Commodity prices continued to exhibit considerable strength throughout 2008 even as the world economic expansion continued, possibly magnified by speculative buying which may have pushed prices for many commodities above levels justified by the fundamentals. However, the increases were much greater for oil and metals than for most tropical beverages.
A sharp rise in food prices occurred in 2007 and continued in 2008, driven by increases in the prices of fats and oils (102 per cent over two years), and grains (88 per cent). The increased use of bio fuels has played an important role in driving up grain prices. In 2006, bio fuels accounted for between 5 and 10 per cent of the global production of bio fuel feed-stocks, such as maize in the United States, sugar cane in Brazil, and vegetable oils, mainly rape seed, in the European Union.
The sustained rise in commodity prices improved the export earnings of most African countries in 2008. However, increases in fuel and food prices have hurt most oil importers. Countries that have benefited the most have generally been exporters of petroleum and minerals. For many other countries, gains from higher-priced commodities have been roughly equivalent to losses from higher-priced fuel and food.
Crude oil prices continued to trend upward through mid 2008 and to exhibit high volatility, with the monthly average (Brent) peaking at USD 147 per barrel in July. They then declined sharply, with the average monthly price falling to USD/barrel 41.6, but the average for 2008 was USD/barrel 97.6, 34 per cent higher than the average price in 2007. This followed an increase to USD/72.7 in 2007 from USD/barrel 65.4 in 2006.
The assumption of this report (fixed in mid-February) is that the price will average USD/barrel 50 in 2009 and 55 in 2010, an assumption slightly lower than the average of USD 60 per barrel used as a technical assumption in the OECD Economic Outlook 84 published in December 2008. These lower oil prices are expected to contribute marginally to mitigating the severity of the global recession on oil-importing countries.
Metal prices reached a peak in the second quarter of 2008 when they were 271 per cent higher than average prices in 2000, in large part because of high demand by emerging Asian economies, especially China. For the year as a whole, prices were only 3.7 per cent higher than in 2007. Moreover, the average price in December was 37 per cent lower than the average price for the year as a whole as metal prices declined sharply along with the global slowdown. The average price in 2009 is expected to be about 50 per cent lower than in 2008, but to recover by more than 10 per cent in 2010.
The price of gold has escalated since mid-2001, sustained by liquid financial markets, low interest rates, the greater demand from booming emerging markets in Asia, and – since late 2008 – the heightened uncertainty in equity markets and the global economy. The price of gold peaked in the first quarter of 2008, but the average price in December of USD 816 per troy ounce (toz) was still 17 per cent higher than the average price in 2007. It is expected to remain high in 2009 (gold has appreciated more than 15 per cent from December 2008-February 2009) and 2010 as investors are reluctant to move strongly into equities and are preferring gold as a safe haven.
Another factor influencing gold prices was a decline in output by an estimated 14 per cent in South Africa, the largest producer of gold in the world, contributing to a drop in global mine production of 3.6 per cent. The shortfalls in South Africa were due to power supply constraints, an industry-wide skills shortage and an upgrading of mine safety procedures. The higher prices have benefited South Africa and other African gold producers, such as Ghana and Mali, and mitigated to some extent the fall in production in South Africa. However, the price increases did not match those of fuel imports.
Prices of other metals which had risen substantially in 2006 and 2007, had reached a peak by the second quarter of 2008. Copper prices fell by 2 per cent in 2008 with the softening of the global economy. The average price for December was 56 per cent lower than the average for the year as a whole, and copper prices are expected to remain soft in 2009 and 2010. Prices of aluminium have increased at a slower rhythm than other metals, but in 2006 the increase was substantial (35 per cent) on the strength of demand from China. However, they increased by only about 3 per cent in 2007 and fell by a similar amount in 2008. In December 2008 the average price was 42 per cent lower than the average for the year as a whole, and they are expected to remain depressed until the world economy begins to recover. Zambia (for copper) and Mozambique, Ghana, Cameroon and Guinea benefited the most from the increases in metal prices through 2008.