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Commodity Markets to Remain Volatile – Economic Commission for Africa

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Commodities Exchange

Commodity markets in Africa are expected to remain volatile in the coming months following the persistence of Covid-19 constrains in the supply chain and other global economic pressures, says Stephen Karingi, Director of Regional Integration and Trade Division at the Economic Commission for Africa (ECA).

Mr Karingi was speaking at the ECA Price Watch session with African finance ministers on ‘Commodity prices amid COVID-19: prospects and policy implications for African economies.’ This is the 5th in the series of presentation sessions of price development in a specific sector compiled and disseminated by the ECA Price Watch Centre for Africa.

He said that African economies remain largely dependent on primary commodities exports and that although the commodity sector in most African economies is a significant source of national revenues, high dependence on the sector means high vulnerability to the vagaries of international markets and volatile prices passed on to local markets.

“High commodity dependence is associated with lower human development indicator across the developing world,” said Mr Karingi, adding “limited diversification and reliance on commodities sector are detrimental to long-term development in resource-rich countries.”

The ECA director noted that the commodities markets in Africa reacted strongly to COVID-19 in early 2020, owing to restrictions, economic slowdown and uncertain outlook. From mid-2020, significant rebound in commodities prices were above their pre COVID-19 levels with short term volatilities partly supported by expansive macroeconomic policies

On the commodity markets outlook, he said the upside risk factors for the continent include improved economic outlook/gradual recovery partly driven by successful vaccines campaigns and control of COVID-19 outbreaks; expansive monetary and fiscal policies to sustain economic activities like the recent $ 1.9 Trillion rescue Plan in the US and the € 750 Billion recovery effort in the EU area ; dynamic construction and infrastructure sectors worldwide to support markets of some commodities; high production costs to put upward pressure on food costs; low carbon energy and electric vehicles to sustain markets for products such as cobalt, lithium and nickel.

The downside risk factors include the gloomy economic prospects, especially in industrialized economies if the new COVID-19 variant is not controlled; and slower growth in major commodity importing countries.

According to Mr Karingi the potential impacts of recent surge in commodities prices will see commodity exporters record increases in economic outputs and fiscal revenues; price volatility to result in macroeconomic instability, trade balances, investment flows; and potential negative weight of high prices on net commodities importers, especially with regards to food and energy commodities.

He recommended that countries should have an overhaul policy -fiscal, trade, human capital – to reduce strong dependence to global commodity markets. African countries should also promote economic and fiscal diversification, including through the landmark African Continental Free Trade Area (AfCFTA)

“AfCFTA will assist with Covid-19 recovery but expected benefits from AfCFTA will not be automatic. Member states must pursue ratification of the Agreement and implement it effectively,” he noted.

Oliver Chinganya, Director of the African Centre for Statistics (ACS) at the ECA, said while the macroeconomic effects are well known, the trends of commodity prices and their influence on the revenue of African countries require delving into deeper analysis to have good grasp of the situation.

“The recent commodity price movement raises questions on critical points that economic policies should consider both in the current situation as well as for longer term perspectives,” he said.

Mr Chinganya observed that over the last twenty months COVID-19, has exposed the vulnerability of African economies to global shocks and high dependence to remote world markets. This has led to disruptions in supply chains and slowdown in economic activities worldwide, which to some extent have affected the price of several commodities since the outbreak.

The last ECA Price Watch Centre presentation was held on June 22 and focused on Energy Prices in Africa: Transition Towards Clean Energy for Africa’s Industrialization.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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Expert Warns Against Palm Oil Adulteration, Cites Health Risks

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Amidst concerns over the quality of palm oil in Nigeria, Professor Kehinde Owolarafe of Obafemi Awolowo University, Department of Agriculture and Environmental Engineering, has sounded a clarion call, warning producers, distributors, marketers, and retailers against the perilous practice of adulteration.

At a recent workshop organized by the Standards Organisation of Nigeria (SON) in Osogbo, Osun State, Owolarafe underscored the potential health hazards posed by adulterated palm oil.

Highlighting the historical significance of Nigeria in palm oil production, Owolarafe lamented the country’s decline from a leading producer to the fifth position globally, trailing behind Indonesia and Malaysia.

Despite an increase in local production, Nigeria still imports approximately one million metric tonnes of palm oil to meet domestic demand.

Factors contributing to Nigeria’s dwindling palm oil production include aging oil palm plantations, inadequate processing technologies, and unfavorable government policies towards agriculture.

Owolarafe urged industry stakeholders to prioritize improving both the quality and quantity of palm oil production to meet international standards and revitalize the sector.

Dr. Ifeanyi Okeke, represented by SON’s Southwest Director, Ethan Talatu, emphasized the workshop’s aim to raise awareness among stakeholders regarding the importance of adhering to government-set standards.

The event sought to instill a collective commitment to producing palm oil that meets stringent quality criteria.

Amidst growing concerns over the health implications of consuming adulterated palm oil, stakeholders are urged to heed Owolarafe’s warning and prioritize quality assurance measures.

Ensuring the integrity of Nigeria’s palm oil supply chain is not only essential for public health but also crucial for revitalizing the nation’s palm oil industry on the global stage.

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Commodity Trading Industry Hits $100 Billion Profit, Second-Best Year on Record

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The global commodities market has reported $100 billion in profits despite facing challenges and disruptions, making its second-best year ever. 

According to analysis from consultancy firm Oliver Wyman LLC, while earnings have dipped slightly from the record-breaking levels of 2022, this year’s profits easily surpass previous highlights, including those seen during the global financial crisis of 2008-2009.

Consultant Adam Perkins attributes this success to favorable margins driven by ongoing supply-demand dynamics, despite the volatility seen in various sectors.

While specific financial results for many players within the industry are yet to be made public, the report indicates that major independent trading houses are expected to show an average drop of over 30% from the record levels of 2022.

However, disruptions in supply chains and shortages of diesel and fuel oil have somewhat offset the decline in volatility related to Russian crude oil.

These profits have enabled commodity trading firms to bolster their positions as key providers of energy, metals, and food resources on a global scale.

With significant investments in oil refineries, storage facilities, power plants, and acquisitions of other trading companies, these firms are solidifying their roles in shaping global supply chains.

Moreover, the windfall profits have led to executives and partners within these firms becoming multi-millionaires, facilitating a generational shift in leadership as seasoned traders retire.

Despite the pressure to uphold legacies and navigate increased scrutiny, the influx of new leadership presents opportunities for innovation and growth within the commodity trading sector.

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