The commodity price boom over the last three years is unsustainable and will result in sharp price declines by the end of the decade, the International Monetary Fund has warned.
However, the fund is not predicting an immediate price collapse and its chief economist, Raghuram Rajan, said yesterday that metal prices were fairly valued.
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Higher commodity prices have boosted the economies of resource-rich nations in theMiddle East, South America, Africa, as well as Canada and Australia, but have added to the import bill in consuming countries in North America, Europe and Asia.
"The real annual average price of aluminium and copper will decline from current levels by 35 and 57 per cent respectively by 2010," the IMF said in its World Economic Outlook, the analytical chapters of which were released yesterday.
The IMF also dismissed suggestions that increased investor interest in commodity markets had been a significant factor in higher oil and metal prices.
It said that in the oil market there had been no persistent increase in the number of futures contracts bought by speculators who had taken the view of higher prices. In the copper market there had been a fall in the net long position, reflecting moves by investors to buy futures with a view for higher prices.
The IMF said the metals' price declines would be a result of current high prices damping demand, and the expansion of mine and smelter production over the next five years.
For copper this would equate to a price of about $3,450 a tonne, from yesterday's price of $8,050, the result of an 80 per cent gain so far this year. But the predicted fall would leave the price at a level well above the long-term average price of about $2,000. Aluminium was trading at $2,640 a tonne yesterday. The IMF's forecast equates to a fall to about $1,700 a tonne, leaving it slightly above its long-term average.
The World Economic Outlook also examines Asia's spectacular economic growth, and the relationship between financial systems and growth in advanced economies. The IMF finds that Asia's growth has been largely driven by increases in labour productivity, stemming from better education, more capital equipment and rapid increases in total factor productivity - the effectiveness with which an economy utilises all its inputs.
Mr Rajan said the Asian productivity surge helped explain why global demand for commodities was strong, but emerging market investment and inflation rates remained reasonably healthy.
The IMF study on financial systems, meanwhile, found that arms-length financial systems, characterised by the securitisation of debt via financial markets, were better at reallocating resources in response to technological change and globalisation than systems based on relationship banking.
"The relatively slow growth of productivity in much of the eurozone could, in part, be attributed to the nature of the financial system prevalent there," Mr Rajan said. |
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