Energy prices decline 17 per cent & metal prices 25 per cent during Q3

Energy prices dropped 17 per cent in the third quarter of 2015, according to World Bank’s quarterly report on Commodity Markets Outlook for October. Oil prices weakened due to continuing supply surpluses and anticipation of higher Iranian oil exports in 2016. Coal and natural gas prices declined marginally on continued weak demand and excess supply. Oil consumption growth has risen this year, in part due to lower prices. Oil supply continues to outpace demand, although global production is plateauing and year-on-year growth is diminishing. U.S. oil production peaked in April and is now on a declining trend. OPEC production reached a three-year high, with much of the increase coming from Iraq and Saudi Arabia.

Non-energy commodity prices fell 5 per cent over the quarter, down more than a third from their early-2011 high. Abundant supply and large inventories were among the reasons. Base metals prices fell 25 per cent to barely half their early-2011 peak on weakening demand and supply increases from earlier large investments. Agriculture prices fell 2.4 per cent; it was the sixth consecutive quarter of eroding prices. Fertilizer prices fell marginally on abundant production capacity. Base metal prices fell 25 per cent and precious metals prices 7 per cent over the quarter on weakening investment demand reflecting expectations of a U.S. interest rate hike and dollar appreciation.

Outlook
All main commodity price indices are expected to decline in 2015, mainly owing to ample supply and, in the case of industrial commodities, slowing demand in China and emerging markets, Energy prices are expected to fall 43 percent from 2014. Average oil prices for 2015 of $52/bbl have been revised down from $57/bbl (July Commodity Markets Outlook) owing to large stocks, resilient supply, and expectations of larger Iranian oil exports. Natural gas prices are expected to be sharply lower.

Non-energy prices are expected to fall 14 per cent in 2015, with declines in all main indices. Metals prices are projected to fall by 16 per cent. The largest drop is expected for iron ore, as new low-cost capacity reaches the market and steel production declines in China. Some metal producers are closing high-cost operations and reducing investment in future capacity. Supplies are also expected to tighten from upcoming closure of large zinc mines due to resource exhaustion and Indonesia’s continuation of ore export ban, which mainly affects nickel, bauxite, and copper.

Agriculture prices are projected to fall 13 per cent in 2015. The outlook mainly reflects abundant supplies, despite El Niño fears, and a high level of grain stocks. The largest price decline is for edible oils and meals (down 22 per cent), owing to ample supplies and rising stocks. Grains prices are projected to fall by 15 per cent. Beverage and agriculture raw material prices are expected to each fall by 9 percent. Fertilizer prices are expected to contract as well on weak demand and excess capacity expansion due to earlier high prices.

Amid oversupply in most markets, metals prices fell 12 percent in the third quarter, a fourth straight quarterly retreat. Declines occurred in all metals. The surpluses reflected slowing demand, notably from China and other emerging economies, and weak global indicators for industrial production and manufacturing. But it also reflected ongoing supply increases, and still-high stocks for a number of metals. The Precious metals prices fell 7 per cent in the third quarter on weakening investment demand. Platinum led the declines falling by 13 per cent, while silver and gold prices fell 9 per cent and 6 percent, respectively.