Commodity Prices Tumble as World Bank Cuts Global Growth Forecast


JANUARY 14, 2015

Singapore. Global commodity prices came under heavy downward pressure on Wednesday as an oil rout continued and the World Bank lowered its global growth forecast due to disappointing economic prospects in the euro zone and Asia.

Oil prices fell further, with benchmark crude trading below $46 a barrel, down nearly 60 percent since last June, while benchmark copper futures, often seen as a barometer of industrial demand, crashed over 6 percent to below $5,500 a tonne to levels last seen in 2009.

In coal markets, European prompt contracts have lost a quarter of their value in the last eight weeks to $57.70 a tonne, as oversupply adds to the impact of slowing demand.

The price crashes came as the World Bank lowered its global growth forecast due to disappointing economic prospects in the euro zone, Asia and some major emerging economies, offsetting the benefit of lower oil prices.

Its report forecast global economic growth of 3 percent this year, below a previous forecast of 3.4 percent, and 3.3 percent in 2016, down from 3.5 percent.

While the sharp decline in commodity prices is good news for households and industry as their energy and raw material costs fall, it puts deflationary pressure on many economies.

Headline CPI in the Asean region has dipped into deflation territory recently due to lower oil prices, US bank Morgan Stanley said on Wednesday, although it noted core inflation, which strips out one-off price shocks, has stayed resilient.

“We estimate that every 10 percent fall in oil prices would reduce CPI by 24bp (basis points) from first-round impact, all else equal,” it said in a note.

In energy, prices have been falling due to huge overcapacity. Oil, the most important fuel for transportation, has been plagued by an emerging supply glut as soaring North American shale oil production has been added to rising output elsewhere, such as Russia or the 13-country producer club OPEC, led by the oil-rich Gulf region.

In copper, however, an expected small 2015 surplus is already being whittled away, suggesting that buyers might soon pounce on low prices.

Coal, the most used fuel in the electricity generation sector, has seen capacity rising in the past five years while demand in core markets like Europe, the US and also China has slowed because of increased use of alternative sources like renewables or natural gas.