Will Commodity Prices Rebound in 2018? Predictions of a Commodity Price Rebound in 2017 Have Fallen Short of the Mark

By Dzimwasha, Taku | African Business, December 2017 | Go to article overview

Will Commodity Prices Rebound in 2018? Predictions of a Commodity Price Rebound in 2017 Have Fallen Short of the Mark


Dzimwasha, Taku, African Business


At the end of 2016, many commentators were bullish about the prospects of commodity prices rallying this year due to the world's major producers cutting supply to bolster prices and Donald Trump's plans for an American infrastructure boon. The much-repeated prediction was that there would be a "commodity price rebound" which would drag Africa out of low-growth stagnation. The fall in raw materials prices which started in mid-2014-triggered by China's economy contracting and weak global demand--adversely affected sub-Saharan Africa's economes significantly because oil, gas, ores and metals account for more than 60% of the region's exports.

The worst-hit countries were the oil-export nations, particularly Africa's largest economy, Nigeria, which saw revenues dip significantly, leading to the country's worst recession in 29 years. Other commodity-export nations such as Zambia, which is Africa's second-largest copper producer, and the Democratic Republic of the Congo, which produces various metals and minerals, all faced economic pressure because of the commodity price crash.

But as 2017 draws to an end the much-vaunted commodity price rebound has stuttered, with some raw materials outperforming others.

Oil prices improves

Oil prices have been in the doldrums since the commodity crash, with crude oil falling to a 13-year low of $26.55 a barrel towards the end of January 2016. But due mainly to a combinatioln of OPEC cuts, increased demand and US capacity falling because of the Atlantic hurricane season, crude oil prices have doubled to average around $53 a barrel this year.

This is still significantly below the $100 a barrel levels seen before the oil price collapse, but the improvement was welcome news for global oil producers.

There remains a great deal of optimism about the coming year, with crude oil forecasted to average $56 a barrel in 2018. This figure would be a positive outcome for Africa's oil producers, including Nigeria and Libya, which were exempted from the original cuts. But the OPEC cuts could harm the recovering industries and economies in those countries if they are forced to join.

For example, Nigeria's President Muhammadu Buhari has asked parliament to approve the country's largest ever budget of 8.6 trillion naira ($23.04bn), which will come into effect next year based on the West African nation producing 2.2m barrels per day with prices averaging $45 per barrel. However, OPEC wants Nigeria to cap crude oil production at 1.8m barrels per day.

A showdown between the powerful cartel and the two African nations seems likely next year because member nations such as Iran and non-member states including Russia have all called for Nigeria and Libya to cut output. …

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