 The UNCTAD commodity price index, up 12% between 2004 and 2005, now appears to be levelling off. Not all developing countries have benefited from this increase. China and India have emerged as main players in some sectors.
UNCTAD's analysis of newly released commodity price statistics suggests that 2005 was a pivotal year for commodity prices. There has been an upward trend since 2002 due to increasing demand - mainly in China and India - and to speculation on commodity markets.
There are now signs that this increase might be losing pace owing to slower economic growth, the withdrawal of speculative hedge funds and changes in stocking strategies, in particular for metals.
In 2005, the UNCTAD commodity index expressed in current US dollars was roughly 12% higher than in 2004, mainly as a result of price hikes in the metal and mineral sectors (+26%).
 But these figures can be misleading. The sharp increases in fact follow severe price falls. In the case of coffee, for instance, rising prices have still not caught up with pre-1997 levels. Real dollar prices over the long term look even less impressive, with overall commodity prices about one-third lower than the average for 1975-1985.
Commodity producers have not always reaped full benefits from recent increases in international commodity dollar prices. The depreciation in the US dollar means, for instance, that prices expressed in other currencies have increased by much less. In Africa, where a large share of imports are denominated in euros, increasing dollar prices for exports have not always meant an increase in purchasing power.
Major speculative positions have also affected commodity prices. It is estimated that $US 50 billion-worth of commodities are currently held on the futures market.
Other features affecting commodity markets and prices are:
- Dispute settlement processes in the World Trade Organization
- Greater concentration in commodity markets that influences prices at different stages of the supply chain
- Crude oil prices and refinery margins which increased forty-fold between 2002 and the end of 2005.
- Soaring transport costs (the Baltic Dry Index increased by more than 280% between 2002 and 2005).
 So far, rapid economic growth in China and India has had more of an effect on industrial raw materials than on food products. In the long term, this is expected to change, with an increase in both Chinese and Indian food imports contributing to higher agricultural commodity prices. This should not, however, affect the general downward trend in commodity prices.
But growth in the volume of imports to China and India - metals and food products - is expected to give developing countries the opportunity to expand their exports.
There is no hard and fast rule regarding factors affecting commodity market trends. Food crops are dependent on meteorological conditions and/or trade policies, whereas rubber and cotton markets are influenced by fuel prices and compete with oil-intensive synthetic substitutes when oil prices are low.
For more information on factors influencing commodity markets, please consult the Infocomm portal at www.unctad.org/infocomm
Two commodities have been selected to illustrate the uniqueness of each sector:
UNCTAD's commodity price database contains prices for selected commodities as well as price indices from 1960 to 2005. The database is updated every month. Access to data is on subscription only. For more information, please contact us by email: statcomm@unctad.org. | 
