By Kirsten Donovan
LONDON (Reuters) - Industrial commodities such as oil and metals are set for further price rises this year, while precious metals prices are likely to fall and agricultural products flatline, said World Bank senior economist John Baffes on Thursday.
Baffes, speaking in the Global Markets Forum after the release of the Bank's latest Commodity Markets Outlook report, also said U.S. President Donald Trump's policies were unlikely to have a major impact on prices.
Here are excerpts from the conversation:
Q: Are you expecting commodity prices to rise this year overall?
A: We expect oil to average $55 a barrel this year from $43 last year and metals prices to increase 11 percent. However, agriculturals to remain flat, if up slightly. Precious metals should drop.
Q: How do you see the dynamics between the OPEC cuts and the U.S. shale producers playing out?
A: The more that OPEC and non-OPEC countries cut supplies, the greater room that will give to U.S. shale oil producers to fill the gap. If prices exceed $60, the shale oil industry will certainly respond with more production.
Q: Do you see Trump's policies having much of an effect across the commodity space, and if so, where in particular?
A: There might be an effect on metals prices due to increased spending on infrastructure, if that materialises. However, the U.S. is a small consumer in world metals markets, so any effect would be marginal. On coal - U.S. government policies will not have much of an effect because coal has been displaced by the cheaper alternative, natural gas. Also, coal-importing countries are going to import less coal because of environmental considerations.
Q: Is the weakness in gold that you see for 2017 a reflection of the strength of other markets or something else?
A: It's because of the likely tightening of monetary conditions in the U.S. and perhaps elsewhere. Investors' appetite will most likely shift to other assets, away from gold.
Q: You've taken a special focus on the investment weakness in commodity-exporting emerging market and developing economies: can you tell us more about that and what has been behind it ?
A: Most middle income and developing countries depend on commodity exports for revenues. The post-2011 downturn in commodity prices has slowed investment considerably. Given that prices are unlikely to reach 2008 or 2011 highs, then countries must find alternative ways of financing investment.
Q: Such as?
A: Given the limited room for monetary and fiscal policies to boost investment growth, structural policies such as governance and transparency reforms and open trade policies could help.
(This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Eikon platform. For more information on the forum or to join the conversation, follow this link: https://forms.thomsonreuters.com/communities/)
(Editing by Ruth Pitchford)
Disclaimer: No Business Standard Journalist was involved in creation of this content
