World Bank CMO of October 2022.

The following are some selected extracts from the October 2022 edition of the World Bank’s Report on Commodity Markets Outlook (CMO) April - Oct. Readers should not make business decisions on this posting, and are encouraged to read the original report. Commodity Markets Outlook -- October 2022 (worldbank.org) such reports are regularly updated.

Different types of shocks may cause price swings of different magnitudes and duration. More permanent shocks may warrant economic adjustments while the impact of temporary shocks may be smoothed with countercyclical policies.

Th e report includes a Special Focus on global prices for copper and aluminium, with the following main findings. 1) Inventory and consumption demand shocks cause much volatility in metal prices in the very short term. However, these shocks are small, reverse quickly, and have modest price impacts. 2) A negative economic activity shock that reduces copper or aluminium prices by 1 percent on impact would continue to put downward pressure on prices. Over a one-year horizon, economic activity shocks—which capture the global business cycle— are the single most important driver of copper and aluminium prices. 3) ?During global recessions and their recoveries, economic activity shocks have been the main drivers of price changes. Aluminium and, especially, copper prices are highly sensitive to the global business cycle. The decline in the impact of supply shocks on aluminium prices may in part reflect the larger share of China—and its proactive policies to stabilize markets—for aluminium and copper. As global economic activity shifted online and demand gravitated towards consumer durables, demand for copper and aluminium—heavily used in consumer electronics, household appliances, and cars— increased disproportionately. The estimated impulse responses of aluminium and copper prices to economic activity suggest considerable downside risks to global aluminium and copper prices. This article does not seem to consider the ?supply side.

Coal market developments. Coal prices continued to increase in 2022Q3, reaching an all-time high of $330/mt in July and broadly plateauing thereafter. Developments in coal markets have been heavily influenced by high natural gas prices, which encouraged many countries to switch from natural gas to coal in power generation. In addition, prices for thermal coal (mainly used in power generation) have risen well above the price of metallurgical coal (used for steel making), which has caused some lower-grade metallurgical coal to be blended in power plants. Natural gas and coal prices are expected to ease in 2023 and 2024 but remain at much higher levels than their average over 2017-21.

Nickel prices fell 24 percent in 2022Q3 (q/q). Falling demand from the stainless-steel sector and strong production growth in Indonesia both contributed to the price fall. Stainless steel production, which accounts for more than two-thirds of refined nickel use, has slowed markedly from the surge in 2021 amid weak demand for consumer durables, high energy prices, and power shortages. Nickel use in batteries has slowed as well, especially in China. The supply of nickel, however, grew considerably, especially from Indonesia,

Tin prices plunged 35 percent in 2022Q3 (q/q). The bearish sentiment reflects weak demand from the consumer electronics sector. Production has also risen considerably, especially in the first half of the year following increased exports from Indonesia’s small-scale producers.???After a modest decline this year, tin prices are expected to tumble 29 percent in 2023. In the longer term, tin demand stands to benefit from the energy transition and green technologies, particularly in solar panels and EVs.

Zinc prices declined 16 percent in 2022Q3 (q/q). Weak demand more than offset production cuts. The slowdown in construction (50 percent of zinc demand) may see global demand contract this year.???Mine supply is set to grow in the next few years with increases expected from Australia, China, and Peru, thus keeping the market well supplied. Zinc prices are expected to rise by 17 percent in 2022 and fall by 20 percent in 2023.

The World Bank’s precious metals index fell 9 percent in the third quarter of 2022 (q/q), driven by weak investment and physical demand owing to the strength of the U.S. dollar and higher interest rate yields. These factors have outweighed the positive impact of safe-haven demand related to the war in Ukraine and rising inflation. Silver prices declined sharply (by 15 percent) due to the slump in industrial demand, while gold and platinum prices both fell 8 percent. Following an expected decrease of 4 percent in 2022, the index is projected to fall by 4 percent in 2023 on expectations of historically high interest rates and concerns about the possibility of a global recession that would weigh on industrial activity.