Primary Commodity Dependency

Primary Commodity Dependency

The Economist reported that between 2000 and 2011 broad indices of commodity prices tripled.  Since then, commodity prices are now experiencing drastic variations. 

For instance, oil prices experienced ferocious price falls passing from $115 a barrel in June to around $70 a barrel in December. Metals and food commodities also followed the same pattern of oil.

What does it mean for the global economy?

Commodities’ prices drop should boost net resources importers countries such as the EU, the US, and China. In fact, they will be able to purchase primary commodities to a much lower cost increasing net profit over finished good exports. However, this drop in the prices has been a bloodbath for many net resources exporters such as Russia, Kazakhstan, and Libya.

These countries, being primary dependents on resource export, lately experienced a double-digits drop in their GDP.  Some producing countries like Saudi Arabia, due to their massive currencies reserves, were able to cope with prices drops.

Other such as copper-producing Chile and oil-rich Angola lacking these reserves are more vulnerable to commodity cycle prices.

Since primary commodities prices drop is mainly linked to oil prices reduction it is likely to be a short-term market condition. In fact, as soon as Saudi oil production will normalize, primary commodities prices will stabilize as well on a much higher level.

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