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Commodities Predicted to Drop 2% this Year Amid Higher Supply

April 16, 2013
down markets
  

April 16 (Bloomberg) -- Commodity prices are set to fall 2 percent this year from 2012 amid increased supplies of raw materials from crude oil to grains, the International Monetary Fund said.

Energy prices probably will decline almost 3 percent as supply rebounds from outages last year, the Washington-based IMF said today in an online report. Food prices will drop more than 2 percent on increasing world harvests, while metals may climb more than 3 percent on recovering world economies and increasing demand in China, the report showed.

An IMF index of commodity prices is down 9 percent from a peak in April 2011 while still "elevated compared with historical levels," according to the report. The Standard & Poor’s GSCI gauge of 24 raw materials climbed for a fourth year in 2012 as drought in the U.S. lifted corn and soybean prices to records and dryness in Russia and eastern Europe boosted wheat.

"The near-term outlook for commodity prices, as reflected in futures prices, shows broad declines across all main commodity groups, including oil," the IMF said. "Recent declines in commodity-price volatility reflect improvements in global financial conditions."

The GSCI has dropped 6.2 percent this year, compared with a 5.2 percent increase for the MSCI All-Country World Index of equities and Treasury returns of 0.5 percent, according to a Bank of America Corp. index. The IMF said its commodity index is up 12 percent since bottoming in June.

 

Canada, Russia

Oil production in nations outside the Organization of the Petroleum Exporting Countries probably will increase by 1 million barrels a day in 2013, "slightly exceeding the growth in demand" and pushing prices lower, the IMF said. Non-OPEC supplies rose by 600,000 barrels a day last year, primarily from the U.S., Canada, China and Russia.


An index of natural-gas prices may "edge higher" this year, led by rising costs in the U.S., the IMF said. Liquefied natural gas in Japan may drop as nuclear-power generation climbs and coal is expected to decline because of environmental restrictions, according to the report.

Food prices may "remain elevated" during the first half of this year as inventories of corn, soybeans and wheat are tight after drought and heat cut harvests last year, the IMF said. Supplies relative to consumption are lowest for corn, leaving the grain "particularly vulnerable" to weather problems or other risks, according to the report. Favorable growing conditions in Brazil probably will spur an increase in soybean yields, while rain delayed planting in Argentina and dry weather in some areas may hurt corn and soybean output there.

 

Corn Harvest

"Until there is more certainty about production prospects in the United States -- the largest producer of both crops -- prices are unlikely to ease significantly," the IMF said. The U.S. Department of Agriculture in February projected a rebound in domestic corn production to a record 14.53 billion bushels.

While China’s metal-demand growth may moderate in 2013, planned infrastructure projects still may support prices, the IMF said. Tight supplies of copper have supported prices and financing arrangements at aluminum warehouses have kept inventories out of the market, it said.

Metals "prices picked up during the fourth quarter of 2012 and into early 2013 on improving macroeconomic sentiment," the IMF said. "The outlook for metal prices is tightly bound to developments in China, which consumes more than 40 percent of all metals."

 

--Editors: Dan Weeks, Sharon Lindores.

 

To contact the reporter on this story: Whitney McFerron in London at wmcferron1@bloomberg.net

 

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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