International – The World Bank expects commodity prices remain weak for the remainder of the year.
This is according to the Bank’s latest Commodity Markets Outlook, a quarterly update on the state of the international commodity markets.
The Outlook finds that demand from China and, to a lesser extent, India, over the last two decades significantly raised global demand for metals and energy – especially coal.
China’s consumption of metals and coal surged to roughly 50% of world consumption, and India’s to a more modest 3% for metals, and 9% for coal. These patterns reflect different growth models and commodity consumption patterns in the two countries.
If the two countries catch up to Organisation for Economic Co-operation and Development (OECD) levels of per capita commodity consumption, or if India’s growth shifts towards industry, demand for metals, oil, and coal could remain strong, the Bank reports.
“China and India have played a significant role in driving global consumption of industrial commodities especially since the early 2000s.Going forward, while demand from India is likely to be a major factor in shaping consumption of industrial commodities, China will be important in driving global demand for energy given its efforts in rebalancing growth,” says Ayhan Kose, the director of the World Bank’s Development Prospects Group.
The Commodity Markets Outlook also found that metals prices declined marginally in the quarter as most are still in surplus, particularly iron ore where prices are off two-thirds from their 2011 high. The World Bank projects metals prices to average 16% below 2014 levels this year, revised downward from 12% in April.
The largest decline is expected for iron ore (down 43%) due to new low-cost mining capacity coming online this year and next, mainly in Australia).
Metals markets are adjusting by closures of high-cost operations and reduced investment. Markets will eventually tighten, in part due to large zinc mines closures, and as Indonesia’s ore export ban weighs on supplies, notably nickel.