Global commodity markets will experience great transformation owing to the combination of the supply chain disruption induced by the Covid-19 pandemic, the Russian – Ukraine war, and the exacerbating impacts of climate change, according to a new World Bank study on commodity markets.
The study, Commodity Markets: Evolution, Challenges, and Policies is the first that offers a comprehensive analysis—encompassing all major commodities—of how these markets evolved over the past 100 years and the directions they are likely to take over the next 30years.
It also predicts that growth in overall global demand for commodities is likely to decelerate as population growth slows and developing economies mature, although demand for some commodities is likely to rise.
“Amid overlapping crises over the past two years and the ongoing transition to lower carbon intensity, commodity markets are being reshaped,” said David Malpass, World Bank Group President in a statement on the bank’s website.
“These changes will have major implications for growth and poverty reduction in developing economies, two-thirds of which are commodity exporters. A sound goal is for the shifts in commodity markets to encourage good outcomes for both development and environmental sustainability,” he said.
The study sheds new light on the causes and consequences of volatility in commodity markets, revealing a troubling insight for commodity exporters.
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According to the study, price increases don’t materially boost economic growth for an extended period in developing countries, noting that on the other hand, price declines tend to reduce growth significantly—and for several years.
“Boom-and-bust cycles in commodity markets are enormously disruptive to progress in developing economies—especially the poorest countries,” said Mari Pangestu, World Bank’s managing director for development policy and partnerships.
“Still too many countries maintain an excessive dependence on exports of just a few types of commodities. The ongoing crises are a wake-up call for governments to renew their efforts to value their natural capital sustainably, diversify their economies, and reduce their vulnerability to commodity shocks.”
The analysis shows that commodity-price shocks affect different commodity exporters in distinctive ways, demonstrating why policy solutions need to be tailored to reflect the specific circumstances of each country.
It stated that policymakers can manage commodity-market shocks in at least three ways; Fiscal, monetary, and regulatory frameworks, measures to moderate boom-bust cycles, and drive economic diversification.
It added that the transition to cleaner energy is likely to be challenging and that the demand for metals necessary to build the infrastructure for renewable energy and to produce electric vehicles is likely to surge in the coming decades, driving up the price of metals and delivering windfall gains for countries that export them.
Although renewable energy is fast becoming the lowest-cost source of energy in many countries, fossil fuels will probably retain some of their appeals, especially in countries with ample domestic reserves, the study said.
It noted that in the short-run, with inadequate investment in low-carbon technologies—just one-third of the required level—energy demand could continue to outstrip supply, keeping prices at elevated levels.
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