Commodity Prices Are Falling - What It Means for Global Trade

Welcome to Beyond the Box. I'm your host, Nicole Allem. This is our final episode this season, and we're delighted to have two fantastic guests from the World Bank Group and the International Finance Corporation with us. Today, we're diving into the World Bank Group's Commodity Markets Outlook, which looks at major commodity groups like energy, metals, and agriculture. The report offers forecasts and insights on how commodity price movements affect

Global trade, growth, and inflation. The latest edition, released in October, Points to continued price declines across most major commodities, a trend with big implications for trade flows. shipping demand, and supply chains worldwide. And I'm very pleased to introduce our guests to discuss what the findings might mean for global supply chains and logistics strategies as we head into 2026. First, John Bethes, Senior economist at the World Bank who leads the commodity price forecasting process.

We're also joined by Farzine Mirmo Tahari, Senior Operations Officer for Supply Chain Finance at the International Finance Corporation, or the IFC. Welcome John and Farzine. Thank you, Dikor very much. I'm so happy to join the program and uh discuss our latest findings from the commodity outlook. Thank you. Very nice to be with you today.

Thank you both. So we'll we'll dive right in. Uh the commodity markets outlook projects that another 7% decline in global commodity prices in 2026, marking the fourth consecutive year of decreases. Energy markets remain oversupplied, metals are steady, and agricultural prices are largely stable. At the same time, the transition toward renewable energy and critical minerals is reshaping which commodities are in demand and where they're moving.

John, what's driving this broad downturn across energy, metals, and agriculture? And how do the energy transition and critical minerals fit into that picture? Thanks, Nicole, for the question. As you pointed out, we expect a broad sort of downturn in most commodity prices, not all. There are a few exceptions which we'll discuss later, but let me start with energy.

Uh we expect the the energy price index to decline about twelve twelve percent this year and we also expect another decline next year. So in addition to the past three years of declines, we have two consecutive years. expectations about the upcoming outlook in energy markets. Now, let me start with oil. Oil prices have been averaging around $65 per barrel the past quarter and that's quite low compared to what we experienced last year.

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uh steel supplies a lot of oil but comes mostly out of its uh shale oil industry. Then we have Russia, which despite all the sanctions and the restrictions and the difficulties that they are facing in exporting oil, still a lot of oil comes out of Russia. And uh most importantly, we have OPEC plus which is the group that kind of regulates in a sense oil supplies in the global scene.

And the OPEC had introduced cuts throughout twenty three and twenty twenty four, but later uh in twenty twenty five they decided to remove the And so we see plenty of oil coming out of uh OPEC plus as well. So we have three sources of supply created this oil glass. And then we have issues on the demand side. The global outlook, while it's comfortable, it's still a bit weaker than.

expected. But a more important component of the oil demand is China. China has taken extensive steps to really kind of do its transportation industry. A lot of passenger scar in China probably as much as fifty percent are electric cars so they will not consume uh gasoline. But what's interesting is that also there are downward pressures from the tracking industry

Most of the trucks that are sold in China right now, they are not based on they are not using diesel, instead they are using natural gas. So summarize a glut in the supply side among the three major producers and the weakening demand globally, especially in China, have created this surplus condition in the oil market for this year. Now moving to other markets. Let me talk a bit about agriculture. Agricultural markets are in a little other... grain prices downwards now.

In metals, I would say there the market is more balanced. When we put all metals together, all base metals together, what we see is that on average the the market is broadly balanced, demand and supply, and that's why you expect a kind of stable prices in that portion of the commodity markets. But we have a few exceptions. We all know what happened to gold. It's above $4,000 per troy ounce.

The prices have increased quite a bit the last three to four years, and it appears that we may have climate issues there and that kind of defies the trend that goes against uh what we have seen in most commodity markets is fertilizer. Fertilizer prices are under some upward pressure recently and that reflects some trade restrictions by China which exports much less fertilizers than what they used to the year prior.

Fantastic. Thank you so much for that overview. And Farzine, we'll get to you in just a moment. But I I do wanna ask, uh perhaps to start with you, John, and then and then over to you, Farzine. Can you explain how falling commodity prices can challenge exporters and manufacturers? And then for Frazine, I'd love to hear your stance on on how your organization manages that as well. Ωραία είναι καλύτερα για κοινωνία αλλά για κοινωνία. Ωραία, καλύτερα είναι καλύτερα για κοινωνία αλλά για κοινωνία.

And Farzine, from the IFC's perspective, how do you help manage this issue? Thanks, Nicole. So at the IFC essentially we're putting providing liquidity into global supply chains. The program is structured such that we can leverage the balance sheet of global buyers, investment great companies.

without um adding any debt to the buyers to finance these exporters. We're quite active in the commodity space. We and especially in agribusiness, we finance exporters of cocoa, coffee, sugar, many other products. Um but not just lemon jet to that. We also finance exporters of textiles, uh machinery. So it's it's multi sector.

And essentially what we find is when commodity prices are high, there's a much larger need for financing. Obviously the exporters are have higher inventory and so they're needing to finance that. Conversely, and so we provide more liquidity into the market in that space.

And where commodity prices are low, especially smaller suppliers, they will have harder time getting financing. Their margins are gonna be really pressured. And so we find they actually use more of the financing facilities as a share of their sales. So in that way essentially we're mitigating the effects of high commodity prices as well as

Thank you. And John, even with sluggish global growth, emerging markets remain really central to commodity demand and manufacturing. And I'm wondering if you can share insights into which regions are showing the most resilient. and how policy is reshaping their trade and supply chain patterns. When we do our global growth uh analysis at forecast uh in the World Bank we always separate the global growth two major components, advanced economies.

and the rest of the economies, which we call emerging markets and developing economies. So this is the group that is affecting commodity markets and is affected a lot by commodity markets. And in fact, uh we expect growth to be much higher in both. Υπότιτλοι AUTHORWAVE Υπότιτλοι AUTHORWAVE And that's clearly the case, as we may have heard, it's the soybean.

exports that uh because China restricted soybean export imports are from the United States, we see that Brazil sort of filled the gap so so to speak. Now when it comes to energy, as I said earlier, low energy price from pipe connections to L and G then you could find natural gas. And then when it comes to metals, we see some signs in Africa. There are a lot of African countries that are exporting either base metals or even critical materials.

And just to summarize, what I would say Latin America on the grain side, North America on the energy side are the major beneficiaries, and on the import side probably sub Saharan Africa. is the beneficiary. And let me also know that sub Saharan Africa, a lot of countries eat export property commodities at the current high prices of coffee and cocoa, they're benefiting them quite a bit.

Thank you so much. And and Frazine, I'd like to turn to you. You know, the IFC has been investing in regional manufacturing clusters and decarbonization initiatives. I'm hoping that you can share some examples of how these investments are helping emerging markets build stronger, more sustainable supply chains, and what you think this could mean for future trade.

Yes, thank you. As we partner with global buyers uh that are purchasing from, you know, thousands and thousands of suppliers in emerging markets, many of these buyers have standards and uh have targets. in areas such as uh resource efficiency, uh decarbonization, and others. And so we've introduced tiered interest rates for the suppliers.

So as I mentioned, the product starting point is that we leverage the balance sheet of very large buyers. So that immediately reduces the interest rate for the suppliers. We can further provide incentives. as suppliers reach milestones. Now these are milestones that we agree on with the buyers and the suppliers. It will be sector and sometimes even product specific.

So for example, in the sugar sector, the largest buyers of sugar globally, uh, many years ago agreed to a standard which is called bonsucro. So bonsucro uh allows and helps uh suppliers of sugar to reach full certification, which would allow them to produce much more sustainably grown and responsibly grown sugar. As the suppliers improve in these standards, and we set four different levels uh with Bonzucro, the interest rates progressively go down.

The interesting aspect of this product is it's ongoing. So every single export, every single shipment that a sugar supplier makes, they're going to know what their certification level is, and they will see the effect of that on the interest rate. And as uh interest uh as margins are are pressured, the suppliers will see those incentives and it allows them to partner with their global buyers to reach their agreed model.

It's a fantastic example. Thank you. And uh John, I'd like to return to the report. The report notes, you know, growing risks from sanctions, trade restrictions, and extreme weather, which we've talked about on the podcast already this season. How are these forces fragmenting global trade and altering the way commodity markets function? That's a good question. We have seen a lot of sanctions, trade restrictions, trade frictions, the rich Porsches.

and counter responses for the past year or so. In fact, for the past four or five years. So we're going through a period with a lot of issues, so to speak. Some are made by humans and some are natural. consequence of nature. Now on the trade front what happens for most of the commodities when there's a trade friction there's a lot of pressure on prices in the shorter.

There's a downward pressure on one country on prices because there's not much demand, but there's an upward pressure on another country where the demand comes from. So, trade features produce a lot of dislocation, so to speak. in the short term. But what we have noticed from my earlier experience is that those uh frictions they do not last long in the sense that they last a few months, like four to six months. and that price is

go back to normal, but I have to highlight the fact that because of the new sort of t trade structures, on average prices are a little higher than what they have been prior to the trade friction. That makes sense because the trade routes and the exports and imports are a bit less efficient than what they were prior to trade. Sort of issues affect a lot commodity markets, but they do not affect them in the long term. So, to summarize, trade issues, trade restrictions have a large, shorter impact.

I'm thinking about just really how we've talked about resilience as a thread throughout the year and how much uh disruptions really highlight the need for resilience. And so Farzine, I'm wondering if you could tell us more about how the IFC's really helping companies and governments strengthen supply chains and their financing structures to withstand the shock. and sees the opportunities in a increasingly more uncertain world.

So here our our role is to really partner with our clients uh and buyers and support them in in the strategies which they've chosen to meet these issues and to make their suppliers more resilient. So there isn't really a one size for all fits all um approach here. But the sustainability linked uh pricing that I mentioned is really key to this because

It is uh it allows the buyers to shift their strategies as needed. So if they can when we first started the program years ago, the focus was really on social sanitization. Uh and that's still the case, but more and more the issues are decarbonization, um removing risk from the supply chain, near shoring if that's what's required. So we bring in new suppliers into the program as needed as

as buyers start relationships with with suppliers that may be closer to home or in markets where there is less uh geopolitical issues. Um, although these days that may be hard to forecast and it's a very changing scene. So I think the key uh approach for us is to be flexible and to have an ongoing conversation with our clients, both the on the buying side and the supplier side, and to provide the financing uh and meet their financing needs. All right. John Farzine, thank you both.

So much for sharing your insights into the commodity market's outlook and how it provides valuable context for both how global trade dynamics are evolving but also how the IFC plays a role in this. We really appreciate having both of you here today. Thank you Nicole for having me into the program.

Thank you very much. It was a pleasure speaking with you. We couldn't have been more grateful to have both of you for our final episode of the season. And I'm also super grateful to all of our listeners for joining us. Good news is that Beyond the Box will be back again in the new year, so please stay tuned.