Cheaper commodity prices for 2012 won’t mean better days for anyone

The International Monetary Fund expects commodity prices to decline as the global downturn is seen to affect Asia Pacific by as much as 4%.

OCBC Research reported that the IMF has revised down its global economic growth forecast for 2012 in its latest World Economic Outlook (WEO) report, citing renewed financial instability, driven by concerns about developments in the euro zone and the strength of global activities, especially in the US.

Separately, OCBC Treasury Research & Strategy (OTR) expects the global economy to decelerate further, with things getting a lot worse in 1H12 before they get better in 2H12.

IMF also estimates that a global downturn could impact Asia-Pacific growth by 1.5-4% relative to baseline in the absence of policy response.

The report from OCBC Research highlighted Asian Development Bank’s findings that now see Singapore, Hong Kong and China among the worst-hit economies in the latest global economic crisis, noting that the external environment for emerging East Asia has worsened since mid-2011.

Despite IMF’s forecast of lower commodity prices in 2012, it stressed that price spikes due to supply factors remain the main concern.

In the face of a looming crisis, OCBC Research said soft commodity players such as GAR, WIL and Olam continue to maintain “pretty resilient outlook,” citing the defensive nature of their consumer staple businesses.

However, it noted that hard commodity plays are generally more muted, especially for those dealing in industrial metals, as industrial demand/output typically slows during economic contraction.

The analyst added that certain agricultural commodities like rubber and cotton may also be “adversely affected” should people cut discretionary spending.