3,164 3,139 3,094 Colombia 1,336 1,407 1,509 1,436 Japan 874 819 885 868 Philippines 1,213 1,253 1,154 1,128 Russian Fed. 503 307 658 470 Guatamela 646 611 659 855 Canada 400 408 417 417 Panama 693 634 602 463 China 160 513 565 360 Honduras 522 637 557 433 Poland 227 238 242 282 Mexico 110 163 240 280 Saudi Arabia 173 156 156 170 Cameroon 171 191 180 220 Argentina 202 248 241 230 Cote d'lvoire 173 193 191 200 F. Yugoslavia 117 155 194 155 Nicaragua 54 78 70 103 Czech, Rep. 158 148 147 151 Saint Lucia 113 102 74 71 Chile 145 151 137 134 Brazil 13 30 40 69 Iran 120 120 120 120 Dominican R. 94 80 64 65 Turkey 88 97 111 103 Jamaica 85 86 79 63 Korea, Rep. 122 124 136 83 Belize 52 65 63 60 Switzerland 75 74 74 73 China 47 57 52 52 New Zealand 72 70 74 72 Venezuela 32 40 62 45 UAE 60 69 70 66 St. V. & Gren. 44 50 35 43 Hungary 66 35 44 63 Suriname 34 27 38 33 Slovakia 56 77 63 60 Malaysia 35 27 26 30 Norway 60 61 58 58 Dominica 32 40 35 29 Syrian Arab R. 53 48 60 54 World 11,364 11,701 12,128 11,736 World 10,567 10,867 11,455 11,077 Source: FAO and World Bank. Source: FAO and World Bank. Global Summary Actual -Est.- -Annual Growth Rate (% )- World Balance (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98 Production 31,777 36,969 47,177 56,688 58,778 58,618 1.5 2.4 1.7 Gross Exports 5,731 6,886 11,364 11,701 12,128 11,736 1.8 5.0 0.3 Net Imports 5,585 6,680 10,567 10,867 11,455 11,077 1.8 4.6 0.4 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 445.1 469.6 502.7 490.5 435.0 440.9 468.5 529.1 540.1 Constant 1990 373.4 412.0 463.8 470.8 420.0 415.4 430.6 442.7 399.8 Source: FAO and World Bank. o c to b e r 1999 47 AGRICULTURE Shrimp 1,800 Monthly Prices (g/kg) Shrimp prices generally remained stable during the quarter as demand continued 1,600 .............. strong in the US but weak in Japan. Higher can prices are expected through the remainder of 1,400 the year as holiday season demand increases. Black Tiger , ~~~~~MGE Shrimp prices rose 1% on average during the Futures* quarter. The prices of Mexican white 26/30 count Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 rose to I ,504¢/kg in August and then fell to 1,452¢/ *Futures prices are end-September. kg in September. Source: NMS and MGE. Demand has remained low in Japan despite 1,200 Production (thousand tons) the recent strength of the yen and improving eco- nomic outlook. Importers have reduced invento- 900 --_-.------.-......----A-.- ries in response to the weak demand and this has Frozen Shrimp, kept imports low. The normal price increase which 600 . Prawns World... occurs at the year-end holiday season may be stron- ger than last year because of the improved eco- 300 - _----....----.-.- nomic situation. us US shrimp imports rose 22% in July relative 0 - _ . Thailand to June, with imports higher from most major ex- 1976 1981 1986 1991 1996 porting countries. The exporters, ranked by exports Source: FAO to the US, and their July-June change were: Thai- land (+27%), Ecuador (+21%), India (-15%), Indo- 1,200 Imports (thousand tons) nesia (-9%), Mexico (+821%) and Venezuela (+25%). Imports are expected to remain strong dur- 900 - ------------- ing the fourth quarter. US per capita consumption Frozen Shrimp, has increased by 3.4% per year - from 3.12 pounds 600 - .......... in 1993, to 3.68 pounds in 1998. Current consump- tion levels exceed last year's levels by 1%. Supplies 300 - ------ ...... of medium and larger shrimp sizes are abundant but us supplies of smaller sizes are lower due to disease in 0 Latin America and changes in water temperatures in 1976 1981 1986 1991 1996 Mexico. Lower supplies of smaller sizes have shifted Source: FAO domestic and foreign demand to black tiger and Annual Prices (,/kg) brown shrimp. Prices may weaken once shrimp from 2,300 - the Mexican West Coast and Louisiana enter the Constant Forecast m arket. 1,900 - ..........................-.. Demand in Europe, the third largest import market, remains moderate. Cold water shrimp sup- 1,500 - ... plies are large and prices are weak. Prices of tropi- cal shrimp from Ecuador, the main exporter to the 1,100- ........ EU, are rising due to supply shortages (Globefish). (Mexican No. 1) Ecuador has been hit hard by the white spot virus 700 and estimated exports will reach US$70 million this 1975 1980 1985 1990 1995 2000 2005 2010 year compared with US$200 million in 1998. Viet- Source:NMSFhistorcaldataandWorldBankforecasts nam is expected to export US$950 of shrimp. 48 GLOBAL COMMODITY MARKETS OTHER FOOD SHRIMP Other Developments * With increasing growth of the shrimp farming indus- wild shrimp larvae. Observers are waiting to see try, a growing number of cases of infectious diseases how the industry reacts to this and other health man- have appeared from Latin America, to South and agement techniques. Southeast Asia, reducing production, exports, and * As the shrimp industry uses twin-rig trawlers, the employment. One shrimp health management tool introduction of the new and valuable trawl-mounted used by Nicaraguan farmers was to introduce wild symmetry sensor, will allow for more efficient trawl shrimp larvae resistant to the white spot virus. Sur- control thus ensuring a greater volume of water and vival rates of 70% have been registered and opti- therefore fish to pass through the trawl's mouth, giv- mum export sizes have been reached by using 90% ing a better catch. Production Trade 1994 1995 1996 1997 1994 1995 1996 1997 Production (000 tons) Exports (000 tons) US 153.0 148.8 143.5 152.2 Ecuador 72.0 86.4 85.7 109.0 India 107.9 101.8 128.4 134.0 India 110.5 98.5 110.7 105.4 Ecuador 72.7 84.9 85.7 109.0 Thailand 178.5 165.7 152.0 79.4 Thailand 191.0 165.7 152.0 79.4 Indonesia 83.8 76.6 79.6 77.6 Indonesia 88.7 78.2 79.6 77.6 Denmark 40.6 34.0 46.7 47.9 Vietnam 63.1 38.7 38.8 41.6 Vietnam 63.1 37.4 35.8 41.6 Mexico 45.9 51.6 44.1 41.4 Mexico 24.4 35.9 35.8 35.7 Greenland 35.0 33.0 34.7 30.8 Bangladesh 31.3 27.7 27.6 31.4 Bangladesh 22.1 26.3 26.5 25.7 Greenland 34.3 33.0 34.7 30.8 Spain 19.4 19.0 21.9 25.3 Canada 18.2 21.2 17.7 21.8 Pakistan 13.8 14.8 16.8 17.7 Pakistan 15.5 14.9 15.6 17.7 Iceland 31.2 35.1 38.7 15.6 Malaysia 12.9 14.6 14.9 16.6 Norway 25.0 16.1 17.8 15.2 World 1,050.4 978.0 1,013.2 n.a. Colombia 12.7 11.0 9.8 13.8 Imports (000 tons) Panama 9.2 12.2 12.2 13.6 Japan 303.5 293.1 289.0 267.6 Australia 11.1 14.9 10.8 13.5 US 263.1 245.2 230.3 259.5 China, PR 61.0 48.0 56.9 13.5 Spain 108.2 80.5 82.7 77.0 Philippines 21.7 17.8 21.8 10.1 Denmark 49.9 40.4 53.1 52.8 Korea, Rep 10.0 9.8 7.6 9.8 France 48.3 53.1 55.1 51.6 Mozambique 8.2 8.0 6.9 9.5 Canada 16.4 22.6 50.8 34.8 Myanmar n.a. 4.5 8.7 9.1 Italy 28.8 28.2 33.1 28.1 Venezuela 4.7 5.2 7.0 8.6 UK 27.8 26.6 25.1 25.9 Taiwan, China 4.3 2.6 2.1 7.5 HK, China 33.2 28.8 29.7 23.0 Faeroe Islands 8.6 6.2 7.5 7.3 Belgium 19.7 22.2 21.2 20.7 Nicaragua 3.3 4.7 4.9 7.2 Netherlands 14.5 17.2 14.3 14.4 Honduras 2.0 3.7 7.8 6.1 Australia 8.3 7.9 8.1 13.5 World 1,143.3 1,060.7 1,063.7 n.a. World 1,068.9 1,003.3 1,033.5 n.a. Source: FAO Source: FAO Global Summary Actual -Annual Growth Rate (%o)- World Balance (000 tons) 1980 1985 1990 1994 1995 1996 1976-80 1980-90 1990-96 Production 451.4 593.2 838.9 1143.3 1,060.7 1,063.7 2.2 7.6 3.3 Imports 361.9 524.1 905.5 1068.9 1,003.3 1,033.5 5.1 10.6 2.4 Actual Forecast Prices (¢/kg) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 1,509.2 1,351.6 1,611.6 1,578.9 1,460.0 1,450.0 1,465.0 1,525.0 1,590.0 Constant 1990 1,266.1 1,183.6 1,487.0 1,515.4 1,392.9 1,361.5 1,342.4 1,264.7 1,166.0 Note: Production, trade, exports and imports are for the calendar year for frozen shrimp and prawns. Source: FAO, NMFS historical data, and World Bank forecasts. october 1999 49 AGRICULTURE Sugar 30 Monthly Prices (¢/kg) Sugar prices were up about 30 for the Free Market quarter, but the marketfaces a mountain of 25 - ------ --------------- stocks which block a price recovery. Prices 20 - - - are expected to turn lower over the next few 20-utrs months and remain low for several years. 15 -r . X . *s. The International Sugar Organization (ISO) just 10 - , I . released its 1998 calendar year sugar stock estimate Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 and raised its prior year estimates. According to thea*Futures prices are end-September expressed in gikg. and raised itS prior year estimates. Accordng to the Source: InternationalSugarOrganization new figures, sugar stocks rose to 65.8 million tons (raw equivalent) at the end of the 1998 calendar year com- 150 World Balance (mllion tons) pared to 59.0 million tons in 1997. These new figure raise the magnitude of the oversupply problem and sug- 125 --_----..-...-..-.-........----..-, gests it may take several years before price recover Production from extremely depressed levels. On an October/Sep- 100 - _----....-.- , . ........ tember year, the 1999/00 stock estimate from the ISO Consumption shows beginning stocks of 52.8 million tons compared 75 - - . -. to 47.4 million tons at the beginning of the 1998/99 marketing year. Either way, world stocks rose more 50 - than 5.0 million tons last year, while consumption grew 1970 1975 1980 1985 1990 1995 only 2.2 million tons. Source: International Sugar Organization Overproduction in Brazil is the main cause of low Ending Stocks (million tons) sugar prices according to Tony Hannah, head of the 80 Economics & Statistics division at the ISO, as reported in the Public Ledger (July 19). According to Hannah, 65 --_ - .-.-;-l the liberalization of the country's alcohol sector has World allowed cane producers to increase sugar output. With 50 - -------------------- the development of the pro-alcohol program in 1975, Brazil planted vast areas of cane to produce alcohol. 35 ........................ Its cane areas tripled, producing enough to meet total world demand. Until 1990, this potential did not dis- 20 turb the world sugar market, but in 1990 there was a 1970 1975 1980 1985 1990 1995 shortage of alcohol and the Brazilian government dropped the policy of requiring 95% of new cars to be Annual Prices (0/kg) alcohol powered. Without this requirement, Brazilians 180 - bought their preferred gasoline cars and demand for Forecast hydrous alcohol began to level off and then fall. By 135 - - ..Constant Constant 1995, a surplus of alcohol had developed and the situ- (1990) ation was exacerbated by the liberalization of the alco- 90 . ............7\ ....... ----------r---- hol sector in 1998 and 1999. As a result, cane began (Free Market) to be diverted into sugar production and new mills were 45-......I...... .... built. Brazilian exports have reached nearly 9 million tons - 25% of world exports. Brazil, aided by its re- 0 1970 1980 1990 2000 cent currency devaluation, continues to expand sugar Source: International Sugar Organization production while low prices may force other producers out of the market. 50 GLOBAL COMMODITY MARKETS OTHER FOOD SUGAR Other Developments * Latvia is considering a law which would regulate do- by the government for sugar purchased for distribu- mestic production and consumption in an attempt to tion under the public distribution system. The in- avoid overproduction according to The Public Led- dustry is required to sell sugar to the government at ger. The proposal involves government set produc- prices which are typically lower than the market price tion quotas based on prior year production and sales. (The Public Ledger, September 6, 1999). The quotas would be allocated among the countries' * Thailand, the fourth largest producer, is expected to three sugar factories. Last year, Latvia's three mills raise production 27% for the year ending June 2000 produced 68,200 tons of white sugar. due to timely rains which have raised the sugar con- * Indian sugar producers are pressing the government tent of cane (Bloomberg). Thailand provides almost to announce the levy price of sugar - the price paid two-thirds of Asia's sugar exports. Production and Consumption Trade 1996/97 1997198 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Exports (000 tons) Brazil 15,269 18,134 20,450 19,750 Brazil 5,995 8,483 9,995 10,475 EU 18,756 18,900 17,900 19,000 EU 5,064 6,158 4,930 6,225 India 13,898 13,859 16,550 17,250 Australia 4,415 4,514 4,142 4,322 China 7,323 8,747 9,700 8,900 Thailand 4,129 2,570 3,570 4,060 US 6,537 7,274 7,465 7,900 Cuba 3,597 2,569 3,030 3,245 Thailand 6,099 4,325 5,475 6,000 Guatemala 1,047 1,324 1,165 1,235 Mexico 4,822 5,492 5,025 5,475 S. Africa, Rep. 939 1,078 1,100 1,130 Australia 5,793 5,395 5,200 5,400 Mexico 742 1,137 605 975 Cuba 4,316 3,284 3,780 4,000 Colombia 808 849 875 850 Pakistan 2,460 3,800 3,775 3,575 Pakistan 0 519 525 275 World 123,698 127,501 133,231 134,970 World 35,410 36,647 37,348 39,261 Consumption (000 tons) Imports (000 tons) India 15,195 15,425 16,050 16,600 Russian Fed. 3,060 4,395 5,400 4,025 EU 14,605 14,100 14,300 14,600 EU 1,902 1,896 1,825 1,825 Brazil 8,800 9,150 9,175 9,275 Japan 1,726 1,660 1,610 1,630 US 8,838 8,923 9,125 9,275 US 2,620 2,106 1,775 1,550 China 8,050 8,300 8,625 8,800 Korea, Rep. 1,446 1,376 1,445 1,470 Russian Fed. 5,325 5,450 5,975 5,995 Canada 1,064 1,068 1,115 1,145 Mexico 4,140 4,416 4,420 4,500 Egypt 1,295 1,210 1,025 1,085 Pakistan 2,910 3,130 3,250 3,300 Iran, Islamic R. 1,390 1,075 1,025 1,050 Indonesia 3,280 2,930 3,000 3,025 Malaysia 1,122 1,010 970 990 Japan 2,478 2,530 2,500 2,525 Indonesia 1,690 1,080 1,410 975 World 122,231 124,598 127,838 130,040 World 35,425 36,555 37,326 34,145 Source: Internatonal Sugar Organization Source: International Sugar Organization Global summary Actual -Est.- -Annual Growth Rate - World Balance (mil. tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98 Production 72.9 83.9 110.7 127.5 133.2 135.0 2.2 2.0 2.2 Consumption 71.9 88.6 107.9 124.6 127.8 130.0 2.2 2.1 2.3 Ending Stocks 30.0 37.7 47.3 59.0 65.8 n.a. 4.4 1.2 2.7 Actual Forecast Prices (0/kg) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 29.3 26.4 25.1 19.7 13.8 13.2 14.3 22.0 25.0 Constant 1990 24.6 23.1 23.1 18.9 13.3 12.5 13.2 18.4 18.4 Note: Quantities are in marketing years (October/September), measured in raw value, except world ending stocks, which are in calendar years. Prices are in calendar years. Source: Historical data from the International Sugar Organization and World Bank price forecasts. o c to b e r 1999 51 AGRICULTURE Cotton 180 Monthly Prices (0/kg) The CotlookA Indexffell to 1O910kg in September, a 14-year record low. China took 160 ................ steps to reform its cotton market. US, Mexico, Cotlook A Index NYCE 140 .........N C and Pakistan announce price support Futures* measures. 120 .....-.... .-. The medium staple cotton price indicator (Cotlook 100 .1 I....... - .1 . i A Index) suffered another setback in September falling Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 *Futures are end-September expressed in ¢/kg. to 109.1 /kg, a 14-year record low. During the third Source: Cotton Outlook and NYCE. quarter the index averaged 1 15.8 ¢/kg, down 12.1% from the second quarter's average and 24.2% lower than the 22 - World Balance (million tons) third quarter of last year. Productio According to the International Cotton Advisory 19 ------------------------ Committee (ICAC), world cotton production for the 1999/00 season (August to July) is expected to be close 16 - ... to 19 million tons, 100,000 tons lower than their earlier Consumption estimate but still 2.4% higher than last season's crop. 13 - . ............... . ....... Consumption is expected to recover partially to 18.96 milliontons, leadingtoabalanced year. 1970 1975 1980 1985 1990 1995 Most ofthe production increase is expected to take Source: ICAC place in the US (from 3.03 to 3.80 million tons) and Pakistan (from 1.48 to 1.65 million tons) while China's Ending Stocks (million tons) output will decline by 400,000 tons. Notable increases 12 - are also expected in Uzbekistan and WestAfrica. World The short-term outlook for cotton lacks clear di- 9 ..-.-.-----------,-- rection. On one hand, demand-side fundamentals are improving considerably. The East Asian countries are 6 - ....... expected to increase imports over 1998/99. Substantial import increases are also expected in India and Mexico 3 --Ch-------- (3 1 % each), Turkey (53%), and the Russian Federation China (25%). Supplies,ontheotherhand,areplentiful. China's 0 1970 1975 1980 1985 1990 1995 stock policy, however, is expected to be the determining Source: ICAC factor. While much uncertainty surrounds the actual level ofthe Chinese stocks, both ICAC and USDA agree Annual Prices (¢/kg) that the by the end of the current season, they will be 450 - around 3.4 million tons. Although not all of Chinese Constant 1990 Forecast stock may be of good quality - an issue which has been 350 - . t-A-, -I raised repeatedly by ICAC - if the recently announced reforms by the Chinese government materialize, some 250 - ................ ofthese stocks will inevitably find their way to the world market, and there are reasons to believe that this will be 150 ------ the case: currently, the world stock-to-use ratio (exclud- Current ing China) is projected at 0.42 while that of China is 51970 1975 1980 1985 1990 1995 2000 2005 2010 twice as much. Given this setting, we expect the Cotlook Source: Cotton Outlook and World Bank forecasts. A Index to average about 1 20¢/kg and possibly go to 125¢/kg in the year 2000. 52 GLOBAL COMMODITY MARKETS AGRICULTURAL RAW MATERIALS COTTON Other Developments * The resumption of the US Step-2 payment program initiative, effective September 1, 1999. Two impor- has been postponed. Pakistan imposed a 15% im- tant elements of the reform initiative are (a) the cre- port duty on cotton in order to protect producers. ation of the China National Cotton Exchange in Mexico announced an emergency economic assis- Beijing, to be operational some time in October/No- tance program providing each cotton producer with vember and (b) the removal of the state legal mo- $128/hectare according to the USDA. nopoly of cotton procurement. * The China International Cotton Conference took place * The Chinese Institute of Genetics developed geneti- in Xi'An, China, on September 1-3, 1999, and was cally-modified cotton using domestically developed co-sponsored by the FAO and the Chinese Ministry technology. Experiments conducted in 1998 resulted of Agriculture. The conference coincided with the in improved quality and yields according to Cotton implementation of the Chinese cotton sector reform Outlook. Production and Stocks Trade 1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00 Production (000 tons) Exports (000 tons) China 4,100 4,600 4,501 4,100 US 1,550 1,695 915 1,300 US 4,803 4,092 3,030 3,800 West Africa 690 815 843 929 India 2,351 2,450 2,710 2,700 Uzbekistan 1,050 950 900 876 Pakistan 1,800 1,530 1,480 1,650 Australia 467 625 650 645 Uzbekistan 1,198 1,150 1,000 1,050 China 50 40 147 300 West Africa 716 956 897 991 Greece 251 200 230 253 Turkey 792 795 871 820 World 6,076 5,982 5,274 5,628 Australia 552 681 726 700 Imports (000 tons) Greece 400 348 405 410 Indonesia 475 425 500 515 Brazil 368 370 420 440 Mexico 161 330 302 397 Syrian Arab R. 223 355 335 350 Turkey 243 280 250 383 Egypt 240 350 230 218 Korea, Rep. 284 265 330 360 World 19,622 20,015 18,551 18,989 Italy 356 350 330 344 Ending Stocks (000 tons) Taiwan, China 300 275 293 322 China 4,438 4,198 4,124 3,474 Brazil 493 380 292 308 India 760 811 1,011 1,022 Thailand 298 285 271 295 US 829 844 849 954 Japan 270 285 270 250 Pakistan 312 323 353 523 Russia Fed. 406 223 179 224 Australia 229 326 424 438 India 0 180 136 178 Turkey 141 100 269 352 Portugal 164 172 180 170 World 9,419 9,825 9,699 9,634 World 6,160 5,725 5,429 5,628 Source: ICAC Source: ICAC Global Summary Actual -Est. - -Annual Growth Rate (%) - World Balance (000 tons) 1970/71 1980/81 1990/91 1997/98 1998/99 1999/00 1970-80 1980-90 1990-99 Producton 11,740 13,832 18,970 20,015 18,551 18,989 1.6 3.2 0.0 Consumpton 12,173 14,215 18,576 18,922 19,046 18,964 1.6 2.7 0.2 Exports 3,875 4,414 5,081 5,982 5,274 5,628 1.3 1.4 0.9 Ending Stocks 4,605 4,895 6,645 9,825 9,699 9,634 0.6 3.1 3.3 Yields (tons/ha) 369 411 574 590 557 572 1.1 3.3 0.0 Actual Forecast Prices (0/kg) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 212.8 177.3 174.8 144.4 120.0 123.5 132.3 165.3 187.4 Constant 1990 178.5 155.6 161.3 138.6 116.0 116.3 121.6 138.3 138.7 Note: Crop year begins August 1. Source: ICAC and World Bank. o c to b e r 1999 53 AGRICULTURE Rubber 150 Monthly Prices (,Ikg) Prices fell to 54.24/kg in September, a 25-year Malaysia record low. INRO voted to terminate the 1995 International Natural Rubber Agreement SICOM while Thailand and Malaysia plan to 90 Futures* coordinate their supply control policies. 60 - - / - ---------- The Kuala Lumpur rubber indicator price bot- 30 . .....I. ..... ... tomed to 54.2¢/kg in September, a 25-year record Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 low, bringing third quarter's average down to 55.6¢/ Source: World Bar and-SICOM kg, 6.9% lower than second quarter's average and 18. 1% lower than a year ago. Both New York and 11- World Production (million tons) Singapore prices declined the third quarter, averag- ing 3.7% and 6.7% lower than second quarter and 9 ------ 13.4% and 18.2% lower than a year ago. etic Consensus estimates discussed at the 102nd 7- ------------- ------ International Rubber Study Group (IRSG) meeting Natu indicate that natural rubber output for 1999 will be 5 - ---------------------- --- - 6.68 million tons, just 10 thousand tons lower than = i 1998 while consumption is expected to increase by 1970 1975 1980 1985 1990 1995 2.6% (from 6.61 million tons in 1998 to 6.78 mil- Source: IRSG lion tons in 1999). Production and consumption increases for synthetic rubber are projected at 2.5% World Ending Stocks (million tons) each. 2.6 On the demand side, following a relatively weak start natural rubber consumption picked up later in 2.2 ---------------------------------------------- the year. According to IRSG figures, during the 12- Synthetic month period ending in August global natural rubber 1.8 consumption increased by 4.4%. Apart from China, demand increased in all major importing countries 1.4 - - ----- with the UK, US, and Italy leading the way with increases of 13.5%, 8.1%, and 4.1%, respectively. 1.0 - Given the recent developments in the rubber 1970 1975 1980 1985 1990 1995 market, it unlikely that prices will pick up consider- Source: IRSG ably any time soon; we thus expect the 1999 aver- Annual Prices (¢/kg) age to be around 60¢/kg. For the year 2000, how- 220 - ever, the fundamentals certainly justify some price CForecast increase; for example, consensus estimates indicate 170-.......-------- that for the year 2000 consumption growth, which is projected at 3.7% will outpace production growth, currently projected at 1.6%. But, as we stressed in our last report, any price increase will crucially de- Current pend on Malaysia's and Thailand's effectiveness in 20 - , I I , exercising supply controls. To this uncertainty, one 1970 1975 1980 1985 1990 1995 2000 2005 2010 must add question on when and how INRO's stocks Source: World Bank (currently estimated at 140 thousand tons) will be disposed. 54 GLOBAL COMMODITY MARKETS AGRICULTURAL RAW MATERIALS RUBBER Other Developments * INRO voted to terminate the 1995 Intemational Natural traders have speculated that the two countries may even RubberAgreement (INRAI), effective October 13. The buy INRO's stocks, according to The Public Ledger. outcome was expected after Malaysia and Thailand sub- * The 102nd Group Meeting of the Member Govern- mittedtheirformalwithdrawalnotices. FollowingINRA ments of IRSG was held in Veracruz, Mexico from ll's tennination, Malaysia and Thailand intensified their October 4-8, 1999. Topics discussed during the meet- efforts to negotiate a "post-INRO" arrangement, under ing included the outlook for elastomers, substitutability which the two countries will coordinate their supply con- issues between natural and synthetic rubber, as well as trol policies in order to prop up rubber prices. Some environmental issues. Natural Rubber Synthetic Rubber 1995 1996 1997 1998 1995 1996 1997 1998 Production (000 tons) Production (000 tons) Thailand 1,805 1,970 2,033 2,206 US 2,530 2,486 2,589 2,610 Indonesia 1,455 1,527 1,505 1,740 Japan 1,497 1,520 1,592 1,520 Malaysia 1,089 1,083 971 886 France 618 583 595 606 India 500 540 580 591 Russian Fed. 837 775 725 599 China 424 430 444 450 China 493 553 580 589 Vietnam 159 189 201 219 Germany 480 548 555 580 C6te d'lvoire 74 91 108 109 Korea, Rep. 372 516 540 530 Sri Lanka 106 113 106 96 Taiwan, China 365 376 408 472 World 6,040 6,370 6,380 6,690 World 9,490 9,770 10,040 10,030 Consumption (000 tons) Consumption (000 tons) US 1,004 1,002 1,044 1,157 US 2,172 2,187 2,323 2,354 China 780 810 910 839 Japan 1,085 1,125 1,163 1,116 Japan 692 715 713 707 China 760 870 995 1,000 India 517 558 572 580 Germany 426 478 501 529 Germany 212 193 212 248 Russian Fed. 424 438 450 420 World 5,990 6,150 6,510 6,610 World 9,250 9,590 9,950 9,840 Net Exports (000 tons) Gross Exports (000 tons) Thailand 1,636 1,763 1,837 1,839 US 667 732 769 742 Indonesia 1,324 1,434 1,404 1,640 France 481 462 507 497 Malaysia 778 710 587 425 Japan 451 477 494 490 Vietnam 117 141 151 165 Germany 389 403 423 456 Liberia 13 30 67 80 Korea, Rep. 120 177 266 342 World 4,290 4,500 4,460 4,520 World 4,390 4,540 4,980 5,130 Source: IRSG Source: IRSG Global Summary Actual -Annual Growth Rate (%o)- Natural Rubber (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98 Production 3,140 3,820 5,080 6,370 6,380 6,690 2.0 2.9 2.2 Consumption 3,090 3,770 5,190 6,150 6,510 6,610 2.0 3.2 1.9 Net Exports 2,820 3,280 3,950 4,500 4,460 4,520 1.5 1.9 1.1 Ending Stocks 1,440 1,480 1,500 1,920 1,800 1,860 0.3 0.1 1.7 Synthetic Rubber (000 tons) Production 5,880 8,640 9,840 9,770 10,040 10,030 3.8 1.3 0.2 Consumption 5,610 8,830 9,620 9,590 9,950 9,840 4.5 0.9 0.2 Gross Exports 1,460 2,320 3,370 4,540 4,980 5,130 4.6 3.7 3.4 Ending Stocks 1,560 1,740 1,890 2,360 2,450 2,460 1.1 0.8 2.1 Actual Forecast Prices-Natural (¢/kg) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 158.0 139.4 101.8 72.1 60.0 66.1 70.5 88.2 99.2 Constant 1990 132.5 122.3 93.9 69.2 58.0 62.3 64.8 73.8 73.4 Source: IRSG and World Bank. o c t o b e r 1999 55 AGRICULTURE Tropical Timber Monthly Prices ($/cum) Tropical timber prices continued to recover from Sawnwood the sharp fall in 1997. Supplies are relatively 775- (Malaysia) tiglht due to policy changes and poor weather - - - - - - - conditions which have slowed logging in several 550 - ..... ......... countries. Further price recovery is expected as Laysi\ Asia's economic outlook improves. 325 (M.a.a.ys.a. ................).......... Malaysian log prices rose by an average of 9.8% 100 -.... . ...... relative to the second quarter, while sawnwood prices Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Source. Japan Lumber Jouirnal, NHKKEI,and TropicaI were up by an average of 6.8%. Plywood prices re- Timbers. mained weak, rising only 3.1% during the quarter. World Balance (million cum) Cameroon's sawnwood prices rose 4.1% compared to 360 Production (Hardwood the second quarter, while prices for Cameroon Sapele Sawlogs) logs were not available in September due to the uncer- tainty regarding the ban imposed on exports by Cameroon. Demand has begun to recover in Asia, but both 180 --- Japan and the Republic of Korea remain timid import- (Hart Imports (Tdopical ers despite the improving economic situation in both 90 Sawlogs) Sawlogs) countries. China has become a larger importer of both Asian and African hardwoods in 1999, and has been a . . . . . . ~ ~~~~~ 1970 1975 1980 1985 1990 1995 major factor leading to the price recovery in Asian tim- Sore 19O ber. Log and sawnwood imports by China were up Source: FAO about 72% in the first five months of 1999, according 160 World Production (million cum) to ITTO. Sawn Tropical plywood market remains subdued com- Hardwood pared to the logs and sawnwood markets, especially in Japan where supply far exceeds demand. Plywood 80 --- export in Brazil has been unexpectedly brisk this quar- Plywood ter, due in part to the real devaluation in August, in- 40 - .. creased demand from the US, and producers shifting to veneer exports in response to high cost plywood o _-_I_l production, Tropical Timbers reported. 1970 1975 1980 1985 1990 1995 Supplies of Asian and African hardwood are rela- Source: FAO tively tight and this has contributed to the recovery Annual Prices (0/cum) of prices following the 1997 Asian crisis. Asian hard- 400 - wood supplies are still affected by disruptions caused Constant Forecast by the Asia crisis and by unfavorable weather condi- 300 -.......... ....990) tions. Heavy rains slowed logging in much of 1998 and the first half of 1999; now, too little rains are 200 - hampering the river transport of logs. The heavy rains also caused an increase in insect damage which 100 - . Current has reduced the quality of some timber supplies. Re- (Logs, Malaysia) forms in Indonesia also contributed to the shortage of o forms in Indonesiaalsoontributedtoheshortag1970 1975 1980 1985 1990 1995 2000 2005 2010 logs, as new regulations led to revoking or not renew- Source NIIKKEJhistoricaldataandWorldBakforecasts, ing concession felling licenses for eleven companies which affect about 3 million hectares of forest. 56 GLOBAL COMMODITY MARKETS AGRICULTURAL RAW MATERIALS TROPICAL TIMBER Other Developments * Effective July 1, Sabah State government increased dation was released. The RIL operations are intended export royalties on high quality logs (Class C) by for reducing ground disturbance and forest damages 50% to RM 150 per cubic meter (cum) or about US by heavy machinery during harvest operations. $39.5 per cum. The State also imposed a RM 10 * On July 1 the Cameroon government introduced a per cum, about US$ 2.65 per cum, royalty on log- ban on log exports of endangered species. Sapele is ging residues, ITTO reported. Sabah export vol- not among that list, but its export prices would likely umes reportedly fell by 50%. be increased subjected to a rating system. So far, * A report on the application of reduced impact logging implementation has remain unclear; no quotation was (RIL) in Eastern Amazon by the Tropical Forest Foun- available in September. Hardwood Logs (000 cum) Sawn Hardwood (000 cum) Plywood (000 cum) 1996 1997 1996 1997 1996 1997 Prod. of Sawlogs & Veneer Production Production US 70,116 70,721 US 29,650 29,972 US 16,975 15,897 Malaysia 33,980 33,980 India 14,960 14,960 Indonesia 9,575 9,600 Indonesia 32,250 32,250 Brazil 10,500 10,500 China, PR 4,900 7,580 Brazil 26,000 26,000 China, PR 10,211 10,211 Malaysia 4,100 4,100 China, PR 22,000 22,000 Malaysia 8,232 8,232 Japan 4,311 3,830 India 15,812 15,812 Indonesia 7,200 7,100 Brazil 1,900 1,900 World 314,658 305,000 World 123,174 120,000 World 52,870 53,500 Exports of Tropical Hardwood Exports Exports Malaysia 6,987 6,593 Malaysia 3,660 3,007 Indonesia 8,564 8,500 PNG 2,962 2,165 US 2,692 2,890 Malaysia 4,068 3,825 Gabon 2,231 2,082 Brazil 906 885 US 1,384 1,624 Cameroon 1,307 1,373 Canada 850 1,022 Canada 872 859 Solomon Isl. 765 755 France 844 684 Russian Fed. 612 615 World 17,324 15,930 World 16,713 16,525 World 20,375 20,715 Imports of Tropical Hardwood Imports Imports Japan 6,185 5,795 Thailand 2,200 1,360 Japan 5,381 5,422 Taiwan, China 1,600 1,600 Japan 1,954 1,789 US 1,866 1,868 Korea, Rep. 1,211 1,181 Taiwan, China 1,098 1,098 China, PR 1,775 1,607 Thailand 883 816 Canada 930 1,024 Germany 975 1,083 Philippines 776 680 China, PR 870 1,050 HK, China 962 1,074 World 16,701 16,900 World 19,054 20,273 World 19,145 19,000 Source: FAO and World Bank estimates. Global Summary Actual -Est.- -Annual Growth Rate (%O) - World Balance (mil. cum) 1970 1980 1990 1995 1996 1997 1970-80 1980-90 1990-97 Hardwood logs prod.* 210 262 300 308 315 305 2.1 1.8 0.6 Hardwood logs imports* 36.1 42.2 25.1 17.4 16.7 16.9 1.7 -2.0 -6.0 Sawn hardwood prod. 98.5 115.8 131.7 120.8 123.2 120.0 1.5 1.7 -1.2 Sawn hardwood imports 7.1 13.2 16.1 19.5 19.1 20.3 6.7 3.9 3.6 Plywood production 33.4 39.4 48.2 55.5 52.9 53.5 1.4 2.9 2.2 Plywood imports 4.9 6.0 14.9 19.0 19.1 19.0 2.2 10.1 4.1 Actual Forecast Prices ($/cum) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Logs, current 255.6 252.1 238.3 162.4 190.0 200.0 210.0 230.0 290.0 Logs constant 1990 214.4 220.8 219.8 155.9 183.5 188.4 193.0 192.5 214.7 Sawn hardwood, current 740.0 741.4 663.8 484.1 600.0 620.0 645.0 750.0 900.0 Sawn hardwood constant 620.8 649.2 612.4 464.7 579.4 584.1 592.8 627.6 666.2 *Imports for 1970-89 and producton for all years refer to hardwood sawlogs and veneer logs. Imports from 1990 onwards are tropical hardwood sawlogs and veneer logs. Source: FAO, NIKKEI historical data, and World Bank estimates and forecasts. o c t o b e r 1999 57 FERTILIZERS Nitrogen 240 Monthly Prices ($/ton) Urea fertilizer prices have stabilized after Urea falling for nearly three years. However, 195 - ---- E Europe (bagged) demand is not expected to increase enough to push prices higher, and supplies continue to 150 - --.----- ......... ...... flood the market. 105 - . - - Urea prices were slightly higher during the third 60 . , . l quarter, averaging $77.40/ton, bagged Eastern Europe, 60 compared to $75.92/ton during the second quarter. Sep-95rce Sep-96e Sep-97 Sep-98 Sep-99 However, prices began to weaken again in Septem- World Balance (million tons) ber due to the temporary withdrawal of India from 100 B the import market and continued strong production Production from Ukraine (up 30% in the first half of 1999 vs. 80 --_- - 1998). Prices are expected to decline in October andc probably will not sustain a rally in the near-term. 60 -._.;............. The FAO/World Bank/UNIDO/Industry Work- ing Group met in June to prepare its annual assess- 40 - .................. ment of the world fertilizer situation and project de- mand and supply to the 2003/04 marketing year. In 20 - its report released in September, the Working Group 1970 1975 1980 1985 1990 1995 forecasted world nitrogen fertilizer consumption to in- Source: FAO crease by 1.9% per year from 1997/98 to 2003/04. World Trade (million tons) All regions are expected to have demand growth ex- 30.0 - cept Western Europe, where a decline of 0.7 million = tons is expected. Most of the growth will occur in 22.5 - _ -Imp--l Asia (76%), LatinAmerica(12%), andaNorthhAmerica (6%). Africa and Oceania are expected to have de- lS.0 -- _-.-.-.- mand growth of 4% and 2%, respectively. Demand in Eastern Europe and the former Soviet Union is ex- 7.5 ----.-. pected to eventually recover and increase by 2-4% over the period. o.o - Additional production capacity is scheduled for 1970 1975 1980 1985 1990 1995 completion in all regions in 1999 according to the Source: FAO Working Group. About 1.0 million tons of new ca- Annual Prices ($/ton) pacity is expected in North America by 2000. New 800 - supply capacity is projected to grow at 2.5% per year Constant (1990) ~~~~Forecast from 1997/98 to 2003/04 and more than keep pace 600 - ......... Forecast with the growth in consumption. This will cause sur- plus capacity in nitrogen fertilizer to increase from 400 _ . -- ..-.....- ...... 3.260 million tons in 1997/98 to 7.017 million tons in 2003/04. The largest increases in supply capacity are 200 , - - ----.-. in North America (+2.127 million tons), Asia (+7.368 Current (Urea million tons), and Latin America (+3.302 million 0 . tons). The balance of the increase of 3.441 million 1970 1975 1980 1985 1990 1995 2000 2005 2010 tons in new capacity will come from Africa, Europe, Source: Historical data from various industry sources and World tons in new capacity wi II come from Africa, Europe, Bank forecasts. and Oceania. 58 GLOBAL COMMODITY MARKETS NITROGEN Other Developments * India's Department of Fertilizers temporarily sus- * World production of urea for all uses totaled 101 pended imports of urea for agricultural use in late million tons in 1998 according to Fertilizer Week. August. The move was prompted by high urea Production is estimated to have risen 5% over 1997. stocks, estimated to total 3.0 million tons on Au- The largest increase was in Asia and the Middle gust 1 st, according to Fertilizer Week. Stocks are East, where production was up 20%. Production expected to continue rising, partly as a result of re- fell 40% in Central Europe and there were smaller duced urea usage during the monsoon season. The declines in the former Soviet Union, Western Eu- decision does not affect urea imports on behalf of rope, and Latin America. NPK blenders, which are allowed to continue as planned. Production and Consumption Trade 1994/95 1995/96 1996/97 1997/98 1994/95 1995/96 1996/97 1997/98 Production (000 tons) Exports (000 tons) China 16,689 18,633 21,042 20,538 Russian Fed. 2,814 3,661 3,646 3,122 US 14,017 14,244 15,226 15,372 US 2,902 2,997 2,989 3,038 India 7,944 8,769 8,593 10,083 Canada 1,955 2,179 2,090 1,878 Russian Fed. 4,027 4,713 4,900 4,293 Netherlands 1,480 1,457 1,505 1,435 Canada 3,801 4,019 4,049 4,122 Ukraine 1,301 1,231 1,464 1,418 Indonesia 2,565 2,858 3,045 3,059 Indonesia 740 914 711 1,087 Ukraine 1,935 1,871 2,083 2,022 Bel-Lux 1,001 978 1,043 1,074 Netherlands 1,785 1,595 1,772 1,848 Saudi Arabia 911 788 845 806 Pakistan 1,547 1,693 1,682 1,661 Poland 457 637 520 590 Poland 1,269 1,469 1,549 1,545 Germany 630 831 676 561 World 82,746 86,004 90,973 90,092 World 22,433 25,157 24,894 23,957 Consumption (000 tons) Imports (000 tons) China 19,216 23,383 25,277 23,260 US 4,702 4,569 4,132 4,697 US 10,631 11,161 11,206 11,163 China 2,577 4,897 4,423 2,955 India 9,507 9,823 10,302 10,905 India 1,473 2,008 1,156 1,375 France 2,309 2,392 2,525 2,518 Germany 1,249 1,218 1,165 1,224 Pakistan 1,738 1,984 1,985 2,088 France 1,218 1,306 1,222 1,112 Indonesia 1,649 1,844 2,084 1,838 Vietnam 903 785 937 952 Germany 1,787 1,769 1,758 1,788 Italy 679 600 736 787 Canada 1,456 1,576 1,671 1,708 Thailand 687 780 811 779 Brazil 1,225 1,151 1,197 1,306 Brazil 494 426 495 686 UK 1,339 1,328 1,438 1,251 Australia 428 493 628 679 World 72,247 77,986 83,017 81,177 World 21,815 25,097 24,838 24,646 Source: FAO Source: FAO Global Summary Actual -Annual Growth Rate World Balance (mil. tons) 1970/71 1980/81 1990/91 1995/96 1996/97 1997/98 1970-80 1980-90 1990-96 Production 33.3 62.8 81.9 86.0 91.0 90.1 6.5 3.6 1.7 Consumption 31.8 60.8 77.2 78.0 83.0 81.2 6.8 3.0 0.9 Imports 6.8 13.2 20.0 25.1 24.9 24.6 6.5 5.7 5.1 Actual Forecast Urea Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 193.9 187.5 127.9 103.1 78.0 80.0 90.0 130.0 150.0 Constant 1990 162.7 164.5 118.0 98.9 75.3 75.4 82.7 108.6 110.6 Note: Quantities are for total nitrogen fertilizer in marketing years and prces are for urea, bagged, spot, f.o.b. Eastern Europe in calendar years. Source: FAO historical data and Word Bank forecasts. o c to b e r 1999 59 FERTILIZERS Phosphates 255 Monthly Prices ($/ton) Phosphatefertilizerpricesfell despite supply DAP cuts by several large producers. Further price 225 - .........------------------- .-.-. declines are expected before the demand! supply balance is restored. 195 . Y. . Phosphate fertilizer prices fell sharply this quar- 165- Tsp ter, with DAP down 8.3% and TSP down 7.2% when compared on a quarter-on-quarter aaverage basis. The 135 - decline was due to weak US demand, surplus capacity, Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Saurce: Fertilizer Week and building stocks. Several companies cut produc- tion in an effort to reduce supplies and ease downward 50 World Balance (million tons) pressure on prices. Inventories in the US, the largest producer and exporter, were up 24% in August com- 40 - -------------------- ----- pared to August 1998 according to The Fertilizer Insti- tute. US exporters were also aggressively competing 30 - ..... for recent sales to Pakistan and that contributed to lower prices. 20- ---- --- - -- --- The FAO/World Bank/UNIDO/Industry Work- ing Group met in June to prepare its annual assess- 10 ment of the world fertilizer situation and project de- 1970 1975 1980 1985 1990 1995 mand and supply to the 2003/04 marketing year. In its Source: FAO report, released in September, the Working Group fore- World Trade (million tons) casted world phosphate fertilizer consumption to in- 20 - crease by 1.7% per year from 1997/98 to 2003/04. Most of the growth will occur in Asia (55%), while is -- - -.... demand in Western Europe is expected to fall 9.5%. Expons Consumption in Eastern Europe is expected to increase 10 - . by 3.4% per year and consumption in the former So- viet Union is expected to rise by approximately 4.3% 5 ---........ per year. Consumption in Western Europe is expected to fall a total of 9.0%. o According to the Working Group, phosphate fer- 1970 1975 1980 1985 1990 1995 tilizer supply capacity is expected to increase substan- Source: FAO tially by the year 2003/04, growing by 4.5% per year Annual Prices ($/ton) from 1997/98 to 2003/04. This will more than keep 800 - pace with the projected 1.7% per year growth in con- n(1a990) Forecast sumption, and could cause supply capacity in phos- 600 - --------------------- .............. phate fertilizer to shift from a deficit relative to con- sumption of 1.357 million tons in 1997/98 to a surplus 400 - _ -- ---- of 1.974 million tons by 2003/04. The largest increases in production capability are forecast for Asia (2.718 200 - ............. million tons), Africa (1.078 million tons), and North America (1.044 million tons), and the forrner Soviet 0 Current (TSP) Union (0.933). The balance of the global increase of 1970 1975 1980 1985 1990 1995 2000 2005 2010 0.81 million tons will come from Europe, Latin America Source: Historical data from various industry sources, and World and Oceania. Bank forecasts. 60 GLOBAL COMMODITY MARKETS PHOSPHATES Other Developments * China had been mostly absent from the import mar- * India's Rashtriya Chemicals and Fertilizers has signed ket in recent months and this contributed to the re- a memorandum ofunderstanding with Hindustan Zinc cent price declines. However, Cargill recently signed and Rajasthan State Mines and Minerals to build a a long-term contract with China's CNAMPGC. Ac- 300,000 ton/year DAP plant in Rajasthan state, north- cording to Fertilizer Week, CNAMPGC has agreed west India, according to Fertilizer Week. The new to buy 1.0 million tons of DAP from Cargill, with plant will rely mostly on domestic phosphate rock. shipments to begin in October and continue for 15 The facility is expected to take three years to com- months. China is believed to have about 1.5 mil- plete and will reduce imports. lion tons of DAP in inventory, according to Fertil- izer Week. The supplies of DAP may come from the WMC project in Australia when it comes on- stream in late 1999 or early 2000. Production and Consumption Trade 1994/95 1995/96 1996/97 1997/98 1994/95 1995/96 1996/97 1997/98 Production (000 tons) Exports (000 tons) US 11,055 10,500 10,900 10,765 US 6,335 5,838 5,679 5,716 China 5,045 6,091 5,822 6,482 Russian Fed. 1,397 1,525 1,130 1,294 India 2,587 2,626 2,615 3,090 Morocco 769 811 858 846 Russian Fed. 1,716 1,933 1,575 1,777 Tunisia 674 686 703 637 Brazil 1,429 1,265 1,305 1,353 Mexico 81 267 273 343 Morocco 894 936 979 921 Bel-Lux 194 270 282 333 France 667 668 682 687 Netherlands 459 390 285 320 Tunisia 721 741 790 673 Jordan 318 318 328 256 Spain 422 413 478 488 Norway 179 207 207 208 Mexico 373 427 433 469 Poland 91 175 135 197 World 32,808 33,847 34,020 34,925 World 12,329 12,568 11,994 12,146 Consumption (000 tons) Imports (000 tons) China 7,020 8,913 8,521 9,339 China 2,023 2,936 2,803 2,950 US 4,014 4,107 4,184 4,195 Australia 519 612 651 716 India 2,932 2,898 2,977 3,917 India 376 686 219 707 Brazil 1,931 1,575 1,705 1,943 Brazil 517 341 446 703 France 1,030 1,032 1,052 1,120 France 600 568 561 568 Australia 923 965 985 1,100 Italy 500 538 524 508 Canada 628 658 704 705 Pakistan 283 272 381 416 Japan 703 631 611 594 Thailand 379 453 436 380 Turkey 444 580 578 592 UK 377 349 343 345 Pakistan 429 494 419 551 Canada 286 292 377 343 World 29,271 30,908 31,428 33,466 World 10,543 11,738 12,005 12,629 Source: FAO Source: FAO Global Summary Actual -Annual Growth Rate (%l)- World Balance (mil. tons) 1970/71 1980/81 1990/91 1995/96 1996/97 1997/98 1970-80 1980-90 1990-96 Production 22.0 34.5 39.0 33.8 34.0 34.9 4.1 2.3 -2.6 Consumpton 21.1 31.7 36.3 30.9 31.4 33.5 4.0 2.1 -2.7 Exports 2.9 7.5 10.7 12.6 12.0 12.1 9.1 5.0 2.4 Actual Forecast TSP Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 149.6 175.8 171.9 173.1 155.0 145.0 140.0 150.0 155.0 Constant 1990 125.5 154.3 158.6 166.1 149.7 136.6 128.7 125.3 114.3 Note: Quantities are for total phosphate fertilizer in marketing years and prices are for TSP, bulk, spot, f.o.b. US Gulf in calendar years. Source: FAO and World Bank. o c t o b e r 1999 61 FERTILIZERS Potash 140 Monthly Prices ($/ton) Potash prices remained steady due to drastic production cuts and a willingness of major 130 producers to store product rather than cut Chloride prices. However, surplus production capacity 1200 and weak demand do not make for a strong market, and prices couldfall. 110 ----------------------.-.-..-.. Inventory management programs in Canada 100 . I"' i I'll . I I have achieved a degree of success, according to Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Source: Fertilzer Week Fertilizer Week. Canadian firms slashed production World Balance (million tons) by 36% for July and August in an attempt to bring 40 stocks into line with demand. This has kept prices steady, however, weak demand in the US (the larg- 30 --_ .. est consumer of potash) due to falling grain prices, Production makes it unlikely that potash prices can be held at 20 - .......... current levels. New capacity planned or underway Consumption in Chile, Israel, Jordan, and Thailand will also con- 10 - .........-----....-....-....- ....- ....-.... tribute to the surplus and come at the expense of Canadian exporters. - The FAO/World Bank/UNIDO/Industry Work- 1970 1975 1980 1985 1990 1995 Source: FAO ing Group met in June to prepare its annual assess- ment of the world fertilizer situation and project de- World Trade (million tons) mand and supply to the 2003/04 marketing year. In 25 - its report, released in September, the Working Group forecasted world potash fertilizer consumption to in- 20 --_- -. crease by 1.9% per year from 1997/98 to 2003/04. Imports About 72% of the growth is expected to occur in 15 ---------.......... Asia, as consumption grows by 4.0% per year. De- Exports mand in Eastern Europe and North America is ex- 10 e ......... ........... .... pected to increase by 6% over the period and con- sumption in Western Europe is expected to fall about 5 I 1%. The developing countries of East and South 1970 1975 1980 1985 1990 1995 Asia are expected to increase potash consumption Source: FAO as they expand food production to feed their grow- Annual Prices ($/ton) ing populations. 200 - Constant The world potash industry is currently operat- F(990 Forecast ing at 60-70% of its potential supply capacity, ac- 150- ---------.- cording to the Working Group's report. And, accord- ing to the report, supply capacity is expected to grow 100 at twice the rate of consumption causing surplus in production capacity of 3.472 million tons by 2003/ 50 - . . . ............. 04. The largest increases in capacity are forecast for Current North America (3.634 million tons), Asia (1.910 mil- 0 - l lion tons), and the former Soviet Union (1.163). The 1970 1975 1980 1985 1990 1995 2000 2005 2010 balance of the global increase of 0.712 million tons Source: Historical data from various sources and World Bank forecasts. will be in Europe and Latin America. 62 GLOBAL COMMODITY MARKETS POTASH Other Developments * Potash Corporation of Saskatchewan (PCS) an- is set at between 4.2 and 4.5 million tons, according nounced plant closures and shutdowns in its phos- to Fertilizer Week. phate and nitrogen operations in mid-August because * Jordan's production of potash increased 40% in the of weak market conditions. PCS is the world's larg- first half of 1999 compared to 1998, according to est potash company by capacity, the third largest Fertilizer Week. phosphate producer and the second largest nitrogen * Brazilian buyers have returned to the import market producer. following reduced imports in the first half of 1999. * China's State Economic and Trade Commission has This has kept prices firm in Latin America accord- released import quotas for the second half of 1999. ing to Fertilizer Week. Initial reports suggest the total quantity of imports Production and Consumption Trade 1994/95 1995/96 1996/97 1997/98 1994/95 1995/96 1996/97 1997/98 Production (000 tons) Exports (000 tons) Canada 9,060 8,065 8,151 9,029 Canada 8,216 7,851 8,077 9,015 Germany 3,286 3,278 3,334 3,423 Germany 2,802 2,446 2,549 2,838 Russian Fed. 2,493 2,814 2,618 3,403 Russian Fed. 2,027 2,317 1,947 2,830 Belarus 2,510 2,789 2,716 3,247 Belarus 1,917 2,189 1,978 2,506 Israel 1,260 1,326 1,500 1,488 Israel 1,327 1,286 1,203 1,632 US 827 843 834 883 Jordan 910 1,058 1,052 861 Jordan 930 1,068 1,059 849 US 538 523 597 846 France 870 802 751 665 France 596 538 538 588 Spain 684 637 681 639 Spain 410 489 470 498 UK 580 582 618 565 UK 385 374 371 373 World 23,077 22,767 22,876 24,947 World 20,348 20,634 20,128 23,370 Consumption (000 tons) Imports (000 tons) US 4,652 4,770 4,921 4,847 US 4,759 5,181 5,073 5,784 China 2,444 2,887 2,337 3,390 China 2,261 2,870 2,258 3,291 Brazil 1,866 1,791 1,941 2,242 Brazil 1,643 1,539 1,826 2,132 France 1,373 1,491 1,488 1,434 India 1,282 1,424 667 1,437 India 1,125 1,156 1,030 1,373 France 1,274 1,230 1,341 1,418 Malaysia 700 603 646 670 Malaysia 708 660 631 701 Germany 668 652 646 659 Poland 386 456 502 509 Spain 417 415 451 479 Italy 439 461 440 447 UK 475 473 485 450 Japan 485 490 439 431 Belarus 300 250 422 425 Korea, Rep. 333 353 417 407 World 20,084 20,690 20,675 22,611 World 19,906 20,472 19,717 23,043 Source: FAO Source: FAO Global Summary Actual -Annual Growth Rate (%)- World Balance (mil. tons) 1970/71 1980/81 1990/91 1995/96 1996/97 1997/98 1970-80 1980-90 1990-96 Producton 17.6 27.5 26.7 22.8 22.9 25.0 4.3 1.1 -2.4 Consumption 16.4 24.2 24.5 20.7 20.7 22.6 4.2 1.2 -2.8 Exports 9.5 16.7 18.1 20.6 20.1 23.4 5.6 2.0 3.3 .Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 117.8 116.9 116.5 116.9 121.0 121.0 122.0 124.0 128.0 Constant 1990 98.8 102.6 107.5 112.2 114.4 113.6 111.8 102.8 93.9 Note: Quantities are for total potash fertilizer in marketng years and prices are for potassium chloride, f.o.b. Vancouver, in calendar years. Source: FAO and World Bank. o c to b e r 1999 63 METALS AND MINERALS Aluminum 1,750 Monthly Prices ($/ton) Prices rise on expectations of a shrinking LME Cash market surplus, but stocks remain high and 1,600 -....;..fiJ.......... production continues to climb. Strengthening ......... demand is expected to support prices of 1,450 LME $1500/ton nextyear. 1300 Futures* Aluminum prices rose 10% in the third quarter on expectations of improving fundamentals and strong in- 1,150 .. ... vestment fund buying, despite high stocks and rising Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 production. Prices eclipsed $1500/ton late in the quar- *Futures are end-September ter, the highest level since the beginning of 1998 and Source: LME 30%°higherthaninMarch. Strongerthanexpectedde- 24 World Balance (million tons) mand and the possibility of supply disruptions contrib- Refined Atuminum uted to the rally, but the market remains in surplus. 20 --_----..-.-..-...-;,, LME stocks, which had declined 10% from end- Production ~/ on March levels of 818,000 tons, rose sharply in August, and 16 - , . onsumption have since hovered near 800,000 tons. Aluminum demand remains strong in the US, espe- 12 ---------------.-. -... cially in the auto sector where the industry is on track to produce a record number of vehicles this year. Modest 8 I I economic recovery in Europe is boosting demand in the 1970 1975 1980 1985 1990 1995 auto and construction sectors. Japanese consumption re- Source: WBMS and World Bank estimates. mains weak, but elsewhere in Asia demand is relatively Ending Stocks (thousand tons) strong, led by the surge in growth in the Republic of Korea. 3,000 S Aluminum production is increasing in all main re- gions, and global output is expected to grow by 3.5% 2,250 ------ -----------A -------- - this year. However, planned idling of capacity, labor disputes, and possible shortfalls out of Russia could 1,500- _ t- . tighten the balance somewhat. The Krasnoyarsk smelter 3Q99 in Russia is reportedly short of alumina deliveries from 750 ------------------- . -t-X the Achinsk refinery which is undergoing various labor and management disputes. And the accident at the 0 T Gramtmercy alumina refinery in Louisiana has left the 1970 1975 1980 1985 1990 1995 alumina market extremely tight. Source: LME Two large mergers ofAlcoa and Reynolds, andAlcan, Annual Prices ($/ton) Pechiney, and Alusuisse will undoubtedly result in ratio- 3,000 nalization ofoperations. It will also improve efficiency and Constant Forecast lower costs, adding to the downward trend of recent years. 2,250 - ---- 9-) -------- --------------------,- Although the market remains vulnerable to a sell- off, the speculative run-up in prices could continue given 1,500 strengthening demand, possible supply disruptions, and potential "Y2K" stocking. However, higher prices will 750---------- Current lead to significant forward selling by producers and also induce companies to restart idle capacity. The market o is expected to remain in surplus next year, but strength- 1970 1975 1980 1985 1990 1995 2000 2005 2010 IS expected to remain in surplus next year, but strength- Suc:LI n ol akfrrss * J ¢ C, ~~~~~~~~~~~~~~~~Source: LME and World Bank forecasts. ening demand is expected to help support average prices of around $1,500/t. 64 GLOBAL COMMODITY MARKETS ALUMINUM Other Developments * Canada's Alcan Aluminum Ltd., France's Pechiney * Alcoa Inc. agreed to a merger with Reynolds Metals SA, and Switzerland's Algroup announced August 11 Co. on August 19, under which Alcoa will acquire all an agreement to merge, and entered into a definitive outstanding shares of Reynolds in a tax free stock- three way combination agreement in mid-September for-stock transaction. Reynolds shareholders will following successful completion of discussions with receive 1.06 shares of Alcoa common stock for each labor groups in France. The merger will be accom- share of Reynolds, placing the value of the transac- plished by two independent exchange offers initiated tion at approximately $4.5 billion. The combined byAlcan,valuedatapproximately$11.5billion: 1.718 company will have about 300,000 employees and Alcan shares for each PechineyA share, and 20.6291 will operate in 300 locations in over 36 countries. Alcan shares for each Algroup share. Algroup must Aloca expects to achieve cost and efficiency savings demerge its specialty chemical and energy businesses of about $200 million (pre-tax) by the end of the prior to the merger. The new company, provision- second year. With the merger, Alcoa withdrew its allyreferredtoasAPA,willbeledbyJacquesBougie earlier US$65 per share cash tender offer for (Alcan) as CEO and Jean-Pierre Rodier (Pechiney) Reynolds. The deal is subject to stockholder ap- as President and COO. proval and antitrust clearances. Production of Refined Aluminum (000 tons) Consumption of Refined Aluminum (000 tons) 1995 1996 1997 1998 1995 1996 1997 1998 US 3,375 3,577 3,603 3,713 US 5,055 5,348 5,390 5,814 Russian Fed. 2,724 2,874 2,906 3,005 China 1,942 2,135 2,260 2,376 China 1,676 1,771 2,035 2,285 Japan 2,336 2,393 2,434 2,080 Canada 2,172 2,283 2,327 2,374 Germany 1,491 1,355 1,558 1,518 Australia 1,293 1,370 1,490 1,626 France 744 672 724 687 Brazil 1,188 1,197 1,189 1,208 UK 620 600 619 668 Norway 847 862 919 996 India 581 585 553 567 S. Afrca, Rep. 233 617 683 693 Canada 612 620 628 734 Germany 575 577 572 612 Brazil 501 497 479 521 Venezuela 627 635 641 584 Korea, Rep. 675 674 666 506 India 537 531 547 542 Spain 350 360 430 435 Bahrain 454 461 490 501 Belgium 336 331 345 396 Spain 362 362 360 360 Russian Fed. 476 444 469 489 UAE 247 259 378 387 Australia 343 322 352 367 New Zealand 273 285 310 318 Taiwan, China 363 310 374 301 Nethedands 216 227 232 264 Italy 665 585 654 675 UK 238 240 248 258 Greece 163 156 204 213 Tajikistan 230 198 189 196 Turkey 144 136 161 181 France 365 380 399 424 Venezuela 183 207 193 180 Other 2,037 2,130 2,281 2,212 Other 2,894 2,897 3,261 3,037 World 19,668 20,836 21,799 22,556 World 20,473 20,627 21,756 21,743 Source: WBMS Source: WBMS Global Summary Actual -Annual Growth Rate (%/o)- World Balance (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98 Production 10,257 16,027 19,362 20,836 21,799 22,556 4.1 2.6 1.8 Consumption 9,996 14,771 19,244 20,627 21,756 21,743 4.1 3.3 2.1 LME Ending Stocks n.a. 68 311 951 622 636 n.a. -0.3 -1.5 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 1,806 1,506 1,599 1,357 1,350 1,500 1,550 1,700 1,900 Constant 1990 1,515 1,318 1,476 1,303 1,304 1,413 1,425 1,422 1,406 Source: WBMS and LME data, and World Bank forecasts. o c t o b e r 1999 65 METALS AND MINERALS Copper 2,800 Monthly Prices ($/ton) Prices rose sharply following US production LME Cash cuts, but stocks remain near all-time highs. 2,400 - -,;f. . While further price gains cannot be ruled out 2,000 - ...................... given strengthening demand, consolidation is ........... likely given the current market surplus. 1,600 - ----- -- -------- LME Copper prices were 15% higher in the third quar- 1,200 - II. Futures* ter following announced US production cutbacks in late Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 *Futures are end-September. June and early July. Prices surged to $1,800/ton in Source: LME late September, up 30% from 12-year lows in March, on expectations of tighter markets due to higher de- 15 World Balance (million tons) mand and lower supply. However, the market remains Refined in surplus - albeit diminishing - and a price correction 13 -.copper .. . is likely from investment fund liquidation and forward Production selling by producers. 11 - _ ....... LME inventories rose to an all-time high of Consunption 795,000 tons in mid-August on weak summer demand, 9 .................... but receded to 774,000 at end-September. Large with- drawals have occurred in US warehouses because of 7 - recent refinery production cutbacks. 1970 1975 1980 1985 1990 1995 Global demand is expected to rise by more than Source: WBMSandWorldBank estimates. 3.5% this year, led by a rebound in Asia. Strong re- Ending Stocks (thousand tons) covery in the Republic of Korea has led to rising do- 800 3Q99 mestic and export demand for semiconductors, auto- mobiles and office equipment, but the construction 600 - _ ...... . sector remains depressed. US copper demand re- mains steady in the construction and auto sectors, 400-- t- ---------- ---- --- ----- . while economic recovery in Europe is providing a modest lift to demand. 200 A . . .... While the US has made substantial cuts in refin- ery output, production continues to rise significantly 1970 1975 1980 1985 1990 1995 elsewhere, particularly in Chile where production rose Source: LME nearly 20% during the first eight months. Canada's Highland Valley mine resumed production in Septem- Annual Prices ($/ton) ber, but supplies will not be available until early next 6,000 - year because of depleted stockpiles. Constant Forecast Merger activity has dominated the US industry, 4,500 - . . I . ........... but is also taking place in Europe. These transactions will likely lead to further rationalization of operations, but will also result in lower costs. Further price gains are possible this year given strengthening demand and investment fund activity, but o - l stocks remain high and the market is expected to re- 1970 1975 1980 1985 1990 1995 2000 2005 2010 main in modest surplus this year and next. Higher Source: LMEandWorldBankforecasts. prices will induce producer forward selling and could cause idle capacity to be quickly reactivated. 66 GLOBAL COMMODITY MARKETS COPPER Other Developments *Phelps Dodge agreed to purchase Cyprus Amax Min- chase another German producer, Huttenwerke erals at end-September for $1.8 billion, and also upped Kayser. Both companies rely heavily on scrap ma- its bid to $2.1 billion for Asarco. But in early Octo- terial for feed to their smelters, which has not been ber, just two days after accepting Phelps Dodge's easy to secure the past year due to low prices. The offer, Asarco said it will consider a revised offer of new company hopes to reduce its dependency on $2.2 billion offer from Grupo Mexico, which already scrap feed, with Norddeutsche Affinerie intending to owns 10% ofAsarco. CyprusAmaxandAsarcohad use only concentrate at its Hamburg plant. agreed to merge in July, but they amended their agree- * Chile's copper production rose 19.5% in the first eight ment in September to consider other offers follow- months to 2.9 million tons. ing rival bids from Phelps Dodge and Grupo Mexico. * The International Copper Study Group reported that Phelps Dodge had already received antitrust approval copper supply exceeded demand by 203,000 tons in September for takeover of both companies. during the first seven months of this year, in part * In Europe, Norddeutsche Affinerie intends to pur- because of higher mine output. Production of Refined Copper (000 tons) Consumption of Refined Copper (000 tons) 1995 1996 1997 1998 1995 1996 1997 1998 US 2,280 2,347 2,450 2,460 US 2,534 2,621 2,790 2,883 Chile 1,492 1,748 2,117 2,335 China 1,143 1,193 1,270 1,397 Japan 1,188 1,251 1,279 1,277 Japan 1,415 1,480 1,441 1,255 China 1,080 1,119 1,179 1,211 Germany 1,066 960 1,039 1,138 Germany 616 671 674 696 Italy 498 504 521 590 Russian Fed. 560 599 640 656 Taiwan, China 563 544 588 584 Canada 573 559 561 563 France 540 518 558 583 Poland 406 425 441 447 Korea, Rep. 540 598 621 560 Mexico 208 246 297 445 UK 398 396 408 374 Peru 282 342 384 411 Mexico 172 192 252 341 Korea, Rep. 233 246 265 369 Belgium 362 332 329 324 Belgium 376 386 373 368 Brazil 198 233 258 301 Kazakhstan 256 267 301 325 Poland 213 226 230 266 Zambia 314 317 328 306 Canada 190 218 225 246 Spain 164 264 292 304 Spain 175 191 203 235 Australia 266 311 271 285 Turkey 139 160 188 208 Brazil 165 172 172 167 India 116 140 160 200 Philippines 158 156 147 152 Russian Fed. 187 165 165 165 Sweden 111 126 128 125 Saudi Arabia 125 145 150 160 Other 1,086 1,178 1,294 1,244 Other 1,579 1,585 1,626 1,584 World 11,813 12,732 13,592 14,147 World 12,152 12,401 13,021 13,394 Source: WBMS Source: WBMS Global Summary Actual -Annual Growth Rate (%O) - World Balance (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98 Production 7,583 9,242 10,809 12,732 13,592 14,147 2.1 1.6 3.6 Consumption 7,294 9,400 10,780 12,401 13,021 13,394 2.9 1.8 3.1 LME Ending Stocks 72 123 179 125 338 592 11.3 -6.3 3.7 Actual Forecast Prices ($/ton) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 2,936 2,295 2,277 1,654 1,550 1,700 1,800 2,200 2,400 Constant 1990 2,463 2,010 2,101 1,588 1,497 1,602 1,654 1,841 1,777 Source: WBMS and LME data, and World Bank forecasts. o c t o b e r 1 9 9 9 67 METALS AND MINERALS Gold Monthly Prices ($Itoz) 400 Prices soared above $300/toz at end-September Spot following an agreement by European central 360COMEX banks to limit their gold sales, leasing, and Futures* derivative activityforfive years. Markets will 0 - . ' ... remain volatile but prices are expected to settle 280 - - ... back below $300/toz. 240 - x1II |... Prices surged above $300/toz in late September Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 following announcement by 15 European central banks *Futures are end-September. Source: Platts Metals Week and LME. to limit gold sales to 2000 tons over the next five years. Production (tons) Prices rose above $325/toz in early October because 2,400 - of investment and speculative buying, and by short- covering by gold producers. Although prices are apt 1,80 - ----------- to remain volatile in the near term, long term market World fundamentals have not changed significantly, and prices 1,200 - South are expected to eventually settle under $300/toz. Africa At end-September, the IM1F Board agreed to re- 600 --_ value 14 million ounces of its gold reserves at market value, and conduct off-market transactions to some cen- o - tral banks of member countries to help fund the debt 1970 1975 1980 1985 1990 1995 relief initiative to poor countries. Source: WBMS and World Bank estimates. The sudden sharp rise in prices caught short sellers Demand in Main Countries (tons) by surprise, and some producers unwound their hedge po- 700 sitions. Ashanti Goldfields obtained temporary agreement Developing from creditor banks in early October not to demand margin s50 --.-.---- calls (around $250 million) on its forward sales. Not all companies were forced to liquidate positions, as some had 400 --.-----.-.....---\.-.-'-- ....... hedged at gold prices well above recent spot market levels. Developed Demand rose by 16% in second quarter, led by a 250 --------------------------- 17% increase in the main developing countries. In South- , eastAsia and the Republic of South Korea, demand tripled 100 - . from the low levels last year, and has returned to 90% of 2Q96 2Q97 2Q98 2Q99 pre-crisis levels. Demand in India, the largest consuming Source: World Gold Council country, rose 6%. Annual Prices ($Itoz) Despite the surge in prices, it will be difficult for 1000 - gold prices to be sustained much above $300/toz. Cen- Constant Forecast tral bank sales will continue, including 400 tons sched- 750 .............. ...... uled by the UK and 1300 tons by Switzerland. Only 19 tons were sold by all central banks in the first half of this 500 ...... ......... year. In addition, global mine production will continue to 250 expand, as average cash costs of the industry are around 250.... $200/toz, with new low-cost capacity coming on stream urrent well below this level. Although gold lease rates have shot 0 1 1 1985 1 1 2 up, forward selling is apt to re-continue when they re- cede. Finally higher prices will curb demand growth, Source: Platts Metals Week and World Bank forecasts. particularly in price-sensitive Asian economies. 68 GLOBAL COMMODITY MARKETS GOLD Other Developments * Eleven central banks of the Eurosystem plus central * On September 21, the UK Bank of England auc- banks of Sweden, Switzerland andthe UK agreed in tioned 25 tons of gold at $255.75/toz, fractionally late September to limit annual sales to approximately above the spot market price. The next auctions are 400 tons over the next five years, with total sales not scheduled for November 29 and January 25. exceeding 2,000 tons. Mine Production (tons) Consumption in Main Markets (tons) 1995 1996 1997 1998 1995 1996 1997* 1998 S. Africa, Rep. 522.4 494.6 492.5 473.8 India 477.2 507.8 736.7 815.0 US 316.9 326.2 362.3 366.4 US 314.7 331.7 362.0 428.4 Australia 253.5 289.5 311.0 309.3 China 223.9 210.7 213.8 191.6 Canada 150.9 166.4 171.4 165.9 Turkey 139.4 153.0 202.0 172.0 China 136.4 120.6 149.6 158.2 Saudi Arabia 193.1 184.9 199.0 208.4 Indonesia 63.3 83.6 90.0 124.0 Taiwan, China 160.2 123.3 142.1 91.2 Russian Fed. 127.8 119.9 123.9 113.1 Korea, Rep. 121.0 125.5 114.4 -162.5 Peru 56.5 65.1 74.3 93.8 Italy 110.0 105.3 110.8 112.2 Uzbekistan 63.6 71.0 82.0 82.0 Japan 272.1 152.2 107.1 110.4 Brazil 64.4 60.0 58.5 65.0 Egypt 67.0 75.7 97.6 104.4 Ghana 53.1 49.3 54.7 63.1 Indonesia 119.0 129.0 92.5 -40.0 PNG 51.7 51.6 48.5 60.3 Pakistan 43.2 53.7 81.8 98.2 Chile 44.2 51.8 47.8 43.8 Germany 88.6 73.1 74.0 70.2 Mexico 19.9 23.1 26.4 25.4 UAE 39.2 52.6 71.6 79.4 Zmbabwe 24.0 24.7 24.3 25.2 UK 46.2 47.1 58.8 66.8 Kyrgyz Republic 4.0 4.1 15.6 20.1 Brazil 54.0 59.0 58.0 64.0 Argentina 0.8 0.7 2.3 19.5 H.K., China 43.2 40.4 51.0 31.8 Kazakhstan 10.9 10.2 9.7 18.0 France 50.4 47.5 49.4 59.4 Colombia 22.1 21.5 16.2 14.8 Mexico 31.0 41.0 49.0 55.0 Guyana 9.0 12.0 13.6 14.6 Vietnam 36.0 41.0 45.0 44.0 Bolivia 14.4 12.6 13.3 14.4 Kuwait 35.1 34.7 35.4 33.0 Philippines 12.8 8.1 11.2 8.7 Malaysia 29.6 33.6 30.1 14.4 Japan 9.2 8.6 8.4 8.6 Singapore 24.1 20.0 22.4 14.1 NewZealand 12.1 11.5 11.4 7.7 Oman 16.5 16.5 17.8 15.3 Mongolia 4.5 4.9 8.5 7.3 Thailand 116.0 106.0 14.0 19.0 World 2,107.8 2,155.7 2,302.5 2,356.2 World 2,459.1 2,731.8 2,629.8 2,851.1 Source: WBMS Source: World Gold Council *Ranked for 1997. Global Summary Actual - % pa.- World Balance (tons) 1991 1992 1993 1994 1995 1996 1997 1998 1998-91 Jewelry 2,358 2,760 2,553 2,618 2,791 2,850 3,342 3,145 4.2 Other Fabricaton 518 446 488 457 503 486 563 564 1.2 Bar Hoarding 252 282 162 231 306 182 323 155 -6.7 Other 30 239 6 260 n.a. Total Demand 3,128 3,518 3,442 3,305 3,606 3,518 4,228 4,123 4.0 Mine Production 2,159 2,234 2,287 2,279 2,274 2,357 2,480 2,555 2.4 Net Official Sales 111 622 464 81 173 275 376 412 20.6 Old Gold Scrap 482 488 576 617 625 641 629 1,098 12.5 NetHedging 66 174 116 163 535 125 472 58 -1.8 Other 310 173 119 271 n.a. Total Supply 3,128 3,518 3,442 3,305 3,606 3,518 4,228 4,123 4.0 Actual Forecast Prices ($/toz) 1995 1996 1997 1998 1999 2000 2001 2005 2010 Current 384 388 331 294 285 300 290 280 300 Constant 1990 322 339 305 282 275 283 267 234 222 Source: Gold Fields Minerals Services and LME data, and World Bank forecasts. o c t o b e r 1999 69 METALS AND MINERALS Iron Ore and Steel 30 Monthly Prices (g/dmtu) Steel prices continue to rise from a series of Iron Ore Contract production cuts, trade sanctions, and de- 29 ...----------.-- ......... stocking. Demand is also recovering in Asia, helping to raise prices. 28 - ... . ... . Steel prices rose 6% in the third quarter mainly a result of supply reductions, but demand is recovering 26 -1 - . .. ....... i....... . . - in Asia which is also helping to firm prices. However, the key factor has been reductions in domestic output Source: CVRD Sep-97 Sep-98 Sep-99 and imports into the large consuming countries of North Iron Ore (million tons) America and Europe. Stocks have been reduced and ,200 - demand is expected to continue to increase into next year. Steel prices are expected to strengthen, provid- 900 ------- ing demand does not falter. Trade sanctions and threats of further actions have 600 - _ ----....-.........------.........------..-.- reduced imports into the US and other countries. For Exports the first seven months, US steel imports fell by nearly 300 - _-- 10%, with most of the declines from the CIS and Ja- pan. Preliminary August data shows a further 5% re- o duction in US steel imports. 1970 1975 1980 1985 1990 1995 Those products where trade action has been ini- So17rce: 1175 tiated have seen the greatest price gains, e.g., the price Steel (million tons) of hot rolled coil - a product protected by anti-dump- ,000 - ing duties in the US and bilateral trade agreements - Crude Steel increased by 17% in the third quarter. For some pro- 750 Produc ducts unprotected by trade action, production and ex- ports to consuming regions continue to rise and prices 500 - _ remain weak, e.g., coated sheet. Semi and Steel production, as reported by the IISI for the Finished Exports 63 largest producing countries, was down 2.7% for the 2 first 8 months of this year from the same period last 0 - . I year. However, August production rose 2.7% and it 1975 1980 1985 1990 1995 was the second monthly increase following 15 con- Source: IISt secutive months of decline. Annual Prices (0/dmtu) Iron ore markets are gradually improving given 60 - the slowdown in destocking and recovery in steel de- Constant Forecast (I1990) mand. Earlier in the year there was widespread price 45 - ..,/!..... discounting because of the slump, but this practice is expected to be reduced as demand improves and the 30 - time approaches for next year's contract negotiations. Global iron ore production is expected to record an- 15urnt other decline this year, but both production and ex- Iron Ore ports are expected to increase more than 2% next year. o Despite the recovery in demand it will be difficult for 0 1 1 producers to achieve much of a increase in prices, and 1970 1975 1980 1985 1990 1995 2000 2005 2010 a rollover is likely. ~~~~~~~~~~~Source: CVRD and World Bank forecasts,. a rollover is likely. 70 GLOBJAL COMMODITY MARKETS IRON ORE AND STEEL Iron Ore Production (000 tons) Crude Steel Production (000 tons) 1994 1995 1996 1997 1995 1996 1997 1998 China 250,695 261,919 252,283 268,612 China 95,360 101,237 108,911 114,347 Brazil 167,810 178,380 179,870 187,950 US 95,191 95,535 98,485 97,653 Australia 128,662 139,067 147,200 160,889 Japan 101,640 98,801 104,545 93,548 Russian Fed. 73,259 78,348 72,136 69,906 Germany 42,051 39,793 45,007 44,046 India 58,390 62,000 67,264 69,400 Russian Fed. 51,589 49,253 48,442 43,822 US 58,382 62,645 62,132 63,000 Korea, Rep. 36,772 38,903 42,554 39,896 Ukraine 51,464 50,741 47,745 52,541 Italy 27,767 24,285 25,770 25,798 Canada 37,710 37,629 37,042 37,313 Brazil 25,076 25,237 26,153 25,760 S. Africa, Rep. 32,321 32,650 30,830 33,230 Ukraine 22,309 22,332 25,627 24,445 Sweden 19,909 21,663 21,288 21,893 India 22,003 23,753 24,579 23,863 Venezuela 18,216 19,452 18,720 18,660 France 18,100 17,633 19,767 20,126 Mexico 13,521 12,910 14,202 14,500 UK 17,604 17,992 18,489 17,319 Iran, Islamic R. 4,600 9,080 9,850 12,750 Taiwan, China 11,605 12,350 15,994 16,886 Kazakhstan 24,915 36,512 25,000 12,627 Canada 14,415 14,735 15,554 15,930 Mauritania 10,443 11,330 11,400 11,700 Spain 13,802 12,154 13,683 14,821 Chile 7,600 7,950 8,480 8,090 Mexico 12,147 13,172 14,254 14,211 Peru 6,943 5,975 4,740 5,030 Turkey 13,183 13,552 14,491 14,144 Turkey 5,079 5,510 5,150 4,800 Belgium 11,606 10,818 10,784 11,425 Egypt 2,460 2,099 2,700 3,000 Poland 11,890 10,432 11,591 9,916 New Zealand 2,480 2,570 2,600 2,500 Australia 8,460 8,415 8,831 8,801 Other 11,792 21,695 13,726 10,418 Other 99,787 100,118 105,459 99,599 World 986,651 1,060,125 1,034,358 1,068,809 World 752,357 750,500 798,970 776,356 Source: IISI Source: IISI Exports of Iron Ore (000 tons) Exports of Semi-finished and Finished Steel (000 tons) 1994 1995 1996 1997 1994 1995 1996 1997 Australia 119,285 130,223 128,606 144,914 Russian Fed. 25,645 27,371 26,994 26,120 Brazil 125,000 131,358 129,740 140,419 Germany 19,785 20,324 20,437 23,663 Canada 29,993 28,833 27,920 32,340 Japan 22,407 22,129 19,262 22,892 India 30,638 32,332 31,700 31,900 Bel-Lux 14,926 14,190 14,673 16,459 S. Africa, Rep. 19,605 21,847 19,300 20,700 France 12,826 12,796 13,124 14,884 Ukraine 21,135 21,015 20,570 20,000 Ukraine 11,638 11,653 11,780 14,406 Sweden 15,386 17,083 16,071 18,282 Korea, D.R. 10,029 9,795 10,438 11,739 Russian Fed. 18,846 20,218 17,126 17,000 Italy 10,722 10,173 10,922 10,695 Mauritania 10,342 11,514 11,158 11,700 UK 8,829 8,896 9,336 9,371 Venezuela 10,691 10,609 9,580 9,322 Brazil 11,078 9,655 10,257 9,163 Kazakhstan 1,180 3,747 9,270 China 2,566 10,745 7,131 8,765 Chile 6,631 6,114 6,911 7,052 Turkey 8,340 6,211 6,697 7,227 US 4,972 5,270 6,256 6,336 Netherlands 6,609 6,317 6,481 6,819 Philippines 4,329 4,744 4,546 4,500 US 3,656 6,623 4,641 5,568 Peru 6,547 6,008 4,029 3,712 Spain 5,994 4,947 5,486 5,556 Bahrain 3,000 3,200 2,800 3,000 Mexico 2,246 5,930 5,352 5,452 New Zealand 1,279 1,316 1,382 1,300 Taiwan, China 2,817 3,027 3,765 5,119 France 2,443 2,185 1,297 580 Canada 4,445 4,716 4,929 4,787 Norway 2,064 1,018 611 271 Poland 4,119 3,622 3,709 4,176 Korea, D.R. 300 300 200 200 Czech Rep. 4,298 3,703 3,808 4,000 Other 2,056 2,388 1,766 209 Other 45,982 45,654 47,039 48,796 World 434,542 458,755 445,316 483,007 World 238,957 248,477 246,261 265,657 Source: IISI Source: IISI o ct o b e r 1999 71 | APPENDIX . if E . ... . .. ... .. . - - ;; f ;-- - ; - - - ; . ... !. ti- - . . . -- - tV -;- 0 0 00- -00 - * - - . 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E APPENDIX _S~~~~~~~~~~~~~~~~~~~~~~~~- gg- _ - Annual Averages- Quarterly Averages -Monthly Averages- Jan-Dec Jan-Dec Jan-Sep Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Jul Aug Sep Commodity Unit 1997 1998 1999 1998 1998 1999 1999 1999 1999 1999 1999 Coal, Australia $/mt 35.10 29.23 26.10 27.76 26.43 26.10 26.10 26.10 26.10 26.10 26.10 Coal, US $/mt 36.39 34.38 33.22 34.04 33.50 33.50 33.17 33.00 33.00 33.00 33.00 Crude oil, avg. spot* $/bbl 19.17 13.07 16.18 13.01 11.85 11.79 16.10 20.65 18.99 20.27 22.70 Crude oil. Brent' $/bbl 19.09 12.72 15.73 12.42 11.09 11.24 15.40 20.54 19.01 20.22 22.40 Crude oil, Dubai* $/bbl 18.10 12.12 15.34 12.41 11.56 11.07 15.26 19.69 17.88 19.34 21.84 Crude oil, W. TX Int'l* $/bbl 20.33 14.35 17.48 14.16 12.90 13.05 17.66 21.73 20.07 21.25 23.86 Natural gas, Europe $/mmbtu 2.74 2.42 1.99 2.37 2.15 1.99 1.89 2.09 2.00 2.08 2.20 Natural gas, US $/mmbtu 2.48 2.09 2.19 2.01 1.91 1.81 2.23 2.55 2.31 2.79 2.54 Agrculture Beverages Cocoa* ¢/kg 161.9 167.6 119.6 169.5 159.1 139.4 113.6 105.7 111.3 99.8 106.1 Coffee, arabica- ¢/kg 416.8 298.1 224.1 259.2 252.4 238.0 235.5 198.8 209.1 201.4 185.9 Coffee, robusta' ¢/kg 173.6 182.3 152.4 173.5 179.7 172.7 149.1 135.4 135.7 139.1 131.3 Tea, Calcutta auctions- ¢/kg 214.5 216.5 203.1 214.5 190.0 162.3 223.4 223.6 241.4 212.5 217.0 Tea, Colombo auctions- v/kg 202.0 207.5 158.1 197.3 181.4 160.3 145.9 168.2 160.3 167.8 176.6 Tea, Mombasa auctions- ¢/kg 201.5 189.9 177.1 171.2 164.6 180.3 175.1 175.8 166.5 166.4 194.5 Food Fats and Oils Coconut oil- $/mt 656.8 657.9 749.9 662.0 740.3 736.0 832.3 681.3 656.0 684.0 704.0 Copra $/mt 433.8 411.1 470.9 404.7 459.3 457.7 521.3 433.7 449.0 431.0 421.0 Groundnut meal $/mt 221.0 116.2 n.a. 108.0 105.0 102.3 n.a. n.a. n.a. n.a. n.a. Groundnut oil $/mt 1010.4 909.4 781.8 862.7 857.7 808.0 755.7 781.7 766.0 782.0 797.0 Palm oil*' $/mt 545.8 671.1 458.6 679.3 679.3 563.3 458.7 353.7 319.0 354.0 388.0 Palmkemel oil $/mt 651.8 686.7 696.8 694.3 741.0 704.7 729.0 656.7 571.0 689.0 710.0 Soybean meal** $/mt 275.8 170.3 146.0 149.0 160.7 145.7 140.0 152.3 138.0 152.0 167.0 Soybean oil*i $/mt 564.8 625.9 441.8 606.3 606.3 492.3 426.7 406.3 392.0 413.0 414.0 Soybeans- $/mt 295.4 243.3 202.2 224.3 229.0 210.3 200.0 196.3 183.0 199.0 207.0 Grains Maize- $/mt 117.1 102.0 91.6 91.6 96.5 95.9 93.4 85.4 84.0 85.7 86.5 Rice, Thai, 5%** $/mt 303.5 304.2 255.8 322.3 282.2 278.7 244.5 244.3 259.0 244.5 229.3 Rice, Thai, 25% $/mt 257.1 259.9 223.0 273.7 257.7 239.6 211.6 217.9 231.0 220.3 202.5 Rice, Thai, 35% $/mt 246.8 249.7 217.1 262.1 251.6 232.9 205.9 212.7 225.0 215.3 197.8 Rice.Thai, Ai.Special $/mt 210.4 213.0 201.6 225.6 238.5 214.2 189.5 201.1 216.0 202.8 184.5 Sorghum- $/mt 109.6 98.0 86.0 90.5 90.0 90.9 87.6 79.5 76.9 81.6 80.0 Wheat, Canada $/mt 181.4 162.9 152.4 153.0 164.7 160.7 148.2 148.2 146.8 147.6 150.1 Wheat, US, HRW- $/mt 159.5 126.1 113.9 111.6 127.7 119.9 112.8 109.2 103.0 111.3 113.2 Wheat, US, SRW $/mt 143.7 111.5 96.4 95.3 109.0 99.5 96.4 93.4 85.3 92.8 102.1 Other Food Bananas' $/mt 502.7 491.6 443.2 456.5 520.1 479.3 444.0 406.4 411.6 412.1 395.5 Beefti ¢/kg 185.5 172.6 181.7 166.7 166.2 177.1 175.6 192.5 179.6 207.3 190.7 Fishmeal $/mt 606.3 661.9 388.7 670.3 601.3 453.3 343.3 369.3 355.0 371.0 382.0 Lamb ¢/kg 339.3 275.0 259.1 251.1 264.2 247.0 263.2 267.1 264.0 269.2 268.0 Oranges- $/mt 459.0 442.4 451.3 516.3 415.1 420.3 458.6 474.8 460.3 492.4 471.9 Shnmp ¢/kg 1611.6 1578.9 1456.4 1574.1 1427.1 1413.4 1470.5 1485.4 1499.1 1504.7 1452.3 Sugar, EU, domestic- p/kg 62.72 59.75 59.01 58.59 60.88 59.72 58.78 58.55 57.54 58.75 59.35 Sugar, US, domestic- ¢/kg 48.36 48.64 48.78 49.10 48.27 49.45 49.88 47.01 49.82 46.85 44.36 Sugar, word- ¢/kg 25.06 19.67 13.70 17.92 17.34 15.40 12.63 13.06 11.86 12.63 14.70 Raw Materials Timber Logs, Cameroon $/cum 284.8 286.4 261.6 279.4 295.9 282.3 255.3 247.2 243.8 250.5 n.a. Logs, Malaysia* $/cum 238.3 162.4 183.2 140.7 162.0 175.3 178.4 195.9 186.5 198.4 202.8 Plywood ¢/sheet 485.0 376.1 433.2 344.3 395.2 426.4 429.9 443.4 423.6 441.8 464.8 Sawnwood, Cameroon $/cum 563.6 526.3 442.5 519.2 532.0 461.5 424.4 441.8 424.7 444.4 456.2 Sawnwood, Malyasia- $/cum 664.5 484.2 586.6 465.5 519.8 544.3 582.8 632.9 625.9 629.4 643.4 Woodpulp $/mt 556.5 508.4 483.1 507.5 458.3 447.6 491.5 510.1 507.4 511.5 511.5 74 GLOBAL COMMODITY MARKETS APPENDIX - Annual Averages- Quarterly Averages - Monthly Averages- Jan-Dec Jan-Dec Jan-Sep Jul-Sep Oct-Dec Jan-Mar Apr-Jun Jul-Sep Jul Aug Sep Commodity Unit 1997 1998 1999 1998 1998 1999 1999 1999 1999 1999 1999 .. ,, .e,.,,, '''. 8............. 2 ' C 'S'' ' 8 . >t