Global demand for oil and minerals has grown fast due to global growth, especially driven by China’s high performance. Between 2002 and 2005, the UNCTAD price index for non-fuel commodities rose by 45 per cent, with minerals, ores and metals prices increasing by almost 100 per cent and crude oil by 114 per cent (table 1.1).
As a result, commodity prices have remained above their long-term trend. Prices of metals, minerals and oil are expected to stabilize in 2007 but remain elevated (UNCTAD 2006a; World Bank 2006b).
These price hikes were also partly driven by slow supply reactions, especially bottlenecks in refining and storage of crude petroleum, and political instability in the Middle East. In general, investments in mineral extractions have relatively long gestation periods and producers have become more conservative in their investment plans. In 2005, the depreciation of the dollar also contributed to the rise in commodity prices. Other supply-side factors have been disruptions in supply caused by labour disputes and rising production costs due to higher energy costs and the need to undertake exploration in areas that are less accessible (UNCTAD 2006a).
To some extent, exporters of minerals were able to improve their external accounts and offset the negative effects of high oil prices on terms of trade. For example, in Zamibia total exports increased from $US919 million to $US2,095 million between 2002 and 2005. The country depends heavily on copper, which accounted for 57 per cent of total exports in 2005. The surge in copper prices has significantly contributed to Zambia’s growth rate of more than 5 per cent in the past three years (UNCTAD 2006a; EIU 2006b; IMF 2006).
On average, prices for food and tropical beverages rose by 26 per cent between 2002 and 2005 and those for agricultural raw materials increased by 41 per cent. The highest increases were registered for rubber (96 per cent), coffee (87 per cent), rice (50 per cent), sugar and logs (44 per cent). This was partly driven by supply-side problems due to adverse weather conditions, plant diseases and pests in Asia and Latin America. There is also a long-term trend as some agricultural commodities are increasingly used as substitutes for oil, namely rubber, sugar and grain. The latter can also be converted into bio-fuel. In 2006, tea prices further increased by 14 per cent due to a drought in Kenya and coffee prices also were 18 per cent higher than in 2005. The increase in timber prices by 14 per cent is mainly driven by high demand from China.
Thus, the trend in commodity prices will depend on future growth of the world economy, specifically in China, which has absorbed more than half of global growth in the consumption of such commodities as cotton and soybeans. It has to be noted that not all commodity producers benefited from higher export earnings. The prices of some agricultural commodities declined between 2002 and 2005. For example,cocoa prices declined by 14 per cent while those for hides and skins declined by 20
per cent (UNCTAD 2006a; World Bank 2006b).
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