80537 Global Volume 2 | July 2013 Economic Prospects COMMODITY MARKETS OUTLOOK The World Bank Table of Contents Overview …………………………………………………………………………...…..…… 1 Crude Oil ……………….………………….………………………………...……………... 3 Recent Developments, p. 3 Outlook and Risks in Oil Market, p.5 Metals ………………………………………………………………………...…………..…. 8 Recent Developments, p. 8 Outlook and Risks in Metals Markets, p. 9 Precious Metals ………………………………………………………………………….. 12 Fertilizers ………………………………………………………………………….………. 12 Agriculture ………………………………………………………………………………... 13 Recent Developments in Agricultural Markets, p.13 Outlook and Risks for Agricultural Commodities, p. 16 Recent Trends in Domestic Food Prices, p. 18 References ………………………………………………………………………………... 22 List of Boxes Box 1 - A Global Energy Market?, p. 6 Box 2 - Global reserves, demand growth, and the “super cycle” hypothesis, p. 10 Box 3 - The complex interplay among food, fuels, and biofuels, p. 20 List of Price and Forecast Tables Table A1 - Commodity Price Data, p. 24 Table A2 - Commodity Prices and Price Forecast in Nominal US Dollars, p. 26 Table A3 - Commodity Prices and Price Forecast in Real 2005 US Dollars, p. 27 Table A4 - Weighted Indices of Commodity Prices and Inflation, p. 28 Authors John Baffes Damir Ćosić Development Prospects Group Development Prospects Group The World Bank The World Bank 1818 H St, NW 1818 H St, NW Washington DC 20433 Washington DC 20433 Tel: +1(202) 458-1880 Tel: +1(202) 473-3867 jbaffes@worldbank.org dcosic@worldbank.org GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Overview There are a number of risks to the baseline fore- casts. Downside risks include weak oil demand if growth prospects deteriorate sharply, especially in emerging economies where most of the demand After strengthening in early 2013 due to an im- growth is taking place. Over the long term, oil de- proved economic outlook, most industrial com- mand could be dampened further if substitution modity prices have now retreated below their end- between crude oil and other types of energy accel- 2012 levels (figure 1). Food prices have been weak- erates. On the upside, a major oil supply disruption ening as well, mainly a reflection of improved sup- due to political turmoil in the Middle East could ply conditions (figure 2). The price of crude oil result in prices spiking by $50 or more. The severi- (World Bank average) dropped to less than $100/ ty of the outcome depends on numerous factors, bbl during 2013Q2, down from $105/bbl during including the severity and duration of the cutoff, 2013 Q1. The metal price index is down 32 percent policy actions regarding emergency oil reserves, since its February 2013 peak. Precious metals are demand curtailment, and OPEC’s response. down as well, 23 percent since February and 30 percent since the all-time high reached in August A key source of uncertainty in the outlook is how 2011. OPEC (notably, Saudi Arabia) reacts to changing global demand and non-OPEC supply conditions. In the baseline scenario of this outlook, which as- Since 2004, when crude oil prices started rising, sumes no major macroeconomic shocks or supply OPEC has responded to subsequent price weak- disruptions, oil prices are expected to average ness by cutting supply, but it has not been as will- $101/bbl in 2013, down from $105/bbl in 2012 ing to intervene when prices increase. However, as (table 1). Agricultural prices are projected to de- non-OPEC supplies continue to come on stream cline 6 percent in 2013 under the assumption of a and demand moderates in response to higher pric- normal crop, while the prices of food, beverages, es, the sustainability of this approach may come and raw materials are expected to drop by 4.7, 11.7, under pressure. and 7.1 percent, respectively. Metal prices will fall more than 8 percent due to abundant supplies and OPEC’s spare capacity averaged 4.5 mb/d in the weakening demand conditions. Fertilizer prices are first half of 2013, some 30 percent higher than the expected to decline 10 percent, mainly reflecting same period one year before year but only margin- low natural gas prices in the United States. Precious ally higher than the average of the past decade—it metals prices are expected to drop almost 20 per- had dropped below 2 mb/d in the middle of 2008, cent as institutional investors increasingly consider when oil prices reached $140/bbl. OECD invento- them less attractive “safe haven” alternatives, ries averaged 2.7 mb/d during the first five months which come on top of weak physical demand. of 2013, remarkably similar to the corresponding period in 2012. Figure 1 Commodity price indexes Figure 2 Food price indexes $US nominal, 2005=100 $US nominal, 2005=100 250 300 Metals 200 250 Edible Oils Agriculture 150 200 Energy 100 150 Grains 50 100 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Source: World Bank. Source: World Bank. Energy, 2005=100, current$ (World (all countries)) Metals Energy 1 Metals Agriculture, and minerals, 2005=100, 2005=100, current$ current$ (World (all (World (all countries)) countries)) Agriculture GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Table 1 Nominal price indexes, actual and forecasts (2005 = 100) ACTUAL FORECAST CHANGE (%) 2008 2009 2010 2011 2012 2013 2014 2011/12 2012/13 2013/14 Energy 182 114 145 188 187 181 179 -0.4 -3.5 -1.0 Non-Energy 182 142 174 210 190 177 176 -9.5 -6.9 -0.3 Metals 180 120 180 205 174 159 166 -15.3 -8.5 4.1 Agriculture 171 149 170 209 194 182 179 -7.2 -6.0 -2.0 Food 186 156 170 210 212 202 192 0.7 -4.7 -4.7 Grains 223 169 172 239 244 241 226 2.4 -1.4 -6.0 Fats and oils 209 165 184 223 230 210 201 3.3 -8.9 -4.1 Other food 124 131 148 168 158 156 150 -5.9 -1.4 -3.8 Beverages 152 157 182 208 166 147 151 -20.2 -11.7 2.6 Raw Materials 143 129 166 207 165 154 160 -20.0 -7.1 4.3 Fertilizers 399 204 187 267 259 233 227 -2.9 -10.2 -2.7 Precious metals 197 212 272 372 378 304 301 1.7 -19.7 -0.8 Memorandum items Crude oil ($/bbl) 97 62 79 104 105 101 100 1.0 -4.1 -1.0 Gold ($/toz) 872 973 1,225 1,569 1,670 1,380 1,360 6.4 -17.3 -1.4 Source: World Bank. Price risks on raw materials, especially metals, de- However, because stocks are still low by historical pend both on the speed at which new supply standards, any adverse weather event could induce comes on stream and on the pace of growth of sharp increases in maize prices—as it did in the China’s economy. Metal prices have declined 30 summer of 2012 when maize prices rallied almost percent since their early 2011 highs, and by 12 per- 40 percent in less than two months. The wheat cent between February and June 2013. The price market, which is currently better supplied than weakness reflects both moderate demand growth maize, could also come under pressure, either from and strong supply response, in turn a result of in- poor crop yields or in conjunction with higher creased investments of the past few years, induced maize prices, as the two crops are competing for by high prices. For some metals, stocks have in- the same land. In contrast, price risks for rice are creased considerably as well. For example, com- on the downside, especially in view of the large bined copper stocks at the major metals exchanges public stocks held by Thailand. Edible oil and are up 106 percent during past 12 months. Alumi- oilseed markets also have limited upside price risks, num stocks, which have been rising since end- due to well supplied oilseed (mostly soybeans in 2008, increased 9 during the past year. South America) and edible oil (primarily palm oil in East Asia) markets. Global supplies of the eight The prospects for the metal market depend im- major edible oils are expected to reach a record 155 portantly on Chinese demand, as the country ac- million tons this season, up from last season’s 152 counts for almost 45 percent of global metal con- million tons. Global oilseed supplies will experi- sumption. However, if robust supply trends contin- ence similar growth. ue and weaker-than-anticipated demand growth materializes, metal prices could follow a path con- The risk of trade policy changes impacting com- siderably lower than the baseline presented in this modity prices appears to be low, similar to the situ- outlook, with significant consequences for metal ation in 2008 and 2010, as evidenced by the virtual exporters. absence of export restrictions since the summer of 2012, despite sharp increases in grain prices. Final- In agricultural commodity markets, the key risk is ly, growth in the production of biofuels is slowing weather. According the global crop outlook assess- as policy makers increasingly realize that the envi- ment released by the U.S. Department of Agricul- ronmental and energy independence benefits from ture in July 2013, the global maize market will be biofuels are not as large as initially believed. better supplied in the upcoming 2013/14, season. 2 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Crude oil 2013 average of 15 percent and the lowest since January 2011 (figure 4). Downward pressure on WTI prices now appear to Oil prices have fluctuated within a remarkably tight be easing, however, partly in response to some band around $105/bbl (figure 3) over the past 18 760,000 barrels a day in rail shipments in 2013Q1 months. Fluctuations have been driven mainly by from oil-producing regions to refineries—an eight- the geopolitical concerns in the Middle East on the fold increase from 90,000 barrels per day in supply side and European debt issues, along with 2011Q1— according to a June 2013 assessment by changing developing-country growth prospects, on the Association of American Railroads. Downward the demand side. Price increases in early 2013 re- pressure on WTI crude will abate further when flected geopolitical tensions in the Middle East and new pipelines to the Gulf of Mexico become oper- improving global outlook prospects. However, as ational and reversal of existing pipelines carrying oil supply conditions improved and concerns about from the East Coast to the mid-continental United market conditions in the Euro Area eased once States are completed—currently expected in late again, prices began weakening. Crude prices are 2014 or early 2015. now 5 percent lower than at the beginning of 2013. The decline in non-OPEC oil output growth evi- Recent Developments dent in 2011 appears to have reversed. Non-OPEC producers added 0.7 mb/d to global supplies in 2012 and an additional 0.6 mb/d in 2013H1, main- Large supplies of Canadian crude oil (especially ly reflecting earlier large-scale investments. In the from tar sands) to the United States, combined United States horizontal drilling and hydraulic frac- with rapidly rising U.S. shale liquids production, turing have contributed almost 1.5 mb/d of crude have contributed to a build-up of stocks at a time oil production during the two years since 2011Q1 when U.S. oil consumption is dropping and natural (figure 5). Currently, the U.S. states of Texas and gas supplies are increasing rapidly. North Dakota, where most of shale oil production takes place, account for almost 45 percent of total Although the price of Brent crude (the internation- U.S. crude oil supplies, up from 33 percent a year al marker) topped $117/bbl in February, West Tex- earlier. Indeed, the IEA projects that the global as Intermediate (WTI, the U.S. mid-continent crude oil supply will increase by 8.4 mb/d by 2018, price) averaged $21/bbl less due to the large built up 9 percent from 90 mb/d in 2012. The increase up of stocks at Cushing, Oklahoma, the delivery mainly reflects surging North American crude out- point of WTI. The Brent-WTI price differential put (2.3 mb/d from U.S. “light, tight oil,” which declined to 7 percent in July, eight percentage includes production from shale, and 1.3 mb/d points lower compared to the January 2011-June from Canada’s oil sands). Figure 3 Oil prices and OECD oil stocks Figure 4 Brent/WTI price differential $US per bbl million bbl percent 140 Oil Price, World Bank average (left axis) 2900 30 25 120 2800 20 100 January 2011 to June 2013 Average 15 80 2700 10 60 5 2600 OECD oil inventories (right axis) 40 0 20 2500 -5 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Jan '10 Jul '10 Jan '11 Jul '11 Jan '12 Jul '12 Jan '13 Source: World Bank; International Energy Agency (IEA). Source: World Bank. 3 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Although shale liquid (also referred to as tight oil) and shale gas techniques have great potential to be Figure 5 U.S. crude oil production applied worldwide, there are public concerns re- mb/d garding the ecological impacts of such technolo- 5 gies. In addition, several countries that are believed to have similar reserves to those in the United 4 States may be slow to utilize that potential due to difficulties in accessing drilling rights, poor regula- 3 Other tory frameworks, and limited “know-how” in ex- ploring and developing the resources. 2 Texas & N. Dakota Oil production among OPEC member countries 1 averaged 37.2 mb/d in 2013Q2, up from 36.9 mb/ d in the previous quarter. The lower figure is still 10 mb/d higher than in 2002Q2, OPEC’s lowest- 0 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 producing quarter in recent history, and well above the official 30 mb/d quota. Iraq—still not included Source: U.S. Energy Information Administration. in OPEC’s quota system—has reached pre-war levels of production, currently at slightly over 3 mb/d. Libya’s oil output is about 80 percent of pre Figure 6 OPEC spare capacity -war levels of 1.4 mb/d. Iran’s oil exports were 0.8 mb/d 8 mb/d in April, a decline of 60 percent since June 2011, when new sanctions took effect, and may tumble even further as additional sanctions start 6 being enforced in July 2013. The post-2010 net growth in OPEC oil production 4 reduced spare capacity among its member coun- tries in half, from 6.3 mb/d in 2009Q4 to 3.2 mb/ d in 2012Q2 (figure 6). The downward trend in 2 OPEC’s is now reversing, though, and spare capac- ity averaged 4.5 mb/d during the first half of 2013, 0 of which Saudi Arabia accounts for nearly two- Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 thirds. The Saudi government has promised to Source: IEA. keep the global market well supplied—and has the ability to do so—but also deems $100/bbl to be a fair price. Figure 7 World oil demand growth According to the IEA, spare capacity in the global mb/d, year over year growth oil market is expected to rise to more than 7 mb/d 4 in 2014, almost three times higher than the 1.5-3.0 mb/d range observed between 2004 and 2008. 2 Spare capacity should then begin to decline by 2016 as production in the United States slows while demand growth remains firm. 0 World oil demand increased modestly in 2012, a -2 little more than 1 percent, or 0.95 mb/d (figure 7). Japan is the only OECD economy for which crude oil consumption increased (by 0.25 mb/d) in 2012. -4 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Most of that increase was to fill the loss of nuclear Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 power generation capacity resulting from the Tohoku earthquake. Oil consumption among Source: World Bank; IEA. OILDEMGRO_OECD 4 China Non-OECD, ex China GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook OECD countries has fallen by almost 5 mb/d, or 8 OECD countries is expected to continue to be percent, from its 2005 peak. Non-OECD demand subdued by slow economic growth and efficiency remains robust. In fact, for the first time in history, improvements in vehicle transport induced by high non-OECD economies are expected to consume prices—including a gradual switch to hybrid, natu- more oil than OECD economies during 2014Q2 ral gas, and electrically powered transport. Pressure (44.6 mb/d for the former, versus 46.4 mb/d for to reduce emissions due to environmental concerns the latter). IEA expects non-OECD demand to is expected to further dampen oil demand growth reach 54 percent of global demand by 2018. at the global level. Outlook and Risks in the Oil Market Growth in oil consumption in developing coun- tries, on the other hand, is expected to remain rela- Nominal oil prices are expected to average $101/ tively strong in the near and medium term. In the bbl during 2013 and decline to slightly below $100/ longer-term, however, it is expected to moderate as bbl in 2014. Over the longer term, prices in real the share of low-energy using services in these terms are also expected to fall, due to several rea- economies grow, subsidies are phased out, and (as sons, including growing supplies of conventional noted above) other fuels become incorporated into and (especially) unconventional oil, efficiency gains, the energy mix. and substitution away from oil (box 1 discusses the substitution possibilities between oil and other On the supply side, non-OPEC oil production is types of energy). The assumptions underpinning expected to continue its upward climb, as high these projections reflect the upper-end cost of de- prices have prompted increased use of innovative veloping additional oil capacity, notably from oil exploration techniques (including deepwater off- sands in Canada, which is currently estimated by shore drilling and extraction of shale liquids) and the industry to be approximately $80/bbl in con- the implementation of new extractive technologies stant 2013 dollars. While it is expected that OPEC to increase the output from existing wells (figure 9). will continue to limit production to keep prices Significant production increases are expected in relatively high, the organization is also sensitive to Brazil, the Caspian Sea, and West Africa, which allowing prices to rise too high, for fear of inducing together with the United States and Canada are innovations that would fundamentally alter the likely to more than offset declines in mature oil- long-term path of oil prices. producing areas such as the North Sea. World demand for crude oil is expected to grow at less than 1.5 percent annually over the projection period, with all the growth coming from non- OECD countries, as has been the case in recent years (figure 8). Growth in oil consumption among Figure 8 Crude oil consumption Figure 9 Crude oil production mb/d mb/d 55 55 50 50 OECD Non-OPEC 45 45 40 40 Non-OECD 35 35 OPEC 30 30 25 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 25 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Jan '01 Jan '03 Jan '05 Jan '07 Jan '09 Jan '11 Jan '13 Source: IEA. Source: IEA. 5 OECD Non-OECD GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Box 1 A global energy market? pean natural gas and Japanese liquefied natural gas Until the mid-2000s, the price of natural gas in the world’s (LNG) prices (box figure 1.2). key markets (United States, Europe, and Japan) was tied to oil prices. In addition to their prices moving in a syn- Will natural gas prices converge? There are numerous chronous manner, natural gas and oil were priced at simi- market (both demand and supply) and policy constraints, lar levels in terms of energy content. In other words, natu- the removal of which is likely to induce coupling of natural ral gas and crude oil markets were integrated—though ad- gas prices in the longer term: ministered pricing mechanisms, not market forces. Coal, which was priced independently, traded at about one - third  Supply—Increased unconventional gas supplies the price of oil in energy equivalent terms (box figure 1.1). outside the United States. Unconventional gas produc- tion has taken place almost exclusively in the United The energy price boom of the early 2000s changed all of States. Yet unconventional natural gas reserves are plen- this. First, it delinked U.S. natural gas prices from oil pric- tiful in many regions, including South America, elsewhere es and from European and Japanese natural gas prices. in North America, and most importantly Asia Pacific. In- Second, it generated a gap between WTI (the mid- dustry estimates show that more than 40 percent of known continent U.S. price) and Brent (the international marker). global natural gas reserves recoverable at current prices Third, it linked U.S. natural gas and coal prices. and technology are unconventional. Reasons for the slow technology adoption include poor property rights, limited These trends now appear to be shifting once again. The know-how, and environmental concerns. WTI-Brent gap will close soon, perhaps as early as 2014,  Trade—construction of LNG facilities and gas pipe- or 2015 at the latest. The coupling of U.S. natural gas and lines. Currently, 31 percent of natural gas crosses interna- coal prices is likely to remain (and perhaps strengthen). tional borders—21 percent through pipelines and 10 per- Natural gas price convergence will depend on various in- cent in LNG form (by comparison, nearly two thirds of vestment and policy factors, thus it may take some time crude oil is traded internationally, 46 percent as oil and 20 before it materializes. Analyzing the future relationship be- percent as products). As more LNG facilities come on tween natural gas and oil prices is more complex, and de- board and new gas pipelines are constructed, trade of nat- pends on whether induced innovation takes place— ural gas will increase, thus exerting upward (downward) something that cannot be evaluated or projected. price pressure in producing (consuming) regions. Never- theless, it should be noted that regardless of how much Induced innovation in the extraction of natural gas through natural gas trade increases, LNG will be traded at much fracking and horizontal drilling techniques (often referred higher prices than gas through pipelines because of the to as “unconventional” gas), primarily in the United States, high costs of liquefying and transporting. was followed by supply increases in turn lowering U.S. natural gas prices. Low prices made gas an attractive al-  Demand—relocation of energy-intensive industries. ternative for some energy intensive U.S. industries, espe- In addition to the substitution from coal to natural gas by cially electricity generation, which are gradually switching energy-intensive industries in the United States, there is from coal to natural gas. Indeed, the United States experi- evidence that industries are moving to the United States to enced a marked reduction in coal use—10.5 percent— take advantage of the “natural gas dividend,” in a way re- from 2006-08 to 2009-11, while global consumption in- versing the long-standing trend of American industries creased 9 percent. As a result, beginning in 2009, U.S. moving to Asia (and elsewhere) in response to the “labor natural gas and coal have been traded at similar price lev- cost dividend.” Four energy-intensive industries that are els in energy equivalent terms while diverging from Euro- taking (or will take) advantage of lower energy prices in Box figure 1.1 Energy prices Box figure 1.2 Natural gas prices $US/mmbtu $US/mmbtu 25 20 Crude Oil 20 15 Japan (LNG) 15 Natural Gas (US) Europe 10 10 5 US 5 Coal 0 0 Jan '01 Jan '03 Jan '05 Jan '07 Jan '09 Jan '11 Jan '13 Jan '01 Jan '03 Jan '05 Jan '07 Jan '09 Jan '11 Jan '13 Source: World Bank. Source: World Bank. 6 Europe Japan (LNG) US Europe Japan (LNG) GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook the United States are paper, aluminum, steel, and chemi- Canadian oil sands, led to a decoupling of WTI from Brent, cals, whose energy costs as a share of total material costs with the latter trading 18 percent above the former after range between 5 and 9 percent (the share for the U.S. January 2011 (box figure 1.3). Historically (1983 -2005), manufacturing industry as a whole is 3 percent, four to five WTI traded with a 6 percent premium over Brent, because times higher than for agriculture; see box 3). the mid-continent U.S. was a “deficit” region. Following in- creased imports from Canadian oil sands during 2006 -10,  Substitute product—coal. More trade in coal is likely WTI and Brent traded on par. After January 2011, howev- to take place, thus further facilitating convergence of natu- er, Brent has been traded with a premium over WTI follow- ral gas prices and also strengthening the convergence of ing increased domestic shale oil supplies—it averaged 18 coal and natural gas prices already underway. Indeed, be- percent between January 2011 and May 2013. Although tween 2005 and 2012, global coal exports almost tripled the premium declined recently, it may persist for another (from 258 to 758 million tons), pushing coal traded as a two years, until a new pipeline begins transferring surplus share of production to almost 15 percent. Furthermore, an- oil from Cushing, Oklahoma to the U.S. Gulf (some oil is ecdotal evidence points to even further increases. For ex- currently moving by truck and rail). The WTI discount is ample, a recent article (Bloomberg 2013) notes that Tata likely to stabilize around 5 percent, (a mirror image of the Power, India’s second-largest electricity producer, is seek- pre-2006 premium) when the market reaches equilibri- ing coal supplies from the United States, Colombia, and um—oil supply in the mid-Continent U.S. exceeds demand Canada (which account for 13.9, 1.5, and 0.9 percent of and the surplus moves to the Gulf at the lowest possible global coal production, respectively; China’s share is 50 cost. percent).  Policies—U.S. energy exports, nuclear energy, What about convergence of natural gas and oil prices? property rights. Three types of policies are expected to Because more than half of global crude oil supplies go to increase trade in natural gas and, consequently, price con- the transportation industry, the prospects of substitutability vergence. First, the United States is gradually removing between crude oil and other types of energy will depend restrictions on energy exports, most of which were in- on the degree to which vehicles can switch from crude oil - troduced after the oil crisis of the 1970s in response to en- base fuels to natural gas or electricity. As discussed in the ergy security concerns. Second, several countries are re- previous edition of this outlook (World Bank 2013), contra- considering nuclear energy policies, especially after the ry to the situation for natural gas, crude oil products have Tohoku accident in Japan; some plan to not replace aging convenient distribution networks and refueling stations that nuclear power units, while others contemplate early de- can be reached by cars virtually everywhere in the world. commissioning. The diminishing contribution of nuclear Thus, in order for the transport industry to utilize natural power to global energy consumption—already, there has gas at a scale large enough to make a dent in the crude oil been a decline from a peak of 6.4 percent in 2001 to 4.9 market, innovations must take place such that the distribu- percent in 2011—will be replaced by coal, natural gas, and tion and refueling costs of natural gas become comparable to a lesser extent renewables (see box table 1.1 for histori- to those of crude oil. The second alternative, electricity, cal and current energy consumption shares). Third, coun- has its own drawbacks, namely, storage capacity and refu- tries with large unconventional reserves are likely to intro- eling time. Consider that if a truck with a net weight capac- duce policies to strengthen property rights, a key reason ity of 40,000 pounds were to be powered by lithium- for not developing them. sulphur batteries for a 500-mile range, the batteries would occupy almost 85 percent of the truck’s net capacity, leav- Subsequent to the natural gas boom, fracking and hori- ing only 6,000 pounds of commercial space. Hence, as is zontal drilling were applied to the U.S. oil sector, which, as the case for natural gas, for large -scale electricity use by expected, induced similar supply response. This increase vehicles, innovation in battery technology must take place. in oil supplies, along with increasing crude inflows from Box figure 1.3 Brent and WTI prices Box table 1.1 Shares of global primary energy con- sumption (percent) $US per bbl 140 Oil Gas Coal Nuclear Hydro Other 1965-69 42.6 16.8 34.7 0.2 5.6 0.0 120 Brent 1970-74 47.3 18.6 27.7 0.9 5.4 0.1 1975-79 46.5 18.9 27.0 2.1 5.5 0.1 100 WTI 1980-84 41.4 20.3 28.3 3.7 6.2 0.1 1985-89 39.0 21.2 28.2 5.3 6.1 0.2 80 1990-94 38.7 22.3 26.3 6.0 6.3 0.4 60 1995-99 38.4 22.9 25.5 6.2 6.5 0.5 2000-04 37.3 23.4 26.4 6.1 6.1 0.7 40 2005-09 34.7 23.4 29.0 5.4 6.3 1.1 2010-11 33.1 23.7 30.3 4.9 6.4 1.6 20 Source: BP Statistical Review. Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Note (1): “Other” includes biofuels, solar, wind, geothermal, and bio- mass Source: World Bank. Note (2): The shares were calculated in oil equivalent terms 7 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Metals percent) on the back of continued economic weak- ness. Aluminum consumption continues to benefit from substitution away from copper, mainly in the wiring and cable sectors (copper prices are now Following the collapse in metal prices that followed more than four times higher than aluminum prices, the 2008-09 global financial crisis, prices regained whereas the two were similar prior to the 2005 strength and increased almost continuously. The boom). Substitution is expected to continue for as World Bank metals price index reached a new high long as the aluminum prices remain at least twice as of 229 (2005 = 100) in February 2011, up 164 per- high as copper prices, according to industry ana- cent since its December 2008 low (figure 10). This lysts. increase, together with the sustained increases prior to the financial crisis, generated large new invest- Aluminum supply rose marginally in 2012, by 3.2 ments inducing a strong supply response. percent, down from 7.5 percent growth in 2011. Output was constrained by high energy costs, Most of the additional metal supply went to meet which account for nearly 40 percent of total pro- demand from China, whose consumption share of duction costs. Aluminum supply growth is coming world refined metals reached 44.2 percent at the from countries with abundant (in many cases, sub- end of 2012, up from 42 percent in the previous sidized) energy, including China (up 12 percent), year (figure 11). Metal prices, however, have weak- United States (up 4.4 percent), and the United Arab ened since 2011. This decline, along with the drop Emirates (up 6.2 percent). Nevertheless, aluminum in energy prices and an even sharper decline in pre- production declined sharply in the European Un- cious metal prices, has prompted economists and ion (19 percent) on environmental policy pressures analysts to argue that that the so-called commodity and adverse economic developments, and in Cana- super cycle may be coming to an end (box 2 dis- da (6.9 percent) due to labor disputes. Brazil and cusses the super cycle and how it relates to global Russia have experienced marginal declines as well. metals reserves). Inventories of aluminum at major exchanges rose a combined 9.4 percent during the 12 months ending Recent Developments June 2013. Indeed, physical stocks have been rising for some time, and as of June 2013 were 45 percent Aluminum demand increased by 6.8 percent in higher than their end-2008 levels when the stock- 2012 according to World Bureau of Metal Statistics piling started. However, a significant portion of (WBMS), led for the second year by double-digit these inventories is tied up in warehouse financing demand growth in China (15 percent) and a 7.5 deals and unavailable to the market. percent increase in demand by India. Offsetting these increases was a contraction in consumption Copper demand expanded by 4.7 percent in in the European Union (7.7 percent) and Brazil (5.2 2012, up from 1.4 percent the year before, accord- Figure 10 Metal prices Figure 11 Consumption of key metals $'000/ton $'000/ton millions tons 60 Copper (right axis) 10 50 Nickel (left axis) China 8 40 45 6 30 Other 30 4 20 OECD 15 2 10 Aluminum (right axis) 0 0 0 Jan '01 Jan '03 Jan '05 Jan '07 Jan '09 Jan '11 Jan '13 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: World Bank. Source: World Bureau of Metal Statistics. 8 Copper (right axis) OECD China Aluminum (right axis) Other Nickel (left axis) GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook ing to WMBS data, with China’s demand increas- donia, and Papua New Guinea. Another major ing 11.7 percent, versus 7.2 percent in 2011. It is global source of nickel is nickel pig iron (NPI) pro- unclear, though, how much of this demand in- duced in China, which contains low-grade nickel crease was due to stock build-up and how much ore from Indonesia and the Philippines. China’s was actually consumed. Estimates of stock build-up production capacity may soon be constrained, in bonded warehouses in China indicate an increase though, given that Indonesia has announced that it of 96 percent in 2012, to some 775,000 tons. Else- will develop its own NPI industry and has intro- where, demand for copper has recovered, including duced export quotas and may ban nickel ore ex- Brazil (up 8.6 percent following a decline the previ- ports by the end of 2013. Nickel stocks were built ous year), Mexico (up 20 percent), and the United up during 2012 as supplies exceeded consumption, States (up 3.3 percent). Demand was especially with stocks at LME 82 percent higher in June 2013 weak in the European Union (down 7.7 percent) compared to a year before. and Japan (down 1.3 percent). Supply of refined copper expanded at a modest 2.9 Outlook and Risks in Metals Markets percent pace in 2012, down from 3.2 percent in- crease in 2011. However, output of mined copper Metal prices are expected to continue their declines rose 4.4 percent in 2012, up from 1.2 percent dur- in 2013, on top of the 15 percent decline observed ing 2009-2011. High copper prices have induced a in 2012. Aluminum prices are expected to decline 6 wave of new mines and expansions of existing ones percent in 2013 and to follow an upward trend that are expected to come on stream soon. In thereafter in response to rising power costs and the Chile, for example, Escondida, the world’s largest fact that current prices have pushed some produc- copper mine, is on track to increase its production ers down to or below production costs. Copper by 20 percent in 2013. Mined copper output rose prices are expected to decline more, by 11 percent 7.1 percent in Africa in 2012, with several mines in 2013, with more declines in subsequent years, coming on stream in Zambia and the Democratic mostly due to substitution pressures and slowing Republic of Congo. The Oyu Tolgoi mine in Mon- demand. Nickel prices are expected to decline 15 golia began production in 2013 and is expected to percent in 2013 and to follow a slightly upward become one of the top five copper-producing trend thereafter. Over the medium term, stainless mines by 2020 in the world and to increase the steel demand is expected to remain robust, growing country’s production capacity four-fold. Physical by more than 6 percent annually, mainly driven by inventories of copper on major exchanges were up high-grade consumer applications, as emerging 106 percent in June 2013 versus one year prior. economies increasingly mimic consumption pat- terns of high-income countries. Although there are Nickel demand expanded 6.1 percent in 2012, no physical constraints in metal markets, there are a down from a rapid 17 percent growth in 2011. The number of factors that could push prices higher sharpest decline was in China, where apparent de- than predicted over the forecast period, including mand rose 17.4 percent, versus 46 percent in 2011. declining ore grades, environmental policy changes, China now accounts for 40 percent of global stain- and rising energy costs. less steel production (a major source of nickel de- mand), up from 4 percent a decade ago. Demand Metal prices face more downside than upside contracted in most high-income countries, includ- risks—most notably, the weakening of demand in ing the European Union (down 8 percent), Japan China. Though a sharp decline in metal prices (say, (down 8.3 percent), and the United States (down 20 percent over the course of next year, relative to 6.2 percent). the baseline) will not have much of an effect on global GDP, the decline will impact metal export- Global nickel supply grew by 13 percent in 2012, a ing countries, especially those in Sub-Saharan Afri- second year of double digit growth, slightly down can, whose GDP and fiscal balance may decline as from 16 percent growth in 2011. A wave of new much as 0.7 and 1 percent, respectively, compared nickel mine capacity is likely to keep nickel prices to the baseline projections. close to marginal production costs. New projects in diverse locations will soon ramp up production, including Australia, Brazil, Madagascar, New Cale- 9 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Box 2 Global reserves, demand growth, and the “super cycle” hypothesis In 1990, the world consumed less than 43 million tons of expressed in terms of years of current production (the so - metals. By 2012, this had increased to 91 million tons. All called reserves-to-production ratio, R/P), evaluated at two of the growth was driven by China—in 1990, China ac- 2-year periods (2000-01 and 2010-11) spanning the re- counted for a mere 4 percent of global consumption; today cent price and consumption boom. (According to the U.S. it accounts for almost 45 percent. In 1990, the world con- Geological Survey, reserves refer to the part of the re- sumed 66 million barrels of oil per day (mb/d), 37 percent serve base which could be economically extracted or pro- of which was consumed by OECD economies. In 2012, it duced at the time of determination but do not imply that exceeded 90 mb/d, half of which is consumed by non - extraction facilities are in place and operative). OECD economies. Despite these strong consumption growth patterns, the assumed resource depletion that has Numerous stylized facts emerge from the analysis. First, occupied headlines often is less of an issue now than it the R/P ratios for various metals paint a mixed picture used to be. Nevertheless, problems exist, including envi- regarding resource scarcity. Specifically, the ratio in- ronmental concerns, concentration of resources, and the creased in three of the nine cases: nickel (from 43 to 46 high cost of extracting such resources. years), copper (from 26 to 41), and silver (from 16 to 22). It did not experience any appreciable change for gold and Metal consumption by China during the past decade has zinc but declined marginally for lead (from 21 to 19 years). been so strong that it reversed the downward trend of Yet, three metals exhibited significant declines: Tin (from global metal intensity (that is, metal consumption per unit 34 to 19 years), iron ore (from 136 to 65 years), and baux- of GDP), a turnaround that continues today. Thus, metal ite (from 180 to 133). Second, the declines in the R/P intensity now is the same as it was the early 1970s—on ratios reflect increased production, not declining reserves. the contrary, food and energy intensities have continued In fact, with the single exception of tin (for which reserves their long term downward trend. On the other hand, de- declined nearly 40 percent during the 10 -year period un- spite the strong demand growth of oil by non-OECD econ- der consideration) and gold (for which reserves increased omies, they still consume 2.6 barrels per year on a per only 4 percent), reserves increased between 16 percent capita basis, as opposed to 13.7 by OECD economies. (bauxite) and 94 percent (copper). Third, the two largest declines in the R/P ratio—iron ore, down by 71 years, and The strong growth in consumption of industrial commodi- bauxite, down by 47 years—took place in markets where ties by emerging countries, along with the likelihood that the respective metals are relatively abundant, hence less these countries will experience sustained high growth of a need to invest in exploration and development activi- rates, inevitably raises the issue of resource depletion. ties. Thus, of the nine metals examined here, tin appears The issue of non-adequacy of resources to sustain pro- to be the only reserve-constrained commodity. jected population and income growth rates has been de- bated frequently, especially in periods of high prices. Ex- What about energy? Box figure 2.2 depicts R/P ratios for amples include the peak oil hypothesis for crude oil re- natural gas and crude oil between 1980 and 2011. In both serves and the Club of Rome arguments regarding food markets the ratios have been increasing, a significant 3.0 supplies (Meadows and others 1972). percent per annum for crude oil and a marginal 0.3 per- cent for natural gas. In fact, the R/P ratio for crude oil ex- Based on U.S. Geological Survey data, box figure 2.1 ceeded 54 years in 2011 for the first time. (According to reports global reserves for two ores (bauxite and iron ore), BP, “[reserves] are generally taken to be those quantities five base metals (nickel, copper, zinc, lead, and tin), and that geological and engineering information indicates with two precious metals (gold and silver). The reserves are reasonable certainty can be recovered in the future from Box figure 2.1 Global metal reserves Box figure 2.2 Global oil and gas reserves years (reserves to production) 70 Bauxite Iron Ore Natural Gas Reserves 60 Nickel Copper 50 Silver Crude Oil Reserves Zinc 40 Gold Avg 2000-01 30 Tin Avg 2010-11 Lead 20 0 20 40 60 80 100 120 140 160 180 1980 1986 1992 1998 2004 2010 Reserve-to-production ratio in years Source: U.S. Geological Survey. Source: BP Statistical Review. 10 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook known reservoirs under existing economic and operating Finally, a key issue on resource adequacy and prices will conditions.”) be the strength of demand. Future fluctuations in metal markets will depend heavily on the metal intensity of the The increase in global crude oil reserves during the 1980s Chinese economy. Oil consumption will depend on demand is due to additions by OPEC members. The 1999 uptick by emerging economies and whether their energy intensi- reflects the addition of 120 billion barrels from Canada’s oil ties emulate that of high-income countries. Consider, for sands (equivalent to four years of current global consump- example, that in per capita terms, OECD countries con- tion), while the increase in the mid-2000s was due to Ven- sume five times more crude oil than non -OECD countries— ezuela’s Orinoco Belt oil, currently estimated at 220 billion or, more strikingly, that the United States consumes 23 barrels (seven years of global consumption). The R/P times as much oil as India (box figure 2.3). ratios for both crude oil and natural gas are likely to in- crease substantially when the unconventional reserves are Many observers (see, for example, Heap 2005) have ar- added in the economically recoverable resource pool. gued that, because of the extremely robust demand for Indeed, industry experts have noted that when all global metals and rapidly rising metals intensity of the Chinese recoverable reserves are considered, the world may have economy, along with strong oil demand by emerging econo- as much as two centuries’ worth of natural gas, evaluated mies, these commodities go through a super cycle where at current consumption rates, prices, and technology. prices are likely to stay high for an extended period of time. The so-called “super cycle hypothesis” has been empirically While adequacy of reserves per se does not seem to be a verified for a number of metals (Jerrett and Cuddington problem, at least in the foreseeable future, there are sev- 2008). Super-cycles of this nature, have taken place in the eral issues of concern, including environmental problems, past rather infrequently (for example, during the industrial concentration of ownership, further demand strengthening, revolution in the United Kingdom, and the westward expan- and increasing extractions costs. First, by their very na- sion of the late 1800s/early 1900s in the United States). ture, extraction of these resources may be associated with Erten and Ocampo (2012) identified four such super cycles environmental issues, such as contamination of ground in real prices of agriculture, metals, and crude oil during water resources or concerns that excessive fracking may 1865-2009; the length of the cycles ranged between 30 -40 be linked to increasing frequency of earthquake activity. years with amplitudes 20-40 percent higher or lower than the long-run trend (similar estimates have been given by Second, reserves are becoming concentrated. For exam- Cuddington and Zellou (2013) for metals.) Furthermore, the ple, currently OPEC accounts for more than 72 percent of mean of each super cycle was lower than for the previous oil reserves, nearly half of which are located in Saudi Ara- cycle, thus supporting the view that nominal prices of pri- bia and Venezuela. Natural gas reserves are concentrated mary commodities grow at a slower rate than nominal pric- as well, with the Russian Federation and Turkmenistan es of manufacturing commodities (the Prebisch-Singer hy- accounting for more than one-third and Iran and Qatar pothesis). accounting for nearly 28 percent. (The Herfindahl concen- tration indexes for crude oil and natural gas reserves were Indeed, energy and metal prices (expressed as ratio to 9.8 and 10.7 percent, respectively, in 2011.) manufacturing prices) experienced the largest and longest boom since (box figure 2.4). Though most of the conditions Third, extracting natural resources is becoming increas- behind the post-2004 price boom are still in place, there are ingly costly. The marginal cost of oil production, for exam- signs that conditions may be easing. The 2008 and 2011 ple, is currently estimated at $80/bbl for Canadian oil commodity price peaks may have marked the beginning of sands (this cost forms the basis for the World Bank’s long- the end of the current super cycle. In that case, the current term oil price assumptions). super cycle will be much shorter than previous ones. But, it is too early to tell. Box figure 2.3 Per capita oil consumption Box figure 2.4 Commodity prices, MUV-deflated 25 barrels per person per year Index 2005=100, MUV deflated 300 Average 1965-66 Average 2010-11 20 250 Agriculture 15 200 150 10 Metals 100 5 50 Energy 0 World OECD US EU Non- China India 0 OECD 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 Source: BP Statistical Review; UN; OECD; Eurostat. Source: World Bank. 11 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Precious Metals Fertilizers Following 18 months of relative stability, precious Fertilizer prices, a key input to the production of metal prices declined sharply during 2013Q2, and most agricultural commodities especially grains and the World Bank metal price index declined 23 per- oilseeds, experienced a five-fold increase between cent in the past six months (figure 12). The decline 2003 and 2008, the largest increase among all key marked a reversal of 11 straight years of increasing commodity groups (figure 13). In addition to precious metal prices and reflects changing percep- strong demand, the price hikes reflect increases in tions of global risk, given gold’s status as a “safe- energy prices, especially natural gas—some fertiliz- haven” investment asset. Holdings of gold by ex- ers are made directly out of natural gas. Indeed, change-traded funds are down more than 15 per- fertilizer prices are now three times higher than a cent for the year. In contrast, holdings of silver and decade ago, remarkably similar to the three-fold platinum were up by 5 and 53 percent, respectively, increase in energy prices. by end-June 2013. Recently, the upswing in fertilizer prices has been High gold prices have attracted considerable invest- easing. The World Bank’s fertilizer index declined ment in the gold mining industry, for both existing 10 percent by 2013Q2 after declining 3 percent in and new mines. China has announced a new pro- 2012. The declines were more pronounced for urea duction target of 450 tons per year by 2015, up and phosphate, each over 10 percent down. The from 400 tons in 2012, when output grew 12 per- prices of other types of fertilizers changed margin- cent. Production in South Africa declined 13 per- ally. Weak demand, especially by India and China, cent in 2012—the fourth consecutive annual de- has been the key factor behind the weakness cline—in what might signal a long-term decline, (demand by the United States and South America although the 2012 performance also reflects very has been strong). serious labor disputes in late 2012 that disrupted the production. Fertilizer prices are expected to ease considerably in the medium term—more than 10 percent in The precious metal index is expected to decline 2013 and another 5 percent in the two years there- almost 20 percent in 2013 (with gold, silver, and after—reflecting primarily lower production costs platinum down by 17, 29, and 5 percent, respec- due to the projected moderation of natural gas tively). Most risks are on the downside due to sup- prices but also the coming on stream of a number ply improvements, even as the pace of global re- of projects, most significantly in the United Arab covery improves, including easing of financial ten- Emirates and the former Soviet Union, both im- sions in Europe. portant natural gas producers. Figure 12 Precious metal prices Figure 13 Fertilizer prices $/troy oz ¢/troy oz US$/mt 2500 5000 1400 DAP 1200 2000 4000 1000 1500 3000 Potassium Chloride 800 600 1000 2000 Platinum (left axis) 400 Silver (right axis) Urea 500 Gold (left axis) 1000 200 0 0 0 Jan '01 Jan '03 Jan '05 Jan '07 Jan '09 Jan '11 Jan '13 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Source: World Bank. Source: World Bank. 12 Aluminum (right axis) Potassium Chloride DAP DAP Urea Nickel (left axis) GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Agriculture Recent developments in agricultural markets With the exception of grains, the prices of most Grain prices have been declining steadily since agricultural commodities have been declining al- the spike in the summer of 2012 as supply expecta- most continuously since their early 2011 peaks tions for the 2013/14 season have gradually im- (figure 14). Beverage and raw material prices are proved (figure 15). Between July 2012 and June down about 35 percent each between February 2013, maize and wheat prices declined about 10 2011 and July 2013. Non-grain food commodity percent each, partly eliminating the increases dur- prices are down as well—edible oils down 14 per- ing July and August of 2012. In its July 2013 up- cent and other food prices down 17 percent. Ini- date, the U.S. Department of Agriculture placed its tially, grain prices followed a similar (declining) global maize production estimate at 960 million path, but they reversed course sharply after a heat tons, up from 855 million tons in the 2012/13 sea- wave in the summer of 2012 caused considerable son, in turn increasing the stock-to-use ratio from damage in maize-producing areas in the Midwest- 14.3 percent to 16.2 percent. Similarly, the global ern United States, while severe drought conditions wheat production estimate for 2013/14 stands at in Eastern Europe and Central Asia affected wheat 698 million tons, up from current season’s 655 mil- production. As a result, the World Bank food price lion tons; yet, the stock-to-use ratio for wheat may index gained almost 11 percent in the one month decline marginally as global consumption is ex- from June to July 2012. Since then, supply condi- pected to increase by almost 10 million tons. tions for most food commodities have improved considerably. For example, both the edible oil and After dropping below the $600/ton mark in July oilseed markets are well supplied, with global edible 2012, rice prices have fluctuated within a very tight oil production expected to reach a new record. band around $560/ton. Prices exceeded $600/ton Grain supplies are improving as well. In its July only twice: Near the end of 2011, when there were 2013 assessment, the U.S. Department of Agricul- reports of flood damage to the Thai crop, and last ture largely maintained the marked improvement in year, when the Thai government introduced its maize conditions for 2013/14, a comfortable wheat purchase program—a public stock-holding mecha- crop, and a well-supplied rice market. In response nism. The U.S. Department of Agriculture’s July to this outlook, most food prices have receded, and 2013 assessment puts global rice production at al- the food price index has lost its 2012 gains. Yet most 480 million tons in the 2013/14 season, 10 upside risks exist, especially for maize and wheat, as million tons above the 2012/13 record. The stock- any adverse weather event could upset global mar- to-use ratio is expected to reach almost 23 percent, kets. remarkably similar to that of 2012/13 and well within historical norms. Trade in rice has improved Figure 14 Agriculture price indices Figure 15 Wheat, maize and rice prices 2005=100 US$/mt US$/mt 260 1000 500 Rice (left axis) Food 220 800 400 Wheat (right axis) 180 Beverages 600 300 140 400 200 Maize (right axis) Raw materials 100 200 100 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Source: World Bank. Source: World Bank. 13 Food Raw materials Beverages Maize (right axis) Rice (left axis) Wheat (right axis) GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook as well, reaching a new record of 38.6 million tons roughly aligned with population growth). The main in 2012, aided in part by a surge in Chinese imports exception is maize, which experienced a 3.7 average (2.9 million tons, up from 0.5 million tons a year annual growth rate between 2004 and 2012, a re- earlier). Early reports indicate that this year may be flection of biofuel demand. The four periods another record for the volume of rice trade, per- shown in table 2 capture different price regimes, haps as high as 40 million tons. namely, increasing commodity prices in the years leading up to the first oil crisis (1960-73), declining Edible oil prices have declined 17 percent since prices (1974-85), stable and low prices (1986-2003), their summer 2012 peak, as measured by the World and high prices during the recent boom (2004-12). Bank’s edible oil price index, effectively eliminating all price gains during the first half of last year. The Edible oils are, perhaps, the only commodity group decline reflects an improved South American soy- whose income elasticity is high not only for low bean crop as well as improved assessment of the and middle income countries but also for high in- U.S. soybean crop, for which yields turned out to come countries. This reflects the fact that as in- be higher than originally thought. Palm oil sup- come increases, people tend to eat more in profes- plies from Indonesia and Malaysia, which together sional establishments and consume more pre- account for 80 percent of the global supply, have packaged food items, both of which are utilizing improved as well. Soybean prices have weakened as more edible oil than otherwise. well during the past nine months and are down almost 23 percent from their August 2012 highs Beverage prices have declined as well. The (figure 16). The extended soybean price spike dur- World Bank’s beverage price index (comprised of ing 2012 also reflects overall tightness in the animal coffee, cocoa, and tea) is down 36 percent since its feed industry. Soybean meal and white maize (the February 2011 record high. The earlier surge (and latter produced primarily in the United States) are recent decline) in beverages reflects mostly coffee close substitutes as they both are key inputs to the prices—specifically, arabica—which reached $6/kg animal industry. in 2011, the highest nominal level ever (figure 17). The increase in arabica reflected a shortfall in pro- Edible oils experienced the fastest production and duction in Colombia, the world’s second-largest consumption growth rates of all agricultural com- arabica supplier after Brazil. However, as Colombi- modities during recent decades, and this is likely to an production recovered partially, and coffee com- continue in the future. Table 2 reports production panies began using more robusta in their blends, growth rates for eight commodities and shows that arabica prices declined and are now hovering at in all four sub-periods since 1960, palm oil and half their early 2011 highs. Global coffee output soybeans exhibited growth rates two to three times reached 145 million bags in 2012, up from 137 mil- higher than those for food commodities, cotton (a lion bags in 2011. Furthermore, Brazil, the world’s key raw material), and coffee (for which growth is top coffee supplier, is expected to have a bumper Figure 16 Edible oil prices Table 2 Production growth of major agricultural US$/ton US$/ton commodities (annual growth rate) 1400 Soybeans (right axis) 700 1960-73 1974-85 1986-2003 2004-12 1200 600 Maize 4.1% 3.9% 1.8% 3.7% Rice 3.3% 2.9% 1.2% 2.0% 1000 500 Wheat 3.9% 2.8% 0.8% 2.1% 800 400 Coffee 3.4% 2.2% 2.5% 1.8% Palm oil Cotton 2.7% 2.8% 1.4% 2.9% 600 300 Sugar 2.2% 2.6% 2.3% 1.9% Palm oil 8.6% 10.1% 7.8% 6.8% 400 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 200 Soybeans 7.5% 6.8% 4.0% 4.7% Source: World Bank. Source: U.S. Department of Agriculture. 14 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook crop in 2013/14 (April-March), currently estimated pected to be 25.1 million tons in 2013/14, and con- at almost 47 million bags. Coffee supplies from sumption at 24.3 million tons. An estimated 1 mil- Vietnam (the world’s largest robusta supplier), Co- lion tons will be added to global stocks, pushing lombia, and Indonesia are also expected to be large. the stock-to-use ratio to 77 percent, the highest After declining nearly 35 percent during 2011, co- since the end of World War II. Approximately 9 coa has been traded at around $2.30/kg. The million tons of cotton have gone to the state re- weakness of cocoa prices reflects partly weak de- serves of China during the past two seasons, ex- mand in Europe, traditionally a key consumer of plaining the relative strength of cotton prices cocoa for chocolate manufacturing. Global cocoa (International Cotton Advisory Committee 2013). production is expected to reach 3.96 million tons in Nevertheless, cotton prices increased the least 2012/13, down from last season’s 4.06 million among agricultural commodities during the post- tons. Declined by Central and South America will 2004 price boom—up 37 percent over 1997-2004 offset increases by West Africa. and 2005-12, as opposed to a 75 percent increase of the overall agricultural price index—primarily Sugar prices (not part of World Bank’s beverage because of the increase in yields by China and India price index) have been weakening as well and are following the adoption of biotech crops (Baffes down 16 percent since a year ago and nearly 40 2011). percent below their 2011 peak. The sugar market now faces a large surplus. Global sugar production Natural rubber prices have been remarkably sta- exceeded 182 million tons in 2012, up from 173 ble during the past two quarters, following a sharp million tons in 2011 while consumption in both decline from their early 2011 peak (similar to cot- years averaged 163 million tons. Good crops in ton). The decline in rubber prices reflected both South America (especially Brazil) and Asia have increased supplies and fears of demand deteriora- contributed to the surplus. Brazil, world’s top sugar tion, especially from China—most natural rubber supplier, in an attempt to boost prices, announced goes towards tire production, and China is the fast- a tax credit to ethanol producers; the announce- est-growing market for tires. Crude oil prices play a ment failed to support prices, though. key role in the price of natural rubber as well, be- cause synthetic rubber, a close substitute for natu- Raw material prices have been relatively sta- ral rubber, is a crude oil by-product. Global natural ble during the past two quarters after declining rubber production reached 11.3 million tons during sharply from their early 2011 peaks—down 35 per- the 12-month period ending May 2013, 60 percent cent between February 2011 and August 2012 of which is supplied by Thailand and Indonesia. (figure 18). Cotton prices have found some China, meanwhile, accounts for 40 percent of glob- strength recently, gaining almost 9 percent since al rubber consumption, a level that has been grow- January 2013. The cotton market is well supplied ing at more than 5 percent per annum during the by historical standards; global production is ex- past few years. That makes the longer term pro- Figure 17 Coffee prices Figure 18 Raw material prices US$/kg US$/kg 7 7 6 6 5 5 Arabica Natural Rubber 4 4 3 3 Robusta 2 2 Cotton 1 1 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Jan '07 Jan '08 Jan '09 Jan '10 Jan '11 Jan '12 Jan '13 Source: World Bank. Source: World Bank. 15 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook spects of the rubber market sensitive to China’s Figure 19a Global maize supplies growth outlook, as is the case with most metals and mineral commodities. Timber prices have been remarkably stable as well during the past two quar- percent million t Stocks-to-use Ratio (left axis) Production (right axis) ters. Initial expectation of a boom in timber de- 40 1000 mand (and prices) as a result of the post-Tohoku earthquake reconstruction did not materialize, 32 900 while global demand for timber products has weak- ened considerably. 24 800 Outlook and risks for agricultural 16 700 commodities 8 600 Agricultural commodity prices are projected to de- cline 5.9 percent in 2013, with most of the decline 0 2000 2002 2004 2006 2008 2010 2012 500 2014 to attributable to beverages (-11.7 percent), fol- lowed by raw material (-7.1 percent) and food com- modities (-4.7 percent). Within the group of food Figure 19b Global wheat supplies commodities, edible oils are expected to decline the most (-8.9 percent), followed by other food and percent million t grains (down 5 percent each). The largest declines 40 Stocks-to-use (left axis) Production Production(right axis) (right axis) 700 among important food commodities are expected Stocks-to-use Ratio (left axis) to be for soybeans (-10.4 percent) and palm oil (- 13.9 percent), followed by other edible oils. Grains 30 are likely to change marginally, with maize down 600 1.1 percent, rice down by 3.2 percent and wheat up 20 a bit. The decline in beverage prices will be led by arabica coffee (-23.4 percent), and less so by ro- 500 busta (-7.4 percent), and cocoa (-5.9 percent), while 10 Malaysian logs and rubber will account for most of the weakening in raw materials (about -14 percent each). A number of assumptions (along with asso- 0 400 2000 2002 2004 2006 2008 2010 2012 2014 ciated risks) underpin the outlook for agricultural commodities—namely, crop conditions, energy prices, biofuels, macroeconomic environment, and Figure 19c Global rice supplies trade policies. A detailed assessment of these risks is given below. percent million t 40 Production Production (right (right axis) axis) 500 Crop conditions Stocks-to-use (left axis) Stocks-to-use (left axis) It is assumed that crop production in the Southern 30 450 Hemisphere will not experience any adverse weath- er conditions, and that next season’s outlook will return to normal trends. In its July 2013 outlook 20 400 assessment, the U.S. Department of Agriculture estimated the 2013/14 crop season’s global grain 10 350 supplies (production plus starting stocks) at 2.53 billion tons, up 5 percent from 2012/13, a level that would replenish most of the losses due to the 0 300 2012 summer heat wave. If history is any guide, 2000 2002 2004 2006 2008 2010 2012 2014 when markets experience negative supply shocks similar to the 2012 drought, production comes Source: U.S. Department of Agriculture, July 2013 update. 16 Production (right axis) Stocks-to-use (left axis) GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook back within one (perhaps two) seasons through mb/d of crude oil production in energy-equivalent resource shifting, as has been the case in previous terms and is projected to grow moderately over the episodes (for example, maize in 2004/05, wheat in projection period. 2002/03, and rice in 2001/02, as shown in figure 19). However, it may take up to three seasons be- In the longer term, there is much uncertainty about fore stocks are fully replenished—subjecting the biofuel production. If biofuel production increases maize and (less so) wheat prices to upside risks. As at the rates suggested by some forecasts (more than discussed earlier, the rice market is well supplied, 5 percent annually), as much as 10 percent of glob- also reflected in the remarkable stability of rice al land area allocated to grains and oilseeds could prices. be producing biofuel crops (evaluated at world av- erage yields) within the next two decades. Such Oil prices assumptions are supported by the baselines of the joint OECD/FAO Agricultural Outlook as well as the The baseline forecast underlying this outlook as- IEA Energy Outlook, published in May 2013. How- sumes that crude oil prices will ease marginally in ever, policy makers are increasingly realizing that 2013 and that fertilizer prices will experience a 10 the environmental and energy security benefits of percent decline. (Fertilizer and crude oil are both biofuels may not outweigh their costs, thus biofuels key inputs for the agriculture sector, especially policies are likely to ease. Indeed, biofuel produc- grains and oilseeds.) However, because of the ener- tion grew very little during the past two years gy intensive nature of agriculture—the industry has (figure 20). been estimated to be four to five times more ener- gy intensive than manufacturing—an energy price The likely long-term impact of biofuels on food spike could trigger proportional food price increas- prices is complex, however, as it goes far beyond es. The energy price cross-price elasticity of agricul- land diversion, subsidies, and mandates. The im- tural goods and energy ranges from 0.2 to 0.3 pact is likely to depend more on two other factors: (depending on the commodity), implying that a 10 (i) the level at which crude oil prices make biofuels percent increase in energy prices will induce a 2-3 profitable, and (ii) whether technological develop- percent increase in agricultural prices. ments of biofuel crops (or even new crops) could increase the energy content of the respective plants, Biofuels thus making them more attractive sources of ener- gy. As a result, high crude oil prices, together with Despite the fact that global biofuel production re- likely technological innovations, could pose large mained flat during 2010-12, the outlook assumes upside risks for agricultural prices in the long term biofuels will continue to play a key role in the be- (box 3 elaborates on the profitability and induced havior of agricultural commodity markets. Current- innovation issues). ly, global biofuels production corresponds to 1.3 Figure 20 Biofuel production Figure 21 Commodity assets under management mbd of oil equivalent US$ billion 1.4 350 1.2 300 1 250 0.8 200 150 0.6 100 0.4 50 0.2 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Source: BP statistical Review of World Energy; OECD. Source: BarclayHedge. 17 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Macroeconomic environment they take place, will be isolated with only limited impact. For example, when the market conditions A final risk facing the market for agricultural com- for rice (in 2008) and cotton (in 2010) were tight, modities is a sharp reversal of the loose global mac- export bans induced price spikes. However, last roeconomic environment, including low policy year’s Thai rice purchase program and India’s ex- rates and quantitative easing. There are two chan- port ban on cotton did not have any discernible nels through which interest rates affect commodity impact on the respective prices. Interestingly, cot- prices—all commodities, not just agricultural com- ton prices declined more the day after India’s ex- modities. The first operates through physical de- port ban on cotton was announced (in March mand and supply: Low interest rates affect stock- 2012) than they did the day of the announcement. holding behavior, they reduce borrowing, (which in In fact, there may be a downside price risk for rice turn increases investment and hence a rightward if Thailand releases some (or all) of the stocks it shift of future supply), and they expand current accumulated through the purchase program, not an consumption. Thus, the effect of interest rates can unlikely scenario given that the costs of the pro- be positive or negative, or even zero, depending on gram account for as much as 1 percent of the relative elasticities. The interest rate elasticity for country’s total GDP (World Bank 2012). food commodities appears to be near zero (see Baffes and Dennis (2013) for elasticity estimates and a literature review). Other research currently Recent trends in domestic food prices underway by the World Bank shows that the inter- est rate elasticity for metal prices may be positive, The discussion thus far has focused on price move- implying that the shift in supply due to a lower cost ments in U.S. dollar terms. However, what matters of capital overwhelms the shift in demand (the im- most to consumers is the price they pay for food in pact through stockholding is not as important for their home countries. It is not uncommon for pric- metals and minerals). es paid by consumers in an individual country to differ considerably from international prices, at The second channel through which interest rates least in the short run. Reasons for this include ex- impact commodity prices operates through invest- change rate movements, trade policies intended to ment fund activity—the so-called financialization insulate domestic markets, the distance of domestic of commodities, a controversial and hotly-debated trading centers from domestic markets (which can topic. Investment fund activity has increased over add considerably to marketing costs), quality differ- the past decade, exceeding $330 billion in 2013Q1, ences, and differences in the composition of food according to BarclayHedge, which tracks develop- baskets across countries. ments in the hedge fund industry (figure 21). Most of the funds have been invested in energy and agri- Table 3 reports changes in domestic wholesale cultural commodity markets. Some have argued prices of three commodities (maize, wheat, and that these funds have sufficiently large weight to rice) for a set of low- and middle-income coun- unbalance the market, thus impairing the price dis- tries—the selection of countries was driven, in part, covery mechanism. Others, meanwhile, have by data availability. These changes are compared to praised these investment vehicles, claiming that the corresponding world price changes (reported in they inject liquidity in commodity markets. Despite the top row of each panel). The periods chosen are some contrasting views, the empirical evidence is, 2013Q1 against 2012Q4 (capturing short run re- at best, weak. While it is unlikely that these invest- sponses) and 2013Q1 against 2012Q1 (intended to ments affect long-term price trends, they have capture longer term effects). The table also reports most likely affected price variability. price changes between 2006-07 and 2011-12, effec- tively capturing the entire food price boom period. Trade policies World prices of all three grains changed little be- Given the experience of recent years, the outlook tween 2012Q4 and 2013Q1 (maize and wheat assumes that policy responses will not upset agri- down 3.8 and 9.6 percent, respectively and rice up cultural markets, an assumption that relies on mar- 0.7 percent); the U.S. dollar did not change much kets remaining well-supplied. If the baseline out- either. The corresponding median domestic price look materializes, policy actions are unlikely and, if changes were –0.6, 5.8, and 0.2 percent. Focusing 18 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook on the variability of price changes, however, a dif- ferent picture emerges. The relative calm in world Table 3 Wholesale grain prices (percent change, calculated in nominal local currencies) prices is reflected in the domestic prices of rice, and somewhat less so in wheat prices, but not at all 2013Q1/ 2013Q1/ 2006-07/ 2012Q4 2012Q1 2011-12 in maize prices; five countries experienced a double Maize (17 countries) -digit increase in maize prices despite the moderate World (US$) -3.8 9.8 106.7 decline in world price. A mixed picture emerges as Uganda 20.9 31.4 153.3 well when 2013Q1 is compared to 2012Q1. Nicaragua 18.6 20.6 73.8 Tanzania 17.7 46.6 130.9 Though median domestic price increases show a Honduras 11.0 24.3 26.8 pattern similar to those of world prices, there is M ozambique 10.7 23.5 77.4 high variability around these medians for maize and Dominican Republic 8.4 0.9 70.0 Bolivia 7.6 -6.9 49.3 wheat (but not for rice). For example, the world Ukraine 4.7 23.1 131.9 and the domestic median price of maize increased Costa Rica -0.6 4.4 109.3 9.8 and 2.5 percent, respectively. Yet, six of the 17 Thailand -0.8 1.2 42.6 countries in the sample experienced price declines, Rwanda -1.3 10.4 68.4 while seven countries experienced increases ex- El Salvador -3.7 -23.8 48.4 ceeding 20 percent. Panama -3.8 -9.5 94.4 Peru -4.0 -7.5 40.9 The last column of table 3 reports price changes Guatemala -4.2 -8.1 51.9 Ethiopia -6.6 2.5 196.7 between 2006-07 and 2011-12, periods long Kenya -15.4 -2.2 128.2 enough to be not affected by the presence of lags Median -0.6 2.5 73.8 in any significant way. During these two 2-year pe- Wheat (8 countries) riods, the world price of maize, wheat, and rice World (US$) -9.6 15.3 40.8 increased by 107, 41, and 75 percent, respectively. Bolivia 9.9 -4.9 88.5 Not surprisingly, all countries experienced large Sudan 8.9 31.5 132.1 domestic price increases in all three commodities, India 7.8 38.3 34.3 with corresponding median increases at 74, 66, and Ukraine 5.8 30.9 124.4 Peru 2.6 2.6 25.3 48 percent. As was the case with the shorter peri- El Salvador 2.5 70.5 43.6 ods, there is considerable variation across coun- Ethiopia -1.3 6.0 154.3 tries. For example, rice prices increased by 130 per- Bangladesh n/a 20.1 20.7 cent in East Africa (calculated as the average of Median 5.8 25.5 66.0 prices in Tanzania and Uganda) but only 44 percent Rice (19 countries) in West Africa (calculated as the average of Burkina World (US$) 0.7 3.6 75.2 Faso, Mali, and Niger). Bangladesh 11.8 4.2 50.1 Tanzania 11.2 -1.1 120.9 Dominican Republic 7.2 1.5 19.5 The tentative conclusion from this brief analysis is Niger 6.7 -1.5 40.4 that in the short term, domestic prices move, for India 4.6 14.9 67.1 the most part, independently of world prices. A Guatemala 2.2 5.2 47.8 stronger link is present in the longer term but large Panama 1.4 2.7 51.1 differences across countries are also present, imply- Uganda 1.2 -4.7 140.6 ing that domestic factors play a dominant and per- M ali 0.5 -5.8 35.2 sistent role in the food price determination process Honduras 0.2 9.2 21.4 of local markets. Burkina Faso 0.0 2.7 57.0 Nicaragua -0.3 6.7 68.7 Philippines -0.6 -2.6 39.5 Peru -0.7 -6.4 32.8 Thailand -1.8 4.9 47.4 Cambodia -1.9 0.0 74.1 El Salvador -3.6 -8.0 33.5 Bolivia -4.8 0.9 28.6 Rwanda -12.4 0.1 60.9 Median 0.2 0.9 47.8 Source: World Bank; FAO (http://www.fao.org/giews/pricetool/). 19 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Box 3 The complex interplay among food, fuels, and biofuels The interaction between food and energy commodities is cond period, the early 20th century, saw the expanded use an important, complex (see box figure 3.1), sometimes of biofuels in the internal combustion engines. The third, misunderstood, and hotly debated subject. High energy covering the mid- to late 20th century, includes mainly the prices may affect food prices through four channels: high- oil crises of the 1970s. The fourth period, the 21 st century, er cost of producing food, biofuel policies, profitable biofu- reflects environmental and energy independence con- els, and increasing biofuel profitability through induced cerns. Indeed, biofuels constituted the largest demand innovation. In the long term, energy could play an even growth component of grains and oilseeds during the past more important role in the determination of food prices. decade. Currently, biofuels account for about 2 -3 percent of the area allocated to grains and oilseeds and represent The cost link (A and B/C in box figure 3.1). The strong the equivalent of 1.2 million barrels of crude oil per day. relationship between energy and non -energy prices was The largest share of biofuel production (48 percent) comes established long before the post-2004 price boom. Gilbert from maize-based ethanol in the United States, followed (1989) estimated transmission elasticity from energy to by sugarcane-based ethanol from Brazil (22 percent) and non-energy commodities of 0.12 and from energy to food edible oil-based biodiesel in Europe (17 percent). Numer- commodities of 0.25. Hanson, Robinson, and Schluter ous studies have examined the impact of biofuels on food (1993) based on a general equilibrium model found a sig- prices, finding a wide range of estimates. Mitchell (2008) nificant effect of oil price changes to agricultural producer found that the expansion of biofuels and the policy reac- prices in the United States. Borensztein and Reinhart tions that higher prices induced were responsible for al- (1994) estimated transmission elasticity to non-energy most three-quarters of food price increases during 2000- commodities of 0.11. A strong relationship between ener- 08. Gilbert (2010) finds that at most one -quarter to one- gy and non-energy prices was found by Chaudhuri (2001) third of the rise in food prices over 2006–08 can be directly as well. Baffes (2007) estimated transmission elasticities attributed to biofuels. Roberts and Schlenker (2010) con- of 0.16 and 0.18 for non-energy and food commodities, clude that U.S. biofuel mandates increase maize prices respectively. Moss, Livanis, and Schmitz (2010) found that roughly 20 percent. U.S. agriculture’s energy demand is more sensitive to price changes than any other input. Pindyck and Rotem- More recently, the impact of biofuels on food prices has berg (1990) concluded that various unrelated primary been studied through the link between energy and non - commodity prices not only co-move, but also co-move in energy prices. Serra (2011) found not only a long -run link- excess of what macroeconomic fundamentals can explain. age between ethanol and sugarcane prices in Brazil but The strong energy/food price link is also evidenced by also that crude oil and sugarcane prices lead ethanol pric- input-output values of the GTAP database, which show es—not vice versa. Saghaian (2010) established strong that the direct energy component of the agriculture sector correlation among oil and other commodity prices is four to five times higher than that of the manufacturing (including food) but the evidence for a causal link from oil sector (box figure 3.2). to other commodities was mixed. Gilbert (2010) found correlation between the oil and food prices both in terms of The policy-driven biofuel link (D/F): In addition to being levels and changes, but also noted that it is the result of a key cost component, energy plays an important role on common causation rather than a direct causal link. Zhang the demand side through the diversion of some food com- and others (2010) found no direct long-run relationship modities to the production of biofuels. The role of biofuels between fuel and agricultural commodity prices and only a is not new. Kovarick (2012) identified four periods of biofu- limited short-run relationship. Reboredo (2012) concluded el use. The first went up to the mid-19th century, when the that the prices of maize, wheat, and soybeans are not chief uses of biofuels were cooking and lighting. The se- driven by oil price fluctuations. Box figure 3.1 The energy/food price link Box Fig 3.2 Energy Intensities WORLD Energy Manufacture prices HIGH INCOME Agriculture DEVELOPING A SSA US Biofuel Food Fertilizer Canada H D production prices prices EU-12 China E Brazil India Turkey Policies 0 3 6 9 12 15 18 Source: Baffes (2013). Source: World Bank; GTAP database. 20 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook industry at $0.63/liter (assuming 4,000 liters maize -to- Overall, despite a nearly six-fold increase in biofuel pro- ethanol conversion). If an improved maize variety were to duction during the 2000s, the price link between energy increase the ethanol content by 10 percent, it would gen- and food commodities is not as clear-cut as some would erate $2,750/hectare in farmgate revenue, raising the cost have expected. This may partly be explained by the non - of maize to the food and feed industries to $275/ton, since market influence of mandates, which caused biofuel pro- this is how much the ethanol industry would pay. Further- duction to rise (and perhaps influence food prices) inde- more, the innovation in the energy content of maize would pendently of movements in oil prices. Consider an exoge- induce proportional price increases in all crops that could nous shock that pushes up crude oil prices and, in turn, be grown on that land. While the above example is hypo- lowers fuel consumption. With a mandated ethanol/ thetical, it does illustrate how innovations in the energy gasoline mixture in place, both ethanol and maize prices content (or in the efficiency of extracting ethanol) of exist- will decline, ceteris paribus, leading to a negative food-oil ing or new crops could trigger food price increases, even price relationship (de Gorter and Just 2009). in the absence of changes in energy prices or demand and supply conditions of food commodities. Link through profitable biofuels (G1): A more important issue is the level at which energy prices provide a floor to The food-fuel-biofuel link can be summarized in two oil food prices. If biofuels are profitable at current energy price scenarios (box figure 3.4). The less likely of the two, prices, the income elasticity of food will rise toward the the “low” oil price scenario, could materialize if a sharp higher elasticity of the larger (box figure 3.3) energy mar- slowdown in emerging economy growth takes place. It ket, a point highlighted by numerous authors, including could also materialize in response to innovation in battery Lustig (2008), Heady and Fan (2010), and Baffes and technology and/or large-scale utilization of natural gas, Dennis (2013). Various rules of thumb to determine when both of which could lead to substitution away from crude biofuel production becomes profitable have been posited. oil to electricity and natural gas by the transportation in- One such rule suggests profitability is reached when the dustry. With low oil prices, the energy costs to agriculture US$ barrel price of crude oil is 50 percent or more than would decline, leading to lower food prices—scenario I(b). the US$ price per ton of maize. Another places it at $3/ Low oil prices may ease biofuel policies, lowering food gallon of gasoline at the pump (in the United States). A prices even further—scenario I(a). Interestingly, while World Bank (2009) report argued that because of the scenario I(a) is consistent with a strong link between oil strong correlation between the maize and crude oil prices and food prices (through production costs), scenario I(b) above $50/barrel, crude oil dictate maize prices. The U.S. implies a weakening of the link (because of the mandated Government Accountability Office (2009) noted that oil nature of biofuels). Now consider the “high” oil price sce- above the $80-$120/barrel range may make biofuels prof- nario. As noted above, high oil prices are likely to make itable (depending on the circumstances). Babcock (2011) biofuels profitable, in which case food and oil prices will noted that high crude oil prices would have created market move in a synchronous manner—scenario II(a). Moreover, -driven investment incentives in the U.S. ethanol industry profitable biofuels may induce innovation in the energy even in the absence of policies. content of crops, in which case food prices could increase even further—scenario II(b). Under scenario II(b), the oil - Induced innovation link (G2): Profitable biofuels may food price link may weaken since food prices may in- induce innovations by increasing the energy content of crease even if demand and supply conditions for food and biofuel crops, hence increasing food prices even further. energy markets do not change. Consider the following illustrative example: one hectare of land produces 10 tons of maize, which generates $2,500 in farmgate revenue either by supplying maize to the food and feed industry at $250/ton or by selling it to the ethanol Box figure 3.3 Global energy shares Box figure 3.4 Oil and food price scenarios Oil 32.6% OIL PRICES Wind 58.1% Coal 29.8% Biofuels 27.2% I II Natural gas 23.9% Low High Hydro 6.5% Solar 11.6% Biofuel policies ease Biofuel policies are Biofuels become Innovation in or are removed retained profitable biofuels (A, B/C) (D/F) (G1) G2) Nuclear 5.2% Geothermal 3.2% Renewables 1.8% I(a) I(b) II(a) II(b) Very low food Low food prices High food prices Very high food prices and strong and (perhaps) weak and strong food-oil prices and weak 0% 10% 20% 30% 40% 0% 20% 40% 60% 80% food-oil price link food-oil price link price link food-oil price link Source: BP Statistical Review and author’s calculations Source: World Bank; BP Statistical Review. 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Zilberman, David, Gal Hochman, Deepak Rajagopal, Steve Sexton, and Govinda Timilsina (2013). “The Impact of Biofuels on Commodity Food Prices: Assess- ment of Findings.” American Journal of Agricultural Eco- 23 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Table A1: Commodity Price Data Annua l a ve ra ge s Q ua rte rly a ve ra ge s Monthly a ve ra ge s Jan- Dec Jan- Dec Jan- Dec Apr- Jun Jul- Sep Oct- Dec Jan- Mar Apr- Jun Apr May Jun Commodity Unit 2010 2011 2012 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013M04 2013M05 2013M06 Ene rgy Coal, Australia a/ $/mt 99.0 121.4 96.4 95.5 89.4 86.9 92.9 86.1 87.8 87.7 82.8 Coal, Colombia $/mt 78.0 111.5 84.0 82.2 82.7 79.3 79.3 71.8 75.1 73.4 66.9 Coal, South Africa $/mt 91.6 116.3 92.9 93.5 87.4 85.8 84.7 80.4 82.0 81.8 77.3 Crude oil, average a/ $/bbl 79.0 104.0 105.0 102.8 102.8 101.9 105.1 99.3 98.9 99.4 99.7 Crude oil, Brent a/ $/bbl 79.6 110.9 112.0 108.9 110.0 110.5 112.9 103.0 102.9 103.0 103.1 Crude oil, Dubai a/ $/bbl 78.1 106.0 108.9 106.2 106.2 107.2 108.0 100.8 101.7 100.3 100.3 Crude oil, West Texas Int. a/ $/bbl 79.4 95.1 94.2 93.4 92.2 88.1 94.3 94.2 92.0 94.8 95.8 Natural gas Index a/ 2005=100 91.1 107.3 108.2 106.3 108.0 112.1 114.5 120.6 125.0 120.2 116.8 Natural gas, Europe a/ $/mmbtu 8.3 10.5 11.5 11.5 11.1 11.7 11.8 12.4 12.9 12.3 11.9 Natural gas, US a/ $/mmbtu 4.4 4.0 2.8 2.3 2.9 3.4 3.5 4.0 4.2 4.0 3.8 Natural gas LNG a/ $/mmbtu 10.8 14.7 16.6 17.1 17.6 15.2 16.2 16.0 16.2 15.9 16.1 Non Ene rgy Agric ulture Be ve ra ge s Cocoa b/ ¢/kg 313.3 298.0 239.2 228.2 249.4 245.1 220.9 230.7 229.4 234.3 228.4 Coffee, arabica b/ ¢/kg 432.0 597.6 411.1 400.4 400.0 357.1 335.5 319.9 330.3 324.5 304.8 Coffee, robusta b/ ¢/kg 173.6 240.8 226.7 231.0 234.1 219.5 227.8 214.3 224.2 218.6 200.1 Tea, auctions (3) avg. b/ ¢/kg 288.5 292.1 289.8 292.2 308.4 303.6 294.6 287.3 288.9 295.4 277.5 Tea, Colombo auctions b/ ¢/kg 329.0 326.4 306.3 304.7 308.1 319.5 338.4 328.5 339.1 329.2 317.3 Tea, Kolkata auctions b/ ¢/kg 280.5 277.9 275.0 289.9 313.4 291.4 258.1 297.9 290.9 318.4 284.4 Tea, Mombasa auctions b/ ¢/kg 256.0 271.9 288.1 282.0 303.5 300.0 287.3 235.4 236.8 238.8 230.8 Food Fa ts a nd O ils Coconut oil b/ $/mt 1,123.6 1,730.1 1,110.8 1,187.0 1,012.7 843.7 836.7 839.0 793.0 828.0 896.0 Copra $/mt 749.6 1,157.3 740.6 793.3 671.7 564.7 553.3 560.0 523.0 556.0 601.0 Groundnuts $/mt 1,283.9 2,086.2 2,174.5 2,616.7 1,858.3 1,423.0 1,360.3 1,400.0 1,400.0 1,400.0 1,400.0 Groundnut oil b/ $/mt 1,403.9 1,988.2 2,435.7 2,548.3 2,476.3 2,298.0 2,002.0 1,859.7 1,899.0 1,867.0 1,813.0 Palm oil b/ $/mt 900.8 1,125.4 999.3 1,088.3 993.0 809.3 852.7 850.7 842.0 849.0 861.0 Palmkernel oil $/mt 1,184.2 1,648.3 1,110.3 1,242.3 1,019.7 813.0 824.3 836.7 828.0 827.0 855.0 Soybean meal b/ $/mt 378.4 398.0 524.1 487.7 630.3 586.7 531.0 528.3 484.0 543.0 558.0 Soybean oil b/ $/mt 1,004.6 1,299.3 1,226.3 1,236.0 1,258.0 1,157.7 1,160.3 1,070.3 1,095.0 1,073.0 1,043.0 Soybeans b/ $/mt 449.8 540.7 591.4 571.7 672.0 604.3 566.3 505.3 495.0 497.0 524.0 G ra ins Barley b/ $/mt 158.4 207.2 240.3 237.8 258.4 249.3 239.5 229.7 229.5 229.8 229.9 Maize b/ $/mt 185.9 291.7 298.4 270.2 328.6 317.2 305.0 291.3 279.9 295.5 298.4 Rice, Thailand, 5% b/ $/mt 488.9 543.0 563.0 582.8 568.3 558.4 562.1 546.4 557.0 543.5 538.8 Rice, Thailand, 25% $/mt 441.5 506.0 .. .. 547.9 530.8 537.9 509.4 535.6 508.8 483.8 Rice,Thai, A.1 $/mt 383.7 458.6 525.1 545.4 513.3 521.2 532.5 511.1 530.6 510.8 492.0 Rice, Vietnam 5% $/mt 429.2 513.6 434.4 428.7 433.6 438.6 401.5 387.8 390.8 386.8 385.9 Sorghum $/mt 165.4 268.7 271.9 259.4 273.4 285.4 292.0 259.9 269.2 273.6 236.8 Wheat, Canada $/mt 312.4 439.6 .. .. .. .. .. .. .. .. .. Wheat, US, HRW b/ $/mt 223.6 316.3 313.2 269.0 349.5 355.7 321.4 313.8 308.3 319.7 313.4 Wheat, US, SRW $/mt 229.7 285.9 295.4 251.8 333.4 337.3 297.6 275.2 278.1 279.3 268.2 O the r Food Bananas, Europe $/mt 1,002.2 1,124.7 1,099.7 1,171.2 982.3 1,102.8 1,095.7 1,072.4 1,103.3 1,054.0 1,060.0 Bananas, US b/ $/mt 868.3 968.0 984.0 979.2 959.9 944.5 929.6 907.2 902.5 909.4 909.8 Fishmeal $/mt 1,687.5 1,537.4 1,558.3 1,481.3 1,676.7 1,775.7 1,868.7 1,821.7 1,847.0 1,816.0 1,802.0 Meat, beef b/ ¢/kg 335.1 404.2 414.2 413.0 400.1 419.1 427.1 410.8 426.2 419.8 386.5 Meat, chicken b/ ¢/kg 189.2 192.6 207.9 207.1 209.7 213.2 221.0 229.4 226.1 229.5 232.7 Meat, sheep ¢/kg 531.4 663.1 609.1 618.3 587.5 586.2 553.2 545.5 543.5 542.7 550.2 Oranges b/ $/mt 1,033.2 891.1 868.0 843.8 995.5 861.9 825.9 1,062.0 980.5 1,057.0 1,148.5 Shrimp ¢/kg 1,004.5 1,193.1 1,006.5 977.4 970.0 1,023.9 1,126.2 1,146.4 1,146.4 1,146.4 1,146.4 Sugar, EU b/ ¢/kg 44.2 45.5 42.0 41.9 40.9 42.4 43.1 42.7 42.5 42.4 43.1 Sugar, US b/ ¢/kg 79.2 83.9 63.6 66.6 61.5 50.5 46.4 43.4 44.8 43.0 42.3 Sugar, world b/ ¢/kg 46.9 57.3 47.5 47.1 46.8 43.3 40.9 38.6 39.3 38.9 37.7 Ra w Ma te ria ls Timbe r Logs, Cameroon $/cum 428.6 484.8 451.4 452.6 436.2 453.2 456.2 457.4 455.9 454.2 462.0 Logs, Malaysia b/ $/cum 278.2 390.5 360.5 361.0 355.1 352.7 322.5 301.8 304.5 294.8 306.0 Plywood ¢/sheets 569.1 607.5 610.3 609.9 607.1 611.5 591.6 553.5 558.6 540.7 561.3 Sawnwood, Cameroon $/cum 812.7 825.8 759.3 760.7 755.2 765.9 740.7 736.2 733.6 732.5 742.6 Sawnwood, Malaysia b/ $/cum 848.3 939.4 876.3 883.8 864.3 874.4 845.2 837.4 834.4 833.2 844.6 Woodpulp $/mt 866.8 899.6 762.8 786.8 735.2 748.2 784.0 818.7 807.0 817.0 832.0 24 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Table A1: Commodity Price Data Annual averages Quarterly averages Monthly averages Jan-Dec Jan-Dec Jan-Dec Apr-Jun Jul-Sep Oct-Dec Jan-Mar Apr-Jun Apr May Jun Commodity Unit 2010 2011 2012 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013M04 2013M05 2013M06 Raw Materials Timber Logs, Cameroon $/cum 428.6 484.8 451.4 452.6 436.2 453.2 456.2 457.4 455.9 454.2 462.0 Logs, Malaysia b/ $/cum 278.2 390.5 360.5 361.0 355.1 352.7 322.5 301.8 304.5 294.8 306.0 Plywood ¢/sheets 569.1 607.5 610.3 609.9 607.1 611.5 591.6 553.5 558.6 540.7 561.3 Sawnwood, Cameroon $/cum 812.7 825.8 759.3 760.7 755.2 765.9 740.7 736.2 733.6 732.5 742.6 Sawnwood, Malaysia b/ $/cum 848.3 939.4 876.3 883.8 864.3 874.4 845.2 837.4 834.4 833.2 844.6 Woodpulp $/mt 866.8 899.6 762.8 786.8 735.2 748.2 784.0 818.7 807.0 817.0 832.0 Other Raw Materials Cotton b/ ¢/kg 228.3 332.9 196.7 198.9 185.6 180.9 198.2 204.3 203.4 204.3 205.2 Rubber, RSS3 b/ ¢/kg 365.4 482.3 337.7 359.1 297.0 309.6 315.6 290.5 286.7 303.8 281.0 Rubber, TSR20 ¢/kg 338.1 451.9 315.6 330.1 275.0 288.3 296.3 244.6 249.9 251.3 232.6 Fertilizers DAP b/ $/mt 500.7 618.9 539.8 545.2 565.0 532.3 491.6 490.5 508.3 485.1 478.3 Phosphate rock b/ $/mt 123.0 184.9 185.9 179.4 183.3 185.0 173.0 166.3 168.8 165.0 165.0 Potassium chloride b/ $/mt 331.9 435.3 459.0 461.3 464.8 430.1 390.8 392.3 391.5 393.0 392.5 TSP b/ $/mt 381.9 538.3 462.0 470.4 485.0 452.2 435.0 426.0 435.0 423.0 420.0 Urea b/ $/mt 288.6 421.0 405.4 470.0 381.3 383.0 396.6 342.4 361.5 344.4 321.4 Metals and Minerals Aluminum b/ $/mt 2,173.1 2,401.4 2,023.3 1,982.5 1,928.6 2,003.3 2,000.3 1,836.1 1,861.7 1,832.0 1,814.5 Copper b/ $/mt 7,534.8 8,828.2 7,962.3 7,889.4 7,729.2 7,913.2 7,918.0 7,161.3 7,234.3 7,249.4 7,000.2 Iron ore $/dmt 145.9 167.8 128.5 139.6 111.6 120.9 148.5 125.5 137.4 124.4 114.8 Lead b/ ¢/kg 214.8 240.1 206.5 197.9 198.7 220.1 229.0 205.3 202.7 203.3 210.0 Nickel b/ $/mt 21,808.9 22,910.4 17,547.5 17,185.7 16,383.9 16,984.2 17,295.8 14,967.1 15,673.0 14,948.0 14,280.3 Tin b/ ¢/kg 2,040.6 2,605.4 2,112.6 2,062.6 1,936.3 2,160.9 2,401.8 2,090.2 2,166.2 2,077.6 2,026.7 Zinc b/ ¢/kg 216.1 219.4 195.0 193.2 189.2 195.2 202.9 184.2 185.6 183.2 183.9 Precious Metals Gold $/toz 1,224.7 1,569.2 1,669.5 1,612.3 1,656.5 1,717.7 1,630.8 1,415.1 1,487.9 1,414.0 1,343.4 Platinum $/toz 1,609.8 1,719.5 1,550.8 1,500.1 1,500.9 1,598.1 1,632.1 1,466.2 1,493.1 1,475.2 1,430.2 Silver ¢/toz 2,015.3 3,522.4 3,113.7 2,941.0 2,994.7 3,261.2 3,006.0 2,316.7 2,535.5 2,303.8 2,110.9 World Bank commodity price indices (2005 =100) Energy 144.7 188.2 187.4 183.7 183.2 182.0 187.9 178.7 178.6 178.9 178.7 Non Energy 173.9 209.9 190.0 189.3 191.0 186.9 185.9 175.6 176.0 176.8 174.2 Agriculture 170.4 209.0 194.0 191.7 200.6 191.1 185.6 180.2 178.0 181.8 181.0 Beverages 182.1 208.2 166.2 162.7 169.7 160.8 151.8 149.9 152.1 152.7 144.9 Food 169.6 210.1 211.6 206.9 225.2 210.7 203.8 197.6 193.8 199.0 200.0 Fats and Oils 184.5 222.7 230.0 231.1 250.2 221.9 214.0 205.6 199.1 206.5 211.1 Grains 171.8 238.5 244.2 227.2 264.0 258.9 248.1 239.2 234.7 241.6 241.3 Other Food 148.2 167.8 157.9 156.8 157.1 152.4 150.1 149.4 150.0 150.5 147.9 Raw Materials 166.3 206.7 165.3 169.3 156.6 158.9 158.5 153.5 152.6 154.8 153.2 Timber 130.5 153.5 142.7 143.7 140.7 141.7 134.9 131.8 131.7 130.5 133.1 Other Raw Materials 205.4 264.8 190.0 197.4 173.9 177.7 184.3 177.3 175.4 181.4 175.1 Fertilizers 187.2 267.0 259.2 270.0 256.9 249.9 240.8 227.1 232.6 226.7 222.0 Metals and Minerals c/ 179.6 205.5 174.0 175.4 163.9 171.1 180.4 160.4 165.5 160.8 154.8 Base Metals d/ 169.2 193.2 168.6 166.2 162.1 167.7 169.2 152.8 154.9 153.7 149.7 Precious Metals 272.2 371.9 378.3 363.6 372.7 390.7 369.0 312.8 331.3 312.3 294.8 a/ Included in the energy index (2005=100), b/ Included in the non-energy index (2005=100), c/ base metals plus iron ore, d/ Includes aluminum, copper, lead, nickel, tin and zinc $ = US dollar ¢ = US cent bbl = barrel cum = cubic meter dmt = dry metric ton dmtu = dry metric ton unit kg = kilogram mmbtu = million British thermal units mt = metric ton toz = troy oz n.a. = not available n.q. = no quotation Sources include: Africa Tea Brokers Ltd Weekly Market Report, Bloomberg, Canadian Grain Commission, Canadian Wheat Board, Cotton Outlook, Coal Week International, Fertilizer International, Fertilizer Week, FRuiTROP, IHS McCloskey Coal Report, INFOFISH, INTERFEL Fel Actualités hebdo, International Cocoa Organization, International Coffee Organization, International Rubber Study Group, International Tea Committee, International Tropical Timber Organization, Internatonal Sugar Organization, ISTA Mielke GmbH Oil World, Japan Lumber Journal, Japan Metal Bulletin, Meat Trades Journal, MLA Meat & Livestock Weekly, Platts International Coal Report, Platts Metals Week, The Silver Institute, Singapore 25 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Table A2: Commodity Prices and Price Forecast in Nominal US Dollars Actual Forecast Commodity Unit 1980 1990 2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 Energy Coal, Australian $/mt 40.1 39.7 26.3 99.0 121.4 96.4 90.0 91.0 90.0 91.0 91.9 92.9 93.9 94.9 100.0 Crude oil, avg, spot $/bbl 36.9 22.9 28.2 79.0 104.0 105.0 100.7 99.6 98.9 98.0 97.2 96.6 96.2 95.8 96.1 Natural gas, European $/mmbtu 4.2 2.8 3.9 8.3 10.5 11.5 12.0 11.5 11.0 10.9 10.8 10.7 10.6 10.5 10.0 Natural gas, US $/mmbtu 1.6 1.7 4.3 4.4 4.0 2.8 3.8 4.0 4.5 4.7 4.9 5.1 5.4 5.6 7.0 LNG, Japanese $/mmbtu 5.7 3.6 4.7 10.8 14.7 16.6 15.5 15.2 15.0 14.7 14.5 14.2 13.9 13.7 12.5 Non Energy Commodities Agriculture Beverages Cocoa ¢/kg 260 127 91 313 298 239 225 232 230 229 228 227 226 225 220 Coffee, Arabica ¢/kg 347 197 192 432 598 411 315 330 340 341 342 343 344 345 350 Coffee, robusta ¢/kg 324 118 91 174 241 227 210 200 185 183 182 180 179 177 170 Tea, auctions (3) ave ¢/kg 166 206 188 288 292 290 280 288 291 295 298 301 305 308 325 Food Fats and Oils Coconut oil $/mt 674 337 450 1,124 1,730 1,111 850 900 920 918 916 914 912 910 900 Groundnut oil $/mt 859 964 714 1,404 1,988 2,436 1,900 1,925 1,900 1,895 1,890 1,885 1,880 1,875 1,850 Palm oil $/mt 584 290 310 901 1,125 999 860 870 880 872 863 855 847 839 800 Soybean meal $/mt 262 200 189 378 398 524 530 460 420 416 412 408 404 399 380 Soybean oil $/mt 598 447 338 1,005 1,299 1,226 1,100 1,075 1,050 1,045 1,040 1,035 1,030 1,025 1,000 Soybeans $/mt 296 247 212 450 541 591 530 525 520 519 518 517 516 515 510 Grains Barley $/mt 78 80 77 158 207 240 230 215 200 198 197 195 194 192 185 Maize $/mt 125 109 89 186 292 298 295 270 250 248 246 244 242 240 230 Rice, Thai, 5% $/mt 411 271 202 489 543 563 545 520 500 498 496 494 492 490 480 Wheat, US, HRW $/mt 173 136 114 224 316 313 315 310 300 297 295 292 290 287 275 Other Food Bananas US $/mt 377 541 424 868 968 984 930 945 940 938 936 934 932 930 920 Meat, beef ¢/kg 276 256 193 335 404 414 450 425 400 399 398 397 396 395 390 Meat, chicken ¢/kg 76 108 131 189 193 208 220 201 201 202 203 203 204 204 205 Oranges $/mt 400 531 363 1,033 891 868 1,100 1,050 1,000 993 986 978 971 964 930 Shrimp ¢/kg 1,152 1,069 1,513 1,004 1,193 1,006 1,150 1,035 1,100 1,110 1,120 1,130 1,140 1,150 1,200 Sugar, world ¢/kg 63.2 27.7 18.0 46.9 57.3 47.5 41.0 39.5 38.0 37.7 37.4 37.1 36.8 36.5 35.0 Agricultural Raw Materials Timber Logs, Cameroonian $/cum 252 343 275 429 485 451 460 460 465 473 481 489 497 505 535 Logs, Malaysian $/cum 196 177 190 278 391 361 310 345 368 374 381 387 393 400 425 Sawnwood, Malaysian $/cum 396 533 595 848 939 876 840 885 902 919 937 955 974 1,000 1,080 Other Raw Materials Cotton A Index ¢/kg 206 182 130 228 333 197 200 203 205 209 213 218 222 226 250 Rubber, Malaysian ¢/kg 142 86 67 365 482 338 290 305 310 309 308 307 306 305 300 Tobacco $/mt 2,276 3,392 2,976 4,333 4,485 4,302 4,350 4,200 4,150 4,140 4,130 4,120 4,110 4,100 4,050 Fertilizers DAP $/mt 222 171 154 501 619 540 490 485 480 478 476 474 472 470 460 Phosphate rock $/mt 47 41 44 123 185 186 170 160 150 145 140 135 130 125 105 Pottasium chloride $/mt 116 98 123 332 435 459 400 390 380 375 369 364 359 354 330 TSP $/mt 180 132 138 382 538 462 425 425 420 415 409 404 399 394 370 Urea $/mt 192 119 101 289 421 405 360 355 350 345 339 334 329 324 300 Metals and Minerals Aluminum $/mt 1,775 1,639 1,549 2,173 2,401 2,023 1,900 2,100 2,200 2,246 2,292 2,339 2,388 2,437 2,700 Copper $/mt 2,182 2,661 1,813 7,535 8,828 7,962 7,100 7,050 7,000 6,980 6,960 6,939 6,919 6,899 6,800 Iron ore ¢/dmtu 28 33 29 146 168 128 120 125 130 131 133 134 136 137 145 Lead ¢/kg 91 81 45 215 240 206 210 215 220 220 221 221 222 222 225 Nickel $/mt 6,519 8,864 8,638 21,809 22,910 17,548 15,000 18,200 18,500 18,645 18,791 18,938 19,086 19,235 20,000 Tin ¢/kg 1,677 609 544 2,041 2,605 2,113 2,100 2,200 2,300 2,319 2,339 2,358 2,378 2,398 2,500 Zinc ¢/kg 76 151 113 216 219 195 190 215 230 232 234 236 238 240 250 Precious Metals Gold $/toz 608 383 279 1,225 1,569 1,670 1,380 1,360 1,350 1,345 1,340 1,335 1,330 1,325 1,300 Silver c/toz 2,080 483 495 2,015 3,522 3,114 2,200 2,250 2,280 2,282 2,284 2,286 2,288 2,290 2,300 Platinum $/toz 679 472 545 1,610 1,719 1,551 1,480 1,450 1,400 1,384 1,369 1,353 1,338 1,323 1,250 a/ iron ore unit for years 1980 to 2005 is cents/ dmtu, thereafter is $/dmt. Source: World Bank 26 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Table A3: Commodity Prices and Price Forecast in Real 2005 US Dollars Actual Forecast Commodity Unit 1980 1990 2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 Energy Coal, Australian $/mt 52.7 41.1 29.4 87.6 99.1 80.3 75.7 75.1 73.4 73.4 73.3 73.1 72.8 72.4 70.0 Crude oil, avg, spot $/bbl 48.4 23.7 31.6 70.0 84.9 87.6 84.7 82.3 80.7 79.1 77.6 76.1 74.6 73.1 67.3 Natural gas, European $/mmbtu 5.5 2.9 4.3 7.3 8.6 9.6 10.1 9.5 9.0 8.8 8.6 8.4 8.2 8.0 7.0 Natural gas, US $/mmbtu 2.1 1.8 4.8 3.9 3.3 2.3 3.2 3.3 3.7 3.8 3.9 4.0 4.2 4.3 4.9 LNG, Japanese $/mmbtu 7.5 3.8 5.3 9.6 12.0 13.8 13.0 12.5 12.2 11.9 11.5 11.2 10.8 10.5 8.8 Non Energy Commodities Agriculture Beverages Cocoa ¢/kg 342 131 101 277 243 199 189 192 188 185 182 179 175 172 154 Coffee, Arabica ¢/kg 455 204 215 382 488 343 265 272 277 275 273 270 267 263 245 Coffee, robusta ¢/kg 426 122 102 154 197 189 177 165 151 148 145 142 139 135 119 Tea, auctions (3) ave ¢/kg 218 213 210 255 238 242 236 238 238 238 238 237 236 235 228 Food Fats and Oils Coconut oil $/mt 884 348 504 995 1,412 926 715 743 751 741 731 719 707 695 630 Groundnut oil $/mt 1,127 998 799 1,243 1,623 2,031 1,599 1,589 1,550 1,529 1,507 1,483 1,458 1,431 1,296 Palm oil $/mt 766 300 347 798 919 833 724 718 718 703 689 673 657 640 560 Soybean meal $/mt 344 207 212 335 325 437 446 380 343 336 328 321 313 305 266 Soybean oil $/mt 784 463 378 889 1,060 1,022 926 887 857 843 829 814 799 782 700 Soybeans $/mt 389 255 237 398 441 493 446 433 424 419 413 407 400 393 357 Grains Barley $/mt 103 83 86 140 169 200 194 177 163 160 157 154 150 147 130 Maize $/mt 164 113 99 165 238 249 248 223 204 200 196 192 188 183 161 Rice, Thai, 5% $/mt 539 280 227 433 443 469 459 429 408 402 396 389 381 374 336 Wheat, US, HRW $/mt 227 140 128 198 258 261 265 256 245 240 235 230 225 219 193 Other Food Bananas US $/mt 495 560 475 769 790 820 783 780 767 757 746 735 723 710 644 Meat, beef ¢/kg 362 265 216 297 330 345 379 351 326 322 317 312 307 301 273 Meat, chicken ¢/kg 99 112 147 168 157 173 185 166 164 163 162 160 158 156 143 Oranges $/mt 525 550 407 915 727 724 926 867 816 801 786 770 753 736 651 Shrimp ¢/kg 1,511 1,107 1,693 889 974 839 968 855 898 896 893 889 884 878 841 Sugar, world ¢/kg 82.9 28.6 20.2 41.6 46.8 39.6 34.5 32.6 31.0 30.4 29.8 29.2 28.5 27.8 24.5 Agricultural Raw Materials Timber Logs, Cameroonian $/cum 330 356 308 379 396 376 387 380 379 382 383 385 385 385 375 Logs, Malaysian $/cum 257 183 213 246 319 301 261 285 300 302 303 304 305 305 298 Sawnwood, Malaysian $/cum 520 552 666 751 767 731 707 731 736 742 747 752 755 763 757 Other Raw Materials Cotton A Index ¢/kg 271 188 146 202 272 164 168 168 167 169 170 171 172 173 175 Rubber, Malaysian ¢/kg 187 90 75 324 394 282 244 252 253 249 246 242 237 233 210 Tobacco $/mt 2,986 3,511 3,332 3,836 3,661 3,587 3,661 3,467 3,386 3,341 3,294 3,242 3,187 3,129 2,837 Fertilizers DAP $/mt 292 177 173 443 505 450 412 400 392 386 380 373 366 359 322 Phosphate rock $/mt 61 42 49 109 151 155 143 132 122 117 111 106 101 96 74 Pottasium chloride $/mt 152 102 137 294 355 383 337 322 310 302 295 287 279 270 231 TSP $/mt 237 136 154 338 439 385 358 351 343 335 327 318 310 301 259 Urea $/mt 252 123 113 256 344 338 303 293 286 278 271 263 255 247 210 Metals and Minerals Aluminum $/mt 2,329 1,697 1,734 1,924 1,960 1,687 1,599 1,734 1,795 1,812 1,828 1,841 1,852 1,860 1,891 Copper $/mt 2,863 2,755 2,030 6,671 7,205 6,639 5,976 5,820 5,712 5,633 5,551 5,461 5,366 5,266 4,763 Iron ore ¢/dmtu 37 34 32 129 137 107 101 103 106 106 106 106 105 105 102 Lead ¢/kg 119 84 51 190 196 172 177 177 180 178 176 174 172 170 158 Nickel $/mt 8,553 9,176 9,669 19,309 18,699 14,631 12,625 15,024 15,095 15,048 14,987 14,904 14,801 14,682 14,010 Tin ¢/kg 2,201 630 608 1,807 2,126 1,761 1,767 1,816 1,877 1,872 1,865 1,856 1,844 1,830 1,751 Zinc ¢/kg 100 157 126 191 179 163 160 177 188 187 187 186 184 183 175 Metals and Minerals Gold $/toz 798 397 312 1,084 1,281 1,392 1,161 1,123 1,102 1,085 1,069 1,051 1,031 1,011 911 Silver c/toz 2,730 500 554 1,784 2,875 2,596 1,852 1,857 1,860 1,842 1,822 1,799 1,774 1,748 1,611 Platinum $/toz 891 488 610 1,425 1,403 1,293 1,246 1,197 1,142 1,117 1,092 1,065 1,038 1,010 876 a/ iron ore unit for years 1980 to 2005 is cents/ dmtu, thereafter is $/dmt. Source: World Bank 27 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Table A4: Weighted Indices of Commodity Prices and Inflation, 2005=100 Actual Projection 1980 1990 2000 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025 Price indices in nominal US dollars Energy 66.9 43.6 53.3 144.7 188.2 187.4 180.8 179.0 177.6 176.4 175.3 174.5 173.9 173.5 174.9 Non-energy commodities 102.2 84.0 72.2 173.9 209.9 190.0 176.9 176.4 174.9 174.8 174.9 174.9 174.9 175.1 175.4 Agriculture 119.6 90.5 78.7 170.4 209.0 194.0 182.3 178.7 175.1 174.8 174.6 174.3 174.1 174.0 172.6 Beverages 157.7 90.5 76.8 182.1 208.2 166.2 146.7 150.5 150.5 150.5 150.7 150.8 150.9 151.0 151.7 Food 124.6 90.6 76.6 169.6 210.1 211.6 201.6 192.2 185.1 184.0 182.9 181.7 180.6 179.5 174.0 Fats and oils 120.4 82.3 76.6 184.5 222.7 230.0 209.5 201.0 195.8 194.4 193.1 191.8 190.4 189.1 182.8 Grains 126.8 99.4 79.9 171.8 238.5 244.2 240.8 226.4 213.8 212.2 210.6 209.1 207.6 206.0 198.6 Other food 128.0 93.6 73.8 148.2 167.8 157.9 155.7 149.7 145.3 144.8 144.3 143.8 143.3 142.9 140.2 Raw materials 88.0 90.2 84.7 166.3 206.7 165.3 153.6 160.2 163.2 164.8 166.5 168.2 169.9 172.2 179.8 Timber 68.1 82.3 90.9 130.5 153.5 142.7 133.0 142.1 146.6 149.3 152.1 154.9 157.8 161.6 173.8 Other Raw Materials 109.9 98.9 77.9 205.4 264.8 190.0 176.2 180.0 181.4 181.8 182.3 182.7 183.2 183.7 186.4 Fertilizers 89.1 65.4 67.0 187.2 267.0 259.2 232.8 226.6 219.8 215.4 211.2 207.0 203.0 199.0 180.6 Metals and minerals a/ 68.1 72.8 59.5 179.6 205.5 174.0 159.3 165.9 169.2 170.3 171.4 172.4 173.5 174.7 180.6 Base Metals b/ 73.9 78.1 63.0 169.2 193.2 168.6 153.4 159.8 162.1 162.9 163.7 164.5 165.3 166.2 170.7 Precious Metals 162.7 81.3 63.6 272.2 371.9 378.3 303.7 301.4 300.3 299.4 298.5 297.6 296.7 295.8 291.5 Price indices in real 2005 US dollars c/ Energy 87.8 45.1 59.6 128.1 153.6 156.2 152.2 147.8 144.9 142.4 139.8 137.3 134.9 132.4 122.5 Non-energy commodities 134.1 87.0 80.8 154.0 171.4 158.4 148.9 145.6 142.7 141.1 139.5 137.6 135.7 133.6 122.9 Agriculture 156.9 93.7 88.1 150.9 170.6 161.7 153.5 147.5 142.9 141.1 139.2 137.2 135.0 132.8 120.9 Beverages 207.0 93.7 86.0 161.3 170.0 138.6 123.5 124.2 122.8 121.5 120.2 118.7 117.0 115.3 106.3 Food 163.4 93.8 85.8 150.2 171.5 176.4 169.7 158.7 151.1 148.5 145.8 143.0 140.1 137.0 121.9 Fats and oils 158.0 85.2 85.7 163.3 181.8 191.8 176.4 165.9 159.7 156.9 154.0 150.9 147.7 144.4 128.1 Grains 166.4 102.9 89.5 152.1 194.7 203.6 202.7 186.9 174.4 171.3 168.0 164.6 161.0 157.3 139.1 Other food 167.9 96.9 82.6 131.2 136.9 131.6 131.0 123.6 118.5 116.8 115.1 113.2 111.2 109.1 98.2 Raw materials 115.5 93.4 94.8 147.2 168.7 137.8 129.3 132.2 133.2 133.0 132.8 132.4 131.8 131.4 126.0 Timber 89.3 85.1 101.8 115.5 125.2 119.0 111.9 117.3 119.6 120.5 121.3 121.9 122.4 123.4 121.8 Other Raw Materials 144.2 102.3 87.2 181.9 216.1 158.4 148.3 148.6 148.0 146.8 145.4 143.8 142.0 140.2 130.6 Fertilizers 116.9 67.7 75.1 165.7 217.9 216.1 195.9 187.0 179.4 173.9 168.4 162.9 157.4 151.9 126.5 Metals and minerals a/ 89.4 75.4 66.6 159.0 167.7 145.1 134.1 137.0 138.1 137.4 136.7 135.7 134.6 133.3 126.5 Base Metals b/ 97.0 80.9 70.6 149.8 157.7 140.5 129.2 131.9 132.3 131.5 130.5 129.4 128.2 126.8 119.6 Precious Metals 213.4 84.2 71.2 241.0 303.6 315.4 255.6 248.8 245.0 241.6 238.0 234.2 230.1 225.8 204.2 Inflation indices, 2005=100 d/ MUV index e/ 76.2 96.6 89.3 112.9 122.5 119.9 118.8 121.1 122.6 123.9 125.4 127.1 129.0 131.0 142.8 US GDP deflator 47.8 72.3 88.7 111.0 113.4 115.4 116.8 119.4 122.0 124.6 127.3 130.1 132.9 135.8 151.2 a/ Base metals plus iron ore. b/ Includes aluminum, copper, lead, nickel, tin and zinc. c/ Real price indices are computed from unrounded data and deflated by the MUV index. d/ Inflation indices for 2011-2025 are projections. Growth rates for years 1990, 2000 and 2010 refer to compound annual rate of change between adjacent end-point years; all others are annual growth rates from the previous year. e/ Unit value index of manufacture exports (MUV) in US dollar terms for fifteen countries (Brazil, Canada, China, Germany, France, India, Italy, Japan, Mexico, Republic of Korea, South Africa, Spain, Thailand, United Kingdom, and United States). Source: World Bank. Historical US GDP deflator: US Department of Commerce. 28 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Description of price Coffee (ICO), International Coffee Organization indicator price, other mild Arabicas, average New York and Bremen/Hamburg markets, ex-dock. series Coffee (ICO), International Coffee Organiza- tion indicator price, Robustas, average New York and Le Havre/Marseilles markets, ex- Coal (Australia), thermal, f.o.b. piers, Newcas- dock. tle/Port Kembla, 6,700 kcal/kg, 90 days forward delivery beginning year 2011; for period 2002- Tea, average three auctions, arithmetic average 2010, 6,300 kcal/kg (11,340 btu/lb); prior to year of quotations at Kolkata, Colombo and Mom- 2002, 6,667 kcal/kg (12,000 btu/lb). basa/Nairobi. Coal (Colombia), thermal, f.o.b. Bolivar, 6,450 Tea (Colombo auctions), Sri Lankan origin, all kcal/kg, (11,200 btu/lb) ; during years 2002-July tea, arithmetic average of weekly quotes. 2005 11,600 btu/lb, less than .8% sulfur, 9% ash , Tea (Kolkata auctions), leaf, include excise duty, 90 days forward delivery arithmetic average of weekly quotes. Coal (South Africa), thermal, f.o.b. Richards Tea (Mombasa/Nairobi auctions), African Bay, 90 days forward delivery; 6,000 kcal/kg, dur- origin, all tea, arithmetic average of weekly ing 2002-2005, 6,200 kcal/kg (11,200 btu/lb); quotes. during 1990-2001 6390 kcal/kg (11,500 btu/lb) Crude oil, average price of Brent, Dubai and Coconut oil (Philippines/Indonesia), bulk, c.i.f. West Texas Intermediate, equally weighed. Rotterdam. Crude oil, U.K. Brent 38` API. Copra (Philippines/Indonesia), bulk, c.i.f. N.W. Europe. Crude oil, Dubai Fateh 32` API. Groundnuts (US), Runners 40/50, shelled basis, Crude oil, West Texas Intermediate (WTI) 40` c.i.f. Rotterdam API. Groundnut oil (any origin), c.i.f. Rotterdam. Natural Gas Index (Laspeyres), weights based on 5-year consumption volumes for Europe, US Palm oil (Malaysia), 5% bulk, c.i.f. N. W. Eu- and Japan (LNG), updated every 5 years, except rope. the 11-year period 1960-70. Palmkernel Oil (Malaysia), c.I.f. Rotterdam. Natural Gas (Europe), average import border price, including UK. As of April 2010 includes a Soybean meal (any origin), Argentine 45/46% spot price component. Between June 2000 - extraction, c.i.f. Rotterdam beginning 1990; pre- March 2010 excludes UK. viously US 44%. Natural Gas (U.S.), spot price at Henry Hub, Soybean oil (Any origin), crude, f.o.b. ex-mill Louisiana. Netherlands. Natural gas LNG (Japan), import price, cif, Soybeans (US), c.i.f. Rotterdam. recent two months' averages are estimates. Barley (US) feed, No. 2, spot, 20 days To- Cocoa (ICCO), International Cocoa Organiza- Arrive, delivered Minneapolis from May 2012 tion daily price, average of the first three posi- onwards; during 1980 - 2012 April Canadian, tions on the terminal markets of New York and feed, Western No. 1, Winnipeg Commodity Ex- London, nearest three future trading months. change, spot, wholesale farmers' price 29 GLOBAL ECONOMIC PROSPECTS | July 2013 Commodity Markets Outlook Maize (US), no. 2, yellow, f.o.b. US Gulf ports. packed, Georgia Dock preliminary weighted av- erage, wholesale. Rice (Thailand), 5% broken, white rice (WR), milled, indicative price based on weekly surveys Meat, sheep (New Zealand), frozen whole car- of export transactions, government standard, casses Prime Medium (PM) wholesale, Smith- f.o.b. Bangkok. field, London beginning January 2006; previous- ly Prime Light (PL). Rice (Thailand), 25% broken, WR, milled indic- ative survey price, government standard, f.o.b. Oranges (Mediterranean exporters) navel, EEC Bangkok. indicative import price, c.i.f. Paris. Rice (Thailand), 100% broken, A.1 Super from Shrimp, (Mexico), west coast, frozen, white, No. 2006 onwards, government standard, f.o.b. 1, shell-on, headless, 26 to 30 count per pound, Bangkok; prior to 2006, A1 Special, a slightly wholesale price at New York. lower grade than A1 Super. Sugar (EU), European Union negotiated import Rice (Vietnam), 5% broken, WR, milled, weekly price for raw unpackaged sugar from African, indicative survey price, Minimum Export Price, Caribbean and Pacific (ACP) under Lome Con- f.o.b. Hanoi. ventions, c.I.f. European ports. Sorghum (US), no. 2 milo yellow, f.o.b. Gulf Sugar (US), nearby futures contract, c.i.f. ports. Sugar (world), International Sugar Agreement Wheat (Canada), no. 1, Western Red Spring (ISA) daily price, raw, f.o.b. and stowed at great- (CWRS), in store, St. Lawrence, export price. er Caribbean ports. Wheat (US), no. 1, hard red winter, ordinary protein, export price delivered at the US Gulf port for prompt or 30 days shipment. Wheat (US), no. 2, soft red winter, export price delivered at the US Gulf port for prompt or 30 days shipment. Bananas (Central & South America), major brands, free on truck (f.o.t.) Southern Europe, including duties; prior to October 2006, f.o.t. Hamburg. Bananas (Central & South America), major brands, US import price, f.o.t. US Gulf ports. Fishmeal (any origin), 64-65%, c&f Bremen, estimates based on wholesale price, beginning 2004; previously c&f Hamburg. Meat, beef (Australia/New Zealand), chucks and cow forequarters, frozen boneless, 85% chemical lean, c.i.f. U.S. port (East Coast), ex- dock, beginning November 2002; previously cow forequarters. Meat, chicken (US), broiler/fryer, whole birds, 2-1/2 to 3 pounds, USDA grade "A", ice- 30