World Bank Predicts Further Rise in Commodity Prices in 2018

MARKET INDICATOR

By Obinna Chima

The World Bank has predicted that oil prices would rise to $56 a barrel in 2018 from $53 this year, as a result of steadily growing demand, agreed production cuts among oil exporters and stabilising United States shale oil production.

In addition, the Bank predicted that the surge in metals prices was expected to level off next year.

Oil prices rallied on Friday, sending the global crude benchmark above $60 a barrel for the first time in more than two years and lifting the U.S. benchmark for the commodity to its highest finish in nearly eight months.

Prices found support on speculation that the Organisation of the Petroleum Exporting Countries and other major producers would agree to extend their production-cut deal through the end of the next year. To this end, Brent, the global benchmark rose 1.9 per cent to close at $60.44 a barrel. That was the highest settlement for a front-month contract since July 2015. The contract rose about 4.7% for the week.

But the World Bank in its October Commodity Markets Outlook, pointed out that prices for energy commodities – which include oil, natural gas, and coal — were forecast to climb four percent in 2018 after a 28 percent leap this year.

The metals index was expected to stabilise in the coming year, after a 22 percent jump this year as a correction in iron ore prices is offset by increased prices in other base metals.

Also, prices for agricultural commodities, including food commodities and raw materials, were anticipated to recede modestly in 2017 and edge up next year.

“Energy prices are recovering in response to steady demand and falling stocks, but much depends on whether oil producers seek to extend production cuts,” the Senior Economist and lead author of the Commodity Markets Outlook, John Baffes said.

 “Developments in China will play an important role in the price trajectory for metals.”

The oil price forecast saw a small downward revision from the April outlook and is subject to risks.

Supplies from producers such as Libya, Nigeria, and Venezuela could be volatile.

“Members of the Organisation of the Petroleum Exporting Countries and other producers could agree to cut production further, maintaining upward pressure on prices.

“However, failure to renew the agreement could drive prices down, and could increase production from the U.S. shale oil industry. Natural gas prices are expected to rise 3 percent in 2018, while coal prices are seen retreating following a climb of nearly 30 percent in 2017.

“China’s environmental policies are anticipated to be a key factor determining future trends in coal markets.

Iron ore prices are forecast to tumble 10 percent in the coming year but tight supply should push up prices for base metals including lead, nickel and zinc,” it added.

According to the report, downside risks to the forecast include slower-than-anticipated demand from China, or an easing of production restrictions on China’s heavy industries. Gold prices were anticipated to ease next year on expectations of higher U.S. interest rates.

Agriculture prices were however expected to edge up in 2018 due to reduced supplies, with grain and oils and meals prices rising marginally. “Agricultural commodities markets are well-supplied and the stocks-to-use ratios (a measure of how well supplied markets are) of some grains are forecast to be at multi-year highs.

“However, favorable weather patterns, well-supplied global food markets, and relatively low world prices do not necessarily imply ample food availability everywhere.

“Drought conditions that are by some accounts the worst in 60 years, have caused crops failures in parts of Ethiopia, Somalia and Kenya and led to severe food shortages. Conflicts in South Sudan, Yemen and Nigeria have driven millions of people from their homes and left millions more in need of emergency food,” it added.

The World Bank’s Commodity Markets Outlook provides detailed market analysis for major commodity groups, including energy, metals, agriculture, precious metals, and fertilizers.

The report includes price forecasts to 2030 for more than 45 commodities. It also provides historical price data and supply, demand, and trade balances for most commodities.

 

Interbank Market

 

After rising to as high as 148 per cent last Monday, the overnight tenor of the Nigerian Interbank Offered Rate (NIBOR) reduced significantly to 18..75 per cent on Friday, reflecting the improved liquidity position in the interbank naira market.

The overnight tenor had risen to as high as 148 per cent last Monday, before dropping to 120 per cent on Tuesday as news of a Federal High Court ex parte order instructing all Nigerian banks to forfeit all monies held in accounts without bank verification numbers (BVNs) to the federal government in 14 days from the date the order was given, filtered into the market.

But the inflow from Federal Accounts Allocation Committee (FAAC) helped to ease the tight naira liquidity of the market. Traditionally, FAAC allocation passes through the banking system.

The Accountant-General of the Federation, Mr. Ahmed Idris, disclosed that the federal government, states and local governments shared N558.082billion in October compared to N637.704 shared in the previous month. Idris made this known at the end of the monthly FAAC meeting in Abuja. According to him, the sum was inclusive of Value Added Tax (VAT).

CBN Injects $481m in One Week

The Central Bank of Nigeria (CBN) last week injected a total of $481 million into the interbank foreign exchange market.

A breakdown of this showed that while $195 million was pumped in at the beginning of the week, the banking sector regulator injected an additional $285,759,449, to meet requests in four sectors of the economy.

Details obtained from the CBN indicated that the agricultural, airlines, petroleum and raw materials were the four sectors that received various sums of allocation forex allocation from the CBN based on requests put forward by their respective banks.

Confirming the figures, the acting Director, Corporate Communications Department, CBN, Isaac Okorafor, said the intervention underlined the high levels of transparency of the Bank in foreign exchange management.

According to him, the CBN would continue to play its role in easing the foreign exchange pressure on manufacturing and agricultural sectors through sales under the new flexible Foreign Exchange regime.

The CBN has consistently injected funds into in the interbank foreign exchange market to ensure liquidity, thereby easing pressure on the local tender currency.

Meanwhile, the naira closed at N360 to the dollar on the Bureau De Change segment yesterday.

Adeosun Clarifies Borrowing

The Minister of Finance, Mrs. Kemi Adeosun, last week explained that the federal government was not desirous of borrowing fresh loans, but seeking to refinance what is known as legacy or inherited debts.

Her explanation was sequel to reactions trailing the request by the executive arm of government to the National Assembly seeking approval of the sum of $5.5 billion to help finance the 2017 Budget.

The minister, who featured on an Arise TV programme, the broadcast arm of THISDAY Newspapers, said the APC-led government would channel $3billion of the $5.5 billion into refinancing inherited debts from the previous administration.

She stated: “Let me explain the $5.5 billion borrowing because there have been some misrepresentations in the media in the last few weeks. The first component of $2.5 billion represents new external borrowing provided for in the 2017 Appropriation Act to part finance the deficit in that budget.

“The borrowing will enable the country to bridge the gap in the 2017 Budget currently facing liquidity problem to finance some capital projects.”

She added: “For the second component, we are refinancing existing domestic debt with the $3 billion external borrowing. This is purely a portfolio restructuring activity that will not result in an increase in the public debt.
“What we are simply doing is moving that debt from owing naira to owing dollars, but because it’s an external borrowing, we have to go back to the National Assembly for approval.

 

Code of Corporate Governance

The Financial Reporting Council of Nigeria (FRC) last week opened up on plans to reintroduce its proposed harmonised National Code of Corporate Governance (NCCG) that was suspended by the federal government early this year due to controversies surrounding the policy.

The NCCG was suspended following concerns raised by private sector operators with certain aspects of the code and the announcement by the General Overseer of the Redeemed Christian Church of God (RCCG), Mr. Enoch Adeboye that he was stepping down as head of the church in compliance with the tenure limit stipulated by the code of conduct not-for-profit bodies.

Adeboye’s decision to step down as head of the church also prompted President Muhammadu Buhari to sack the former executive secretary of FRC, Mr. Jim Obaze.
However, the incumbent executive secretary and chief executive of the FRC, Mr. Daniel Asapokhai, revealed the decision to revisit the corporate governance code during an interview. According to him, a draft document would be presented to members of the public in the next six months for input and suggestions by stakeholders.
The new FRC boss, in his response to a question from THISDAY, said a board committee to supervise the planned reintroduction of the code has been constituted.

He, however, did not disclose details of the framework of the NCCG that his organisation intends to bring back to existence.
Asapokhai explained: “On revisiting the code, the work has started. The board committee to supervise that work has been constituted. They have had their first meeting and they understand the scope of work that needs to be done.