INDUSTRIAL COMMODITY PRICES IN DOLDRUMS AS CRISIS PERSISTS

Having collapsed in the second half of 2008 in the wake of the financial crisis and its negative implications for global aggregate demand, the prices of industrial raw materials are likely to remain at low levels in 2009.

Prices (as measured by the Economist Intelligence Unit’s Industrial Raw Materials price index) will fall by an average of 41% in 2009. Commodity prices went into freefall in the second half of last year and particularly in the final quarter. Stocks are relatively low but this offered little price support, as market participants priced in a contraction in demand in 2009 amid signs that many OECD countries would be in recession and emerging market growth was set to slow significantly. Collapsing OECD property markets and consumer demand (with particularly negative consequences for the auto and consumer electronics sectors), has left base metal prices looking particularly vulnerable. However, prices also suffered as financial investors fled the market, selling commodity investments in order to cover losses elsewhere.