No wonder the Aussie, Kiwi and Canadian dollars are under pressure as the bad news for commodity producing nations keeps coming.
Overnight the World Bank released a report saying that the outlook remains so bleak that, “this year may well see a rare occurrence for world commodity markets – a decline in all nine key commodity price indices.”
They expect broad-based commodity weakness to continue, “throughout 2015, before beginning a modest turnaround in 2016.”
Here’s the summary of the World Bank’s Outlook:
In oil markets, a “perfect storm” of conditions has led to a plunge in prices since mid-2014: growth in unconventional oil production, decline in demand, appreciation of the U.S. dollar, receding geopolitical risks, and a major redirection toward maintaining market share rather than targeting prices by the world’s oil cartel, Organization of the Petroleum Exporting Countries (OPEC). Oil prices have dropped 55 percent in seven months, from the most recent high of $108 per barrel in mid-June 2014 to $47 two days ago. Should the current slide continue, it could surpass the previous records of a 7-month decline of 67 percent, set in 1985/86, and a 75 percent drop in 2008.
In addition, the World Bank’s three industrial commodity price indices – energy, metals and minerals, and agricultural raw materials – experienced near identical declines between early 2011 and the end of 2014, of more than 35 percent each, and will continue to contract this year. Prices of precious metals are also expected to decline by 3 percent in 2015, on top of the 12 percent decline seen in 2014. Again, ample supplies, weak demand, and a strengthening U.S. dollar have weighed on prices of these commodities as well.
Food commodity prices, which have declined by 20 percent since 2011, are projected to drop by a further 4 percent in 2015, given that current good crop prospects for grains, edible oils and meals, and beverages (led by coffee) in the 2014/15 season.
Gold and Silver are certainly doing their best in early 2015, as volatility rises, to put in solid price appreciation but Ayhan Kose, Director of the World Bank’s Development Prospects Group, said that, “Global supply and demand conditions have conspired to generate lower price expectations for all nine of the World Bank’s commodity price indices – an extremely rare occurrence.”