The Fall 2022 edition of theCommodity Markets Outlookhighlights how shrinking value of the currencies of most developing economies is driving up food and fuel prices in ways that could deepen the food and energy crises that many of them already face.
Commodity price developments
Most commodity prices have retreated from their peaks in the aftermath of the post-pandemic demand surge and war in Ukraine. The decline has been driven by a sharp global growth slowdown and concerns about an impending global recession. However, individual commodities have seen divergent trends amid differences in supply conditions and their response to softening demand.
Commodity prices remain elevated in domestic currency terms
Commodity prices remain elevated in many countries in domestic currency terms as their currencies have depreciated. For example, from February 2022 to September 2022, the price of Brent crude oil in U.S. dollars fell nearly 6 percent. Yet, because of currency depreciations, almost 60 percent of oil-importing emerging market and developing economies saw an increase in domestic-currency oil prices during this period. Nearly 90 percent of these economies also saw a larger increase in wheat prices in local currency terms compared to the rise in U.S. dollars.
Oil prices retreat from their June highs
Brent crude oil prices fell sharply during 2022Q3, with prices in September 2022 averaging 25 percent below their June highs. The fall reflects concerns about an impending global recession, continued pandemic restrictions in China, and substantial releases from strategic reserves. Oil prices saw a partial rebound in October as OPEC+ members agreed to cut their production targets by 2 million barrels per day. Oil prices are expected to average $92/bbl in 2023, close to current levels. The main downside risk is a global economic recession, which could lead to weaker demand. Upside risks relate to supply issues, including weaker-than-expected U.S. production or lower production among OPEC+.
Aggressive natural gas purchases keep prices high
European natural gas reached an all-time high of $70/mmbtu in August 2022 due to aggressive actions by several European countries to import liquefied natural gas to rebuild inventories and compensate for reduced flows of gas from Russia. Prices in Japan and the U.S. also saw large increases. European prices subsequently dropped as inventories filled and consumers reduced their consumption in response to higher prices and warmer-than-usual weather. Natural gas prices are expected to ease in 2023 as demand weakens. However, the outlook will depend on the severity of the winter in Europe. A colder-than-expected winter could result in very low inventory levels by the end of the winter and would prove difficult to refill in 2023.
Coal markets have been influenced by natural gas prices
Developments in coal markets have been heavily influenced by high natural gas prices, which encouraged many countries to switch from natural gas to coal in power generation. In addition, the EU’s ban on Russian coal imports in August has altered trade flows. Europe has imported more coal from Colombia, South Africa, the United States, and even Australia. Meanwhile, Russia has rerouted cargoes that would typically have gone to the European Union to other countries, including India and Türkiye. These diversions have resulted in a significant increase in transport distances and therefore higher transport costs since coal is bulky and expensive to transport.
Food price retreat from their April highs
Food commodity prices declined in 2022Q3 from their all-time highs in April. The decline has been caused by larger-than-expected edible and oilseed global supplies during the ongoing season, the UN-brokered agreement that allowed Ukrainian grains to reach global markets, and deteriorating global growth prospects. Grain supplies will be lower this season, however, due to a projected decline in maize supplies, in response weather-related lower yields in the United States and the European Union.
Fertilizer affordability at its lowest since 2008-09
Fertilizer prices fell in the third quarter of 2022 but remain at historically elevated levels. The pullback in prices reflects weak demand as farmers cut back fertilizer field applications due to problems associated with affordability—fertilizer affordability is at its lowest level since 2008-09. High input costs, especially energy, additional sanctions on Belarus and Russia, and extended export restrictions by China pose upside price risks.
Weak demand, especially by China, weigh on metal markets
Metal prices fell 20 percent in the third quarter of 2022Q3 (q/q) and were more than 30 percent lower in September than their March peak. The decline primarily reflects deteriorating global economic activity and concerns about a possible global recession. Global industrial commodity demand continued to weaken following its post-pandemic surge. Demand also remained weak in China, the world’s largest metal consumer, amid COVID-19-related restrictions and property sector stress.
Precious metal prices retreat despite rising inflation and geopolitical tensions
Most precious metal prices have fallen since March in response to weak investment and physical demand owing to the strength of the U.S. dollar and higher interest rates. These factors have outweighed the positive impact of safe-haven demand related to the war in Ukraine and rising inflation.
