Tuesday, October 19, 2021

Underperforming Commodity market leaves Growth Lopsided

The downswing of the commodity market has impacted negatively on growth prospects of many countries, especially Botswana, that derive a significant portion of revenue from them. In the case of Botswana the growing pressures reflected through copper, nickel and diamonds markets as was demonstrated by a weakened demand. Reports of recovery have however not taken a solid shape and it remains to be seen if the markets will make a rebound that can positively overturn the dampened growth prospects. 

“Certainly the rebound in commodity prices has not been uniform. Copper prices have struggled to increase on a consistent basis, only managing to rise by about 7.0 % since bottoming out in mid-Jan,” cites a report by Stanbic Bank titled ‘African Markets Revealed Update.’ In one of its analysis, the report attempts to determine the direction of commodity prices from a broad perspective going forward. It asks the question, “Commodity prices: where to from here?”

With regard to the oil developments the report highlights that “just as aggressively as they fell, oil prices have rebounded strongly since bottoming out around mid-Feb. Between mid-Feb and mid-May, Brent crude went up by roughly 70 percent, while WTI rose by about 75 percent. Evidently, anticipation of production cutbacks has been a key factor that has bolstered oil prices. Speculation that some major producers like Russia, Saudi Arabia, and other OPEC producers would agree on freezing output at a meeting in Mar pushed the price convincingly higher. Yet even when such speculation turned out to be off mark the price never really fell much and the rising trajectory resumed.”

Acknowledging the continuing fragility of the global economy the report points out that though the current oil prices are above those that have been incorporated in the oil producing countries’ budgets, it however seems highly unlikely that there will be much oil savings that will be made during the course of the year. “In any event, even if oil producers were to start accumulating savings, there are still large backlogs of FX orders in these markets,” it cites. 

The bank does not foresee the current oil prices significantly rising from the current levels. “Hence, it seems the factors pushing oil prices higher are unique to that market. Yet, given the failure to agree on production cutbacks amongst major producers who seem more intent on protecting market share rather than price levels, it seems unlikely that oil prices will rise materially from current levels,” it posits.

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