BackCommodity prices slip on waning global appetite
The main reason for the softness in commodity prices can be attributed to ample supplies hitting the market, but demand, too, is slack
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Commodity prices are falling, the second time around in 2014. In the current quarter, till date, the Thomson Reuters CRB Commodity Index, a broad indicator, has declined by 7.7%. A similar indicator, the S&P GSCI Index, has fallen by 10.4%.
What has contributed to this fall? Food prices are a reason. On Thursday, the UN’s Food and Agriculture Organization said its food price index fell to 196.6 points in August, a level last seen in September 2010. The index fell by 3.6% over July. Surplus conditions in commodities such as cereals (except rice), dairy products, sugar and oils have contributed to this decline.
Crude prices have seen a sharp decline in recent months, with Brent crude prices down by 12.7% in a three-month period. The Dow Jones Commodity Index–Energy has declined by 12.3% in this period. Coal prices also continue to decline, though the degree is lower as they have been falling for a much longer period.
In metals, iron ore prices have been in a free fall. The commodity’s price has fallen by 12.7% in the quarter till date, and is down by 39.1% in 2014. Falling iron ore and coal prices are also likely to influence steel price trends as buyers will expect to share in the benefits.
The situation in non-ferrous metals is not as dark, however. The LMEX Index, a composite index of metals traded on the London Metal Exchange, shows a 0.27% increase in the quarter till date. Copper, the metal credited with the ability to predict the global economy’s health, has been having a rough ride, and is trading below levels seen at the start of the quarter. Aluminium has done well, while zinc has had a relatively good run, though recently it has come under pressure.
The main reason for the softness in commodity prices can be attributed to ample supplies hitting the market, but demand, too, is slack. China is focusing more on consumption-oriented rather than investment-oriented growth and a crackdown on lending backed by commodities as collateral is limiting its appetite for commodities. The world does not have the capacity to absorb a spillover from China.
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