Energy & Commodities, No. 3, 14 March 2011
Commodity prices reach new heights with risk of price fall
- The global economy is being put to the test as commodity prices rise broadly. In February Swedbank’s Total Commodity Price Index rose for the eighth consecutive month. Compared with February of 2010, the index has climbed by 35.8% in USD, with food commodities accounting for the biggest increase. Excluding energy, the index has risen to a higher level than in 2008, when commodity prices reached record levels.
- Expectations of a continued strong economic recovery and shrinking inventories have driven metal prices broadly higher despite high oil prices. There is a risk they could fall, however, if oil remains at today's high level or rises further.
- The impact of the disastrous earthquake in Japan is difficult to assess, but in the short term it could lead to lower copper and aluminium prices if the Japanese auto and electronics industries are forced to significantly reduce production. While Japan has succeeded over the years in reducing its oil dependency, it is still the third largest importer in the world. To meet its energy needs after shutting down several nuclear power plants, Japan may have to substantially increase its oil imports, which would raise prices. In the long term commodity prices could face further pressure once reconstruction begins.