Commodity prices to fall 2% this year - IMF

Commodity prices are set to fall two percent this year from 2012 amid increased supplies of raw materials from crude oil to grains, the International Monetary Fund said.

Energy prices probably will decline almost three percent as supply rebounds from outages last year, the Washington-based IMF said today in an online report.

Food prices will drop more than two percent on increasing world harvests, while metals may climb more than three percent on recovering world economies and increasing demand in China, the report showed.

An IMF index of commodity prices is down nine percent from a peak in April 2011 while still "elevated compared with historical levels," according to the report.

The Standard and Poor's GSCI gauge of 24 raw materials climbed for a fourth year in 2012 as drought in the US lifted corn and soybean prices to record levels and dryness in Russia and eastern Europe boosted wheat prices.

"The near-term outlook for commodity prices, as reflected in futures prices, shows broad declines across all main commodity groups, including oil," the IMF said. "Recent declines in commodity-price volatility reflect improvements in global financial conditions."

The GSCI has dropped 6.2 percent this year, compared with a 5.2 percent increase for the MSCI All-Country World Index of equities and Treasury returns of 0.5 percent, according to a Bank of America Corp. index.

The IMF said its commodity index is up 12 percent since bottoming in June.

Canada and Russia

Oil production in nations outside the Organisation of the Petroleum Exporting Countries probably will increase by one million barrels a day in 2013, "slightly exceeding the growth in demand" and pushing prices lower, the IMF said. Non-OPEC supplies rose by 600,000 barrels a day last year, primarily from the US, Canada, China and Russia.

An index of natural-gas prices may 'edge higher' this year, led by rising costs in the US, the IMF said. Liquefied natural gas in Japan may drop as nuclear-power generation climbs and coal is expected to decline because of environmental restrictions, according to the report.

Food prices may 'remain elevated' during the first half of this year as inventories of corn, soybeans and wheat are tight after drought and heat cut harvests last year, the IMF said. Supplies relative to consumption are lowest for corn, leaving the grain 'particularly vulnerable' to weather problems or other risks, according to the report. Favourable growing conditions in Brazil probably will spur an increase in soybean yields, while rain delayed planting in Argentina and dry weather in some areas may hurt corn and soybean output there.

Corn harvest

"Until there is more certainty about production prospects in the United States, the largest producer of both crops, prices are unlikely to ease significantly," the IMF said. The US Department of Agriculture in February projected a rebound in domestic corn production to a record 14.53 billion bushels.

While China's metal-demand growth may moderate in 2013, planned infrastructure projects still may support prices, the IMF said. Tight supplies of copper have supported prices and financing arrangements at aluminium warehouses have kept inventories out of the market, it said.

"Metal prices picked up during the fourth quarter of 2012.," the IMF said.