The global recession caused by the pandemic in early 2020 led to a widespread collapse in commodity prices. The collapse was followed by a synchronized sharp rebound in prices. Such synchronized booms and slumps in commodity prices have been common in recent decades. In the years ahead, the transition away from fossil fuels to low-carbon technologies will cause profound, far-reaching shifts in the pattern of demand and supply for commodities, which can have major macroeconomic consequences. Commodity-exporting emerging market and developing economies (EMDEs) generally need to take steps to better manage future commodity price shocks and to reduce their reliance on commodities. Show Read more on the topic in the January 2022 Global Economic Prospects. Price cycles are highly synchronized across commodities.Commodity prices have undergone repeated cycles over the past 50 years and these price cycles have been highly synchronized across commodities. A common “global factor”—a common factor derived from 39 commodity price series—accounted, on average, for roughly 15-25 percent of the price variability for energy and metals, but only 2-10 percent for agricultural commodities and fertilizers. The synchronization in prices has become more pronounced over time for industrial commodities. Since the mid-1990s, on average, the common global factor accounted for about 30-40 percent of the variability in industrial commodity prices—twice as much as during the 1970-2021 period. Commodity price variation due to the global factor, 1970-2021 and 1996-2021  Sources: Baumeister and Hamilton (2019); Ha, Kose, and Ohnsorge (2021); Kabundi and Zahid (Forthcoming); World Bank. Global macroeconomic shocks have become the main source of commodity price volatility.Since 1996, global macroeconomic shocks have been the main source of commodity price volatility. Global demand shocks have accounted for 50 percent of the variance of global commodity price growth, while global supply shocks have accounted for 20 percent of the variance. In contrast, between 1970 and 1996, supply shocks specific to particular commodity markets—such as the oil price shocks of the 1970s and 1980s—were the main source for variability in global commodity price growth. Contributions of global shocks to the variation in global commodity prices
Sources: Baumeister and Hamilton (2019); Ha, Kose, and Ohnsorge (2021); Kabundi and Zahid (Forthcoming); World Bank. Global recessions have been accompanied by demand weakness and supply disruptions.In the past, global recessions have been associated with weak demand and disruptions in supply, which combined to depress commodity prices. Market disruptions in specific commodities have sometimes provided an offset. During global recessions, demand pressures on commodity prices were compounded by supply pressures specific to commodity markets (1975, 1991, 2020); in 1975 and 2020, these were offset by supply pressures resulting from large-scale trade embargoes (in 1975) or widespread supply chain disruptions (in 2020). The recovery of commodity prices after recessions has been driven by an unwinding of supply or commodity market shocks and, since early 2000, also by rebounds in demand. Consistent with this, the surge in commodity prices in 2020-21 can be explained by a strong resurgence of demand, combined with unusually widespread supply bottlenecks. Contributions of global shocks to the variation in global commodity prices around recessions and slowdowns Sources: Baumeister and Hamilton (2019); Ha, Kose, and Ohnsorge (2021); Kabundi and Zahid (Forthcoming); World Bank. Policy optionsGlobal macroeconomic shocks have become the main source of fluctuations in commodity prices, accounting for more than two-thirds of the variance of global commodity price growth. The swings in commodity prices witnessed in 2020-21 have brought to the fore the vulnerabilities of the many EMDEs, especially low-income countries (LICs), highly dependent on commodity exports. Recent events have also highlighted how climate change is a growing risk, including to energy markets, affecting both demand and supply. Commodity-exporting EMDEs have multiple policy options to smooth the near- and long-term effects of commodity price swings and, more broadly, to reduce their reliance on commodities. Countries can strengthen their fiscal, monetary, and prudential policy frameworks. They can also take measures to reduce their reliance on commodities by encouraging diversification of exports and, more importantly, “national asset portfolios”—investing to diversify their physical and human capital, and strengthen their institutions. ReferencesBaumeister, C., and J. D. Hamilton. 2019. “Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks.” American Economic Review 109 (5): 1873-1910. Ha, J., M. A. Kose, and F. Ohnsorge. 2021. “One-Stop Source: A Global Database of Inflation.” Policy Research Working Paper 9737, World Bank, Washington, DC. Kabundi, A., and H. Zahid. Forthcoming. “Commodity Price Cycles: Commonalities, Heterogeneities, and Drivers.” Kose, M. A, C. Otrok, and C. H. Whiteman. 2003. “International Business Cycles: World, Region, and Country-Specific Factors.” American Economic Review 93 (4): 1216-1239.
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supply and demand, in economics, relationship between the quantity of a commodity that producers wish to sell at various prices and the quantity that consumers wish to buy. It is the main model of price determination used in economic theory. The price of a commodity is determined by the interaction of supply and demand in a market. The resulting price is referred to as the equilibrium price and represents an agreement between producers and consumers of the good. In equilibrium the quantity of a good supplied by producers equals the quantity demanded by consumers. The quantity of a commodity demanded depends on the price of that commodity and potentially on many other factors, such as the prices of other commodities, the incomes and preferences of consumers, and seasonal effects. In basic economic analysis, all factors except the price of the commodity are often held constant; the analysis then involves examining the relationship between various price levels and the maximum quantity that would potentially be purchased by consumers at each of those prices. The price-quantity combinations may be plotted on a curve, known as a demand curve, with price represented on the vertical axis and quantity represented on the horizontal axis. A demand curve is almost always downward-sloping, reflecting the willingness of consumers to purchase more of the commodity at lower price levels. Any change in non-price factors would cause a shift in the demand curve, whereas changes in the price of the commodity can be traced along a fixed demand curve. increase in demand Illustration of an increase in equilibrium price (p) and equilibrium quantity (q) due to a shift in demand (D).
The longest known lightning bolt stretched 477 miles from Texas to Mississippi in 2020. See All Good FactsThe quantity of a commodity that is supplied in the market depends not only on the price obtainable for the commodity but also on potentially many other factors, such as the prices of substitute products, the production technology, and the availability and cost of labour and other factors of production. In basic economic analysis, analyzing supply involves looking at the relationship between various prices and the quantity potentially offered by producers at each price, again holding constant all other factors that could influence the price. Those price-quantity combinations may be plotted on a curve, known as a supply curve, with price represented on the vertical axis and quantity represented on the horizontal axis. A supply curve is usually upward-sloping, reflecting the willingness of producers to sell more of the commodity they produce in a market with higher prices. Any change in non-price factors would cause a shift in the supply curve, whereas changes in the price of the commodity can be traced along a fixed supply curve. decrease in supply Illustration of an increase in equilibrium price (p) and a decrease in equilibrium quantity (q) due to a shift in supply (S). Encyclopædia Britannica, Inc. |
When the supply of a commodity changes due to factors other than the Commoditys price it is called?
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