World Bank says commodity prices will continue to fall

Commodity prices except crude oil will fall during the rest of the year, according to the World Bank's latest Commodity Markets Outlook report published on Wednesday. It was stated in the report that commodity prices have declined because of the high supply and weak demand in the April-June period, while energy prices increased 12 percent in the same period. Emphasizing that the increase in crude oil prices has played an important role, the World Bank nudged up its 2015 forecast for crude oil prices from $53 in April to $57 per barrel after oil prices rose 17 percent in the April-June quarter.

Posting a tweet on his Twitter account, Finance Minister Mehmet Şimşek said yesterday that the decline in commodity prices will have a direct positive impact on Turkey and will lead to a fall in inflation and imports. However, it will indirectly have a negative impact on exports and risk appetite, he added. According to the minister, the strong dollar and the U.S. Federal Reserve's interest rate hike means decreasing global dollar liquidity, which implies a negative scenario for Turkey and all other developing countries. Turkey needs to maintain its fiscal discipline and practice the government's 1,300 micro-structural reforms without delay, he suggested.

John Baffes, senior economist and lead author of Commodity Markets Outlook said that "Demand for crude oil was higher than expected in the second quarter. Despite the marginal increase in the price forecast for 2015, large inventories and rising output from OPEC members suggest prices will likely remain weak in the medium-term."

Pointing out that after the nuclear negotiations with Iran resulted in success, Iran can start exporting oil, the World Bank stated that if OPEC and other oil producing countries increase their outputs, the updated price forecast can deviate. With natural gas and coal prices declining by 13 percent and 4 percent respectively in the second quarter, the report emphasized that commodity prices would continue to fall in the U.S., Europe and Asia markets.

The World Bank also stressed that in the second quarter, commodity prices besides energy lost 2 percent in value, while metals prices declined marginally as most are still in surplus, particularly iron ore, where prices are off two-thirds from their 2011 high. The report emphasized that agricultural commodity prices such as coffee and wheat decreased significantly. The average prices in this group fell by nearly 2 percent in the second quarter, the report said. Likewise, the prices of precious metals like gold and silver lost value by more than 2 percent in the same period, because of the changing demand preferences following the U.S. Fed's rate hike process. While bullion fell to as low as $1,073.40 an ounce, which was the lowest level in five and a half years, it has lost 7.4 percent of its value since the beginning of last year. In parallel with the Fed's rate hike expectations this year, investors are interested in the dollar, which is getting stronger, instead of commodities.