The World Bank forecasts a strong boost for industrial commodities such as energy and metals in 2017, mainly caused by a decline in supply and an increase in demand.
The bank has raised its metals price forecast to an increase of 11 percent from the four percent rise anticipated in its October outlook, based on further tightening of supply and strong demand from China and other advanced economies. The largest gains are expected in zinc (27 percent) and lead (18 percent) due to mine supply constraints brought on by permanent and discretionary closures. Double-digit gains are also expected for copper, nickel, and tin. “Prices for most commodities appear to have bottomed out last year and are on track to climb in 2017,” said John Baffes, senior economist and lead author of the Commodity Markets Outlook. “However, changes in policies could alter this path.”
Precious metals prices are projected to fall seven percent in 2017, mainly due to weak investment demand, prospects of a stronger dollar, and rising real interest rates. Gold prices are expected to decline eight percent on weak investment demand, while silver prices are expected to fall by four percent.
Commodity-exporting emerging and developing economies have been hit hard by slowing investment growth, which fell from 7.1 percent in2010 to 1.6 percent in 2015, according to World Bank.
“Investment weakness, both public and private, hinders a range of activity in commodity-exporting emerging market and developing economies,” said Ayhan Kose, director of World Bank’s Development Prospects Group. “Most of these economies have limited policy space to counteract the slowdown in investment growth, so they need to employ measures to enhance the business environment, promote economic diversification, and improve governance to better growth prospects over the longer term.”
Mongolia falls into the category of commodity-exporting countries which have experienced low investment growth. Economists predict the forecasted increase of commodities prices in 2017 will help slightly in alleviating the pressures put on the Mongolian economy.
Coal, one of Mongolia’s top exports, is expected by World Bank to average 70 USD per ton in 2017, due to supply additions and weakening import demand from China. The bank highlighted that China’s coal policy will be a key determinant on prices, as China consumes half of the world’s coal output and coal accounts for nearly two-thirds of the country’s energy consumption. The Chinese government has recently been changing its policy on coal, placing restrictions on output and then relaxing restrictions. In 2016, China’s National Development and Reform Commission (NDRC) ordered coal mines to produce coal for 276 days instead of 330 days, decreasing output by 16 percent. They reverted to a 330-day production basis in November. The NDRC has ordered thermal power stations to sign contracts to buy coal at a ceiling of 77 USD per ton.