Commodity price recovery is gaining foot

Commodity prices will turn to a slight recovery during the 2015 – 2016 forecasting period, foresees the Working Group on Commodity Prices of AIECE, Association of European Business Cycle Institutes in the biannual report ” World Trade and Commodity Prices in 2015 – 2016”. Pulled by crude oil prices, energy raw materials are expected to appreciate most. In the long term the price of crude oil is anticipated to settle in the USD 70–75 bandwidth per barrel.

Thanks to the present low price environment the overall picture for oil demand should brighten in the coming months, but it is not expected to improve considerably. As the low price level simultaneously affects the production of shale oil in the United States, oil prices are expected to converge towards a more sustainable level. However, prices are unlikely to exceed USD 100 per barrel, since a triple-digit oil price would be enough for the US supply alone to fully offset the World incremental oil demand.

The Working Group on Commodity Prices warns that the search for equilibrium may be a prolonged process with great volatility. It is also worth noting that, given the huge amount of persisting risks both on the demand and the supply side, the forecast is subject to considerable uncertainty.

Coal prices are expected to decline during the forecasting period due to weakening demand growth. As a consequence of ambitious investment programs to meet skyrocketing Chinese demand in previous decade production capacities are vast and increasing. China is anticipated to remain the world’s leading consumer and importer of coal, though the growth rate of its imports is to be quite modest.

The price for most of the non-ferrous metals is close to the marginal production costs. Therefore a further retrenchment from current values is unlikely. Looking ahead an overall recovery is expected, as mine depletion and closures of uneconomical plants would tighten the physical balance for most of the metals. On aggregate, the nonferrous metals are forecasted to show a substantial recovery starting from 2016.

In line with other non-ferrous metals, nickel prices are expected to recover globally in the second half of the year, on declining nickel pig iron production, stronger demand from the European stainless market and reduced nickel ore availability. Nickel could end in deficit during 2015, and the deficit could expand in 2016. However, stock levels will remain high in 2015 and new supply could offset the slowdown in nickel pig iron production to a degree, limiting a material price rise in 2016.

The price of iron ore is forecasted to remain low for an extended period as growth of demand will be rather weak and seaborne iron ore supply is rising rather strongly. The supply low-cost ore especially form Australia has increased massively. The price forecast for iron ore is rather uncertain as timing of the supply reductions of the high-cost producers depend partly on political decisions.

World steel markets suffer from significant excess capacity, which depresses the steel market outlook. For instance the price of reinforcing rounds or REBAR is expected to decline of about 10 per cent in 2015 while stabilising in 2016. While the old and inefficient capacities are shut markedly especially by a dominant producer China, more new capacities is entering the markets due to strong past investments. The weakening growth of steel demand in China implies growing flow of Chinese steel to world markets. It will continue to be a big concern for the producers elsewhere and may intensify the ongoing trade disputes. Substantial reduction of world capacities is necessary to normalise the steel markets.

After the decline in the early 2015 the price of Northern bleached softwood kraft (NBSK) is expected to post a slight rise in the fall in 2015. A further modest 3 per cent rise in NBSK pulp price is anticipated to emerge in 2016. The pulp demand from China has continued strong, which has limited the downside in prices, together with some reductions of outdated pulp and paper capacity. The outlook for the NBSK pulp is slowly brightening as Euro Area economies are gaining more strength adding to a strengthening US demand.

The sawn-wood prices are forecast to decrease further in 2015 and 2016 due to the surplus of sawn wood in the international market. However in the second half of 2016 the oversupply is expected to diminish, and prices should experience a slight recovery.

While grain markets are expected to become more balanced going forward with even noticeable deficits envisaged for 2015/16, supply is expected to remain ample over the forecast horizon given that the level of inventories is historically high. Thus the upside to prices seems limited for the time being. For 2015 world market prices for cereals are forecasted to decrease by 12 per cent on average, followed by a small increase in 2016.

The corrections in coffee prices in the last months are assessed to have been too pronounced, which gives room for upward prices. The outlook of a global supply deficit in the recent and the next season is expected to support the coffee prices in 2015 and 2016.

For additional information: Paavo Suni, ETLA, tel. +358 9 609 90205, mob. +358 50 524 5616

HWWI commodity indices in USD terms (2010=100) 2013 2014 2015 2016
All commodities
123 114 77 84
Change, % -2 -7 -32 8
Total excl. energy
98 94 80 84
Change, % -5 -4 -14 4
Food total 109 106 89 91
Change, % -11 -3 -16 1
Industrial raw materials
94 89 77 81
Change, % -3 -5 -13 6
Agricultural raw materials 95 94 81 81
Change, % 2 -1 -14 0
Non-ferrous metals 88 88 85 93
Change, % -8 0 -3 9
Ferrous raw materials 107 86 53 54
Change, % 3 -20 -39 2
Energy raw materials* 129 119 77 84
Change, % -1 -8 -36 9
Crude oil 132 122 78 85
Change, % -1 -7 -36 10


Indices in euro terms (change, %) 2013 2014 2015 2016
All commodities -5 -8 -18 11
Total excl. energy -8 -4 4 7
Food total -14 -3 2 4
Industrial raw materials -6 -5 5 8
Energy raw materials* -5 -8 -22 12
* Steam coal and crude oil