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Commodity prices: what is the new "normal"?

08 Jul 2019

Commodity markets seem to have stabilized following a boom that began in the early 2000s. The new average price level for most commodities is expected to be slightly higher than the pre-boom stable level but much lower than the 2008 and 2011 peaks.

This new "normal" is shaped by factors related to both production and consumption. The post-2000 price boom attracted investment across the entire commodity spectrum, spurring innovation and technological improvements that lowered production costs. On the consumption side, demand has remained relatively weak, especially in emerging markets and developing economies that were key drivers of the boom, as economic growth in many of these countries has slowed down.

For oil markets, alternative energy vehicles and policies reducing the use of fossil fuels are seen to negatively influence demand, intensifying the long-term trend of less energy use per unit of GDP. Similarly, demand for industrial commodities such as metals might moderate, especially in China that consumed more than half of world supplies in 2018 as the country grows slower and faces increasing environmental concerns. Agricultural markets are also expected to remain relatively calm, with stocks-to-use ratios, a measure of supply availability, currently hovering around multi-year highs for many food crops.

Over the medium term, a combination of ample supplies, slower demand growth, and efficiency gains is thus likely to put a cap on commodity prices. The entire article on commodity price trends can be consulted in AMIS Market Monitor No. 70.