Commodity prices set to plunge in 2023, but relief for consumers remains elusive: World Bank report

A new report by the World Bank has revealed that commodity prices are set to declinein 2023.

The World Bank'sCommodity Markets Outlook reportexpects commodity prices to decrease by 21 percent this year, the steepest drop since the pandemic, before stabilising in 2024.

Nevertheless, the bank warns that consumers will continue feeling the pinch, as prices for all main commodity groups are substantially higher than pre-pandemic levels.

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The research highlights the effects of rising food costs, which are at their second-highest level in real terms since the 1973-75 grain shortages. This, in turn, contributes to increased food insecurity, which has severe consequences for impoverished communities in many developing nations.

Energy prices fell by 20 percent in the first three months of 2023 compared to the final three months of 2022, owing to decline in oil and natural gas prices. The reportanticipates that much of the recent decline will be maintained for the rest of the year, with prices perhaps rising in 2024.

Metal prices, on the other hand, are up nearly 10 percent in 2023, but that is due to a drop in pricing near the close of last year when a strong dollar and concerns about Chinese demand weighed on prices. Prices of non-energy commodities are expected to fall 10 percentthis year. Another 3 percentfall in non-energy commodities can be expected in 2024 due to weak global demand, the report adds.

Dangers Ahead

In its forecast, the World Bank did mention certain dangers.

If supply remains below target, Russia and the Organisation of Petroleum Exporting Countries (OPEC) may provide less oil than projected. Further, tighter finance conditions may limit oil and coal companies' capacity to grow supplies elsewhere. Tighter controls on fossil fuels are also expected to deter investment in the sector.

Chinese demand isunknown, though the bank suggeststhat an economic rebound could be led by property rather than services, which would be suitable for commodities such as aluminium and copper.

In Europe, concerns regarding gas stocks next winter and uncertainties about the Black Sea Grain Initiative will remain. Moreover, fears of erratic weather may hike costs in the continent. Tighter credit conditions and geopolitical tensions are some other risks that could impact the global commodity markets in 2023, notes the report.