The global commodity price boom that began in 2003 was fueled in large part by rising demand in China, Brazil, India and a few other emerging markets (UNDP 2014). Massive investment in infrastructure, including the building of dams, mega cities, extensive road and rail networks, bridges and power facilities, drove demand for iron and steel, copper and other industrial metals to record highs. Similarly, growing prosperity and developmental prospects boosted the demand for oil.
A report released by the United Nations Development Programme (UNDP) on primary commodity booms and Busts in Africa. While commodity prices declined, or increased only slowly, during the global financial crisis of 2008-2009, prices rebounded rather quickly thereafter and stayed high until 2011-2012 (depending on the commodity), when the current downward slide started.
This long boom came to an end due to slowing demand and rapidly increasing supply. By 2012, growth rates in China, other Asian economies, as well as some other advanced economies began to decline, and growth in the demand for iron and steel, gold and other industrial metals slowed. China’s economic expansion slowed to 7.8 percent year-on-year in 2012, the lowest since 1999, and remained at an average of 7.7 percent between 2012 and 2014.
At the same time, supplies of these commodities continued to rise. Although recent supply data for all the commodities were not available at the time of compiling this report, the worlds’ largest metal-producing firms indicate that they were not scaling down production—many still expected that demand would continue. Large firms in Australia and other advanced economies, unlike countries in Africa that rely rather heavily on foreign investment in the mining industries, are already committed to huge expansion programs. There is a high probability that they will see the investments through, since these firms are normally more focused on the long term and not on periodic price swings, such as the world is currently witnessing. Overall, the supply of these commodities largely overshot demand since late 2012 and early 2013.
The report further stated that oil producing firms were generally not reducing output levels, at least until recently. Production in the US shale fields, for instance, is still high, and the Organization of Petroleum Exporting Countries (OPEC) decided not to reduce production levels in 2014 in order to maintain market share. Furthermore, Libya is coming back online after a period of significant output decline during the recent violence.10
Supply growth also continued in many agricultural products, particularly coffee. Brazil, which accounts for about one-third of the world’s coffee supply, produced a record crop of 50.8 million bags in the 2011/12 season, while coffee output also expanded in Ethiopia and Uganda (ICO 2015).
Slowing demand and ever-increasing supply have led to a massive fall in the price of primary commodities. Bloomberg’s Commodity Price Index plunged to an all-time low early in 2015, driven in large part by sharp declines in the global prices of crude oil, iron ore and copper.11 The decline in commodity prices has affected all major commodity aggregates. The downturn in oil prices has been particularly steep, plunging 55 percent from August 2014 to August 2015, which is good news for oil-importing countries such as Senegal and Côte d’Ivoire, but bad news for Angola, Republic of the Congo, Nigeria and other oil exporters.
The price of iron ore was down by about 53 percent in the year ending May 2015, although the prices of gold, silver and platinum have fallen a great deal less. Agricultural commodity prices, including cotton, soybeans and sugar, have also plummeted (the decline in coffee prices largely occurred prior to 2014). Overall, most commodity prices measured in dollars have fallen since the first half of 2014. The price of cocoa beans, which increased in the first half of 2014 and was down only 4 percent in the year ending August 2015, is an important exception.