Terence Creamer reports that the World Bank Commodity Markets Outlook cut its price outlook for oil this year to $37/bl, from a forecast of $51/bl in October. For non-energy commodities, the largest decline is expected in iron-ore prices, with the report forecasting a 25% decline in 2016, owing to reduced imports from China steel producers and new capacity in Australia and Brazil. Iron-ore prices fell from an average of $96.9 per t in 2014 to $55.8 per t last year, with prices plunging 15% in the 4th quarter to average $47 per t.
The price of the ferrous mineral fell to $41 per t in December and bank is forecasting an average price of $42 per t for 2016. It is also only projecting a modest recovery to $51 per t by 2020. Iron-ore prices had fallen for 8 consecutive quarters and were currently barely one-fourth of the high reached in 2011, owing to continued oversupply, weak demand and destocking at Chinese mills. Global seaborne iron-ore demand may be nearing a peak due to China transition to a less-metal intensive economy and as a result of rising scrap-metal availability.
More low-cost iron-ore capacity awaits development in Australia, and will continue to displace high-cost output in other areas, the report states. Besides iron-ore, other non-energy commodity prices fell 4% in the 4th quarter of 2015, to a level almost 40% below their early 2011 highs, on continued large inventories and ample supplies. Metal prices fell 8% on softening growth prospects in China and continued increases in supply due to earlier investments, while agriculture prices fell 2.3%, marking the 7 consecutive quarterly decline. In fact, it forecasts that most agricultural commodity prices will fall in 2016, with grains expected to decline 3.4%, oils and metals by 2.2%, and raw material and beverage prices by 1%. Prices are expected to recover marginally in 2017. Most metals prices are expected to fall in 2016, with iron-ore’s weak performance likely to be followed by nickel ...read on.
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