Key Commodity Prices Decline

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As predicated in the preceding quarterly report of the Central Bank as of July 2014, weak external demand for commodities (mainly iron ore and rubber) coupled with the constraints posed by the Ebola virus disease (EVD) drove Liberia’s international trade performance.

In the short-to-medium term, particularly during the last quarter of this year, the EVD epidemic, weakening iron ore and rubber demand as a result of the growing signs of deflation and recession in the Euro zone and the slowdown in the economy, particularly the real estate market, are some of the key challenges to Liberia’s export performance.

Rubber, for example, there are growing signs of recovery for global demand, particularly on account of recent improvements particularly from Malaysia, a rubber growing country, from the global stockpile, accumulated over the last few years of declining prices may lead to lower prices in the medium term.

If the ongoing EVD crisis and its consequences on the domestic economy continue, coupled with the existence of pre-EVD challenges faced by the domestic rubber sector, Liberia may not be positioned to benefit from the projected upward trends in international rubbers prices in 2015.

The CBL quarterly indicated that the ongoing decline in iron ore price has been on account of two factors; oversupply of the commodity, particularly from Australia, and weakening demand as a result of slow economic activities, particularly from the Chinese real estate.

Slowing growth in infrastructure and business investment has driven decline in the demand for steel production and by extension iron ore demand against increasing supply from Australia and other iron ore exporting countries, including Liberia, thus facilitating declining prices. With global supply (mainly from Australia, the largest exporter) expected to rise in the short-to-medium term despite the lowering demand across the top importing economies (China and Eurozone), global iron ore prices are expected to maintain their downward spiral.

The report further revealed that the short-to-medium term downward trend in petroleum price has been driven by two key factors: increased global oil production, largely as a result of the franking revolution in the US, while at the same time global energy consumption demand is falling due to slow and weak growth, particularly in the Chinese, Eurozone, Japanese and Indian economies. Though geo-political tensions remain high in the Middle East and Ukraine, the rising level of crude oil production by OPEC (Organization of Petroleum Exporting Countries) in the search for market share and the ongoing boom in non-OPEC production, particularly in the United States, all at a time when global growth prospects are dwindling (decline) may drive the downward spiral in oil prices into the medium term. This is a positive development for oil importing countries, particularly the countries hardest hit by EVD epidemic (Liberia, Sierra Leone and Guinea) for their post-Ebola economy’s recovery agenda.

According to the IMF quarterly projections, crude oil price is expected to fall by 15.2 percent to US$85.2 per barrel during the last quarter of 2014, from US$100.4 per barrel during the quarter under review.

During the first half of 2015, crude oil price is projected to decline by 19.9 percent to US$84.1 per barrel, from US$105.0 per barrel during the corresponding period in 2015.

However, the report said the global food prices are projected to remain broadly stable in 2015, with rice price expected to flatten out around US$426 per metric ton during the first half of 2015 largely on account of improved prospects of good harvest in major food-producing  markets. However, the increasing wave of geo-political tensions continues to undermine global production while also leading to increasing import demand.

Net food importers like Liberia, must now begin to implement the appropriate pool tools to reduce the dependence on imported food, especially at a time when gains made in the agro-sector are being reversed by the ongoing EVD epidemic.

The IMF projects rice price to remain broadly stable around US$426.1 per metric ton during the quarter ending December, 2014 and during the first half of 2015.

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