Why Are Commodity Prices Falling?

Secondly, there had been a shift from bulk commodities to high value commodities.

But, though inflation is very low, and even negative in a few countries, something more must be going on, because commodity prices are falling relative to the overall price level. In other words, real commodity prices are falling.

By contrast, many emerging economies, highly dependent on commodity export earnings, have been stressed by the commodity price reset, sluggish growth in developed economies, and slower growth in China. Capital flight would materially add to their plight in some cases disastrously so.

Even the one factor that has effectively increased disposable incomes and augmented demand sharply declining commodity prices, particularly for fossil fuels is ultimately problematic. Indeed, for commodity exporting countries, the fall in prices is generating fiscal and economic headwinds of varying intensity.

Commodity prices are like this.

CAMBRIDGE The prices of hydrocarbons, minerals, and agricultural commodities have been on a veritable roller coaster. While commodity prices are always more variable than those for manufactured goods and services, commodity markets over the last five years have seen extraordinary, almost unprecedented, volatility.

There is also the issue of the so called reserve price (the highest price a buyer is willing to pay for a good or service). The reserve price places a cap on how high commodity prices will go, as it is the price at which demand destruction occurs (consumers are no longer willing or able to purchase the good or service).

There has been a steady effort to arrive at market based prices for energy commodities, and prices of some of them (notably oil products) have for some years been derived from the world market price.

This recalls a familiar historical pattern. Falling real (inflation adjusted) interest rates in the 1970s, 2002 2004, and 2007 2008 were accompanied by rising real commodity prices sharp increases in US real interest rates in the 1980s sent dollar commodity prices tumbling.

Third, portfolio managers respond to a rise in interest rates by shifting out of commodity contracts (which are now an asset class ) and into treasury bills. Finally, high interest rates strengthen the domestic currency, thereby reducing the price of internationally traded commodities in domestic terms (even if the price has not fallen in foreign currency terms).

Commodity markets, too, have become a source of disinflationary pressure. North America s shale energy revolution has weakened oil and gas prices, while China s slowdown has undermined demand for a broad range of commodities, including iron ore, copper, and other industrial metals, all of which are in greater supply after years of high prices stimulated investments in new capacity.

Mitsubishi Corporation made up regulation of its annual profit prediction to the record level on Friday due to increased production of coking coal and increasing prices of oil, coal and other bulk commodity.

Titik balik terjadi pada tahun 2013, ketika ekspektasi kenaikan suku bunga di Amerika Serikat dan penurunan harga harga komoditas global mengakhiri bonanza aliran modal tahunan yang selama ini menyokong pertumbuhan di negara negara ekonomi rendah. Kemunduran yang dialami Tiongkok akhir akhir ini, yang memicu turbulensi di pasar modal global dan semakin melemahkan harga harga komoditas, telah memperburuk kemunduran (downturn) di negara negara tersebut.

The prices of primary commodities had declined against the prices of manufactures, especially during the 1980s.

In fact, most dollar commodity prices have fallen since the first half of the year. Though a host of sector specific factors affect the price of each commodity, the fact that the downswing is so broad as is often the case with big price swings suggests that macroeconomic factors are at work.

Unstable prices for commodities were a serious issue.

But primary product prices remain much more volatile than the prices of manufactured goods and services, causing large fluctuations in producers incomes. This exaggerates the effects of booms and busts.

It was widely agreed that the long run trend decline in the terms of trade of most non oil commodity prices (when measured against the prices of manufactured goods) and volatile swings around the long term price trend of commodities had adversely influenced many low income countries' capacity to benefit from trade.

The prices of oil and many primary commodities have slipped.

11. The Secretary General of UNCTAD stressed that the Asian crisis had hit the poor particularly hard, in terms of sharp falls in commodities and in the export prices of some goods.

Many delegations drew attention to the continuing volatility of primary commodity prices and to the fact that in real terms commodity prices are still lower today than they were some 20 years ago.

1. Takes note of the report of Secretary General on world commodity trends and prospects,A 59 304. including the fact that while prices have improved for some commodities, the real prices of others remain on a declining trend

3. Notes the need expressed by developing countries, in particular the commodity dependent developing countries, for stable and more predictable commodity prices, in the face of instability and decline in real terms of the prices of many commodities

7. The price boom began with non oil commodities in 1994.

Table 1 Monthly indices of market prices of selected primary commodities

Devaluation results in uniform price changes over the whole range of tradeable goods rather than for a selected number of products.

33. Among the perennial problems facing producers of commodities is the excessive instability of the prices of many commodities.

1. Notes the need of the developing countries, in particular the commodity dependent developing countries, for stable and more predictable commodity prices in the face of instability and decline in real terms of the prices of many commodities

For pork and other commodities with tight supply and quicker price increase, the frequency of inspections should be increased, and illegal activities such as hoarding, raising prices, and colluding with price increases shall be seriously investigated and handled.

The surge in recent years in the flows of speculative capital into and out of commodity markets for financial assets has tended to accentuate commodity price instability during recent years.

Source UNCTAD, Monthly Commodity Price Bulletin, March 1998.

Other emerging markets growth prospects are even worse not least because of low commodity prices. As a result, these countries can expect lower capital inflows, again making for weak local currencies.

As China s growth slows, so does its demand for oil and commodities, with severe effects for other emerging economies that depend on commodity exports. Moreover, the benefits of lower commodity prices do not seem to have materialized among net importers, except perhaps India if they have, they have been far from adequate to offset other growth damaging forces.

With regard to commodity prices it was suggested that income, rather than price, fluctuations are the real problem.

However, the majority of suppliers quoted Lysol, and only a few alternative products were offered, mostly at considerably higher prices.

I've looked to see what is the relationship between higher commodity prices of exports, and the growth of commodity exporting countries.

The growing power of retailers has a significant effect on domestic suppliers, especially small ones or those that do not command strong brand products, by offering lower prices for their products.

Recognizing that commodity prices are an important element for heavily indebted poor countries that are commodity dependent in maintaining long term debt sustainability,

For the big companies, it's reputational risk, but more importantly, they don't care what the price of commodities is.

Economic stabilization, plus a decade long commodity boom, gave Latin America a growth spurt. And, although that growth could not be sustained when commodity prices weakened, as they have now, it, together with enhanced social policies, did lift family incomes, reduce poverty, and sharply enlarge the middle class.

The contractor had offered a price of only 145,522 because, according to him, some items were shopworn, damaged and marked down.

In 1963, the country exported goods worth less than 600 million at today s prices, mostly primary products such as seafood and silk. Fifty years later, it exports goods worth almost 600 billion, mostly electronics, machinery, transportation equipment, and chemical products.

The volatility of commodity prices poses a serious risk for the sustainability of growth, and better international coordination is required to reduce the instability of commodity prices and exchange rates.

Rendahnya harga komoditas dengan penurunan peak to trough lebih dari 30 berlangsung selama durasi yang sama, rata rata sekitar tujuh tahun. Kini kegagalan tersebut memasuki tahun keempatnya dan harga komoditas non minyak (dibandingkan harga ekspor barang manufaktur) telah merosot sekitar 25 .