GLOBAL COMMODITY MARKETS - World Bankpubdocs.worldbank.org/pubdocs/publicdoc/2016/5/...GLOBAL...

V OL U ME 7|

1L E january 1999 l8 Io

GLOBAL COMMODITY MARKETS

a comprehensive

review and price

forecast

THE WORLD BANK

Commodities Team

Development Prospects Group ISSN 1020-721X

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GLOBAL COMMODITY MARKETSvolume 7, number 1 january 1999

Summary.. . . 3

Global and Regional Price Indices .................... .. .. . .4

Special Feature. . . . . . . . . . . . . . . . . . . . .. . . . . .. . . 6Will Commodity Prices Fully Recover?

Economic Outlook .......... .......... 8

Ocean Freight ....... ................................ 9

Energy

C o al . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Natural Gas . . ............................... ... .12

Petroleum ...................................... 14

Beverages

C ocoa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

C offee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . 20

Tea ...................................... 22

Food

Fats, Oils, and Oilseeds

Fats and Oils . . . . . . . . . . . . . ...................... 24

Coconut Oil ...................................... 26

Palm Oil ..................................... 28

Soybean Oil .... .............................. I . .30

Soybeans .32

Grains

Grains .34

Maize .36

Rice ......... . ................................ 38

Wheat .4.0. 40

1

GLOBAL COMMODITY MARKETS january 1999

Other Food

Bananas ..... ............. 42

Shrimp. . . 4. ...... .... . . 4

S ugar 46... ... ... ............ ...... ........ ....................... 4 6

Agricultural Raw Materials

Cotton . .. 4. ... 8.. . 4

Ru-bber ......... ....................... 50

Tropical Timber ........... .. ...... 52

Fertilizers

Phosphates ..... ...... . 54........ 54

Potassium ... .. ................ ......... ...... .......... 56

Urea . ... 58

Metals and Minerals

Alunminum ... 60

Copper . . .. ........ ... 62

Gold 64

Iron Ore and Steel ..................... 66

Commodity Prices

Commodity Price Projections ......... .... 68

Commodity Price Indices .................. .. ........... .......... 70

Inflation Indices . .. ......... ....... - .... 71

VCommodity Price Probabilities. . .............................. 72

Commodity Price Data. ............... ...... . ................ . 74

Definitions and Notes ................... . .. ............ .... 77

Acronyms and Abbreviations.. .. . . .. . .... 78

Copyright © 1999 by the International Bank for Reconstruction and DevelopmentVThe World Bank.

All rights reserved. You may not copy, reproduce, publish, distribute, transmit, create derivative works, or in any way exploit anv part of thecontents of this publication without the prior written permission of the World Bank. The contents of this publication may not be used to construct

any kind of database.

The World Bank does not guarantee the accuracy of the data and forecasts presented in this report, and accepts no responsibility whatsoeverfor any consequence of their use.

2

january 1999 SUMMARY

SummaryFurther price declines expected in 1999

Commodity prices continued to fall in the fourth quarter, to decline 2-3%, as cotton prices fall due to weak demandwith energy and non-energy price indices falling 8.9% and and low chemical fibers prices.0.7% respectively due to weakness in the global economies Oil prices are expected to slip further in 1999 because ofand large supplies of nearly all commodities. Petroleum, high levels of inventories and the apparent reluctance of oiland metals and minerals prices remained especially weak, producers to reduce output further. Low prices are alreadywhile agricultural prices were mixed. Among main havinganaffectonhighcostproducersinCanada,theRussiancommodity groups, the largest declines were in petroleumn, Federation, and the US. But, non-OPEC supplies arenon-timber agricultural materials, and metals and minerals nevertheless expected to post moderate gains, mainly in the(see Table 1). Several individual commodities had price North Sea and in Latin America. Should demand remaindecreases of more than 10% - cotton, oranges, rice, shrimp, weak, inventories are unlikelyto fall unless more oil is takensteel, tea, and urea. Some recovery was seen in agricultural offthe market. If OPEC production continues to rise, thencommodities as lower procluction led to reduced stocks and oil prices could remain low for an extended period. Assuminghigher prices. Those commodities rising more than 10% some degree of supply management, prices are expected toinclude coconut oil, wheat, bananas, and tropical timber. recover later in the year.

For the full year 1998, energy prices plunged 32% Metals and minerals prices are also expected to declinecompared with 1997, while agriculture and metals and in 1999 because of weak demand and rising production.minerals both fell 16% in rominal terms. Nearly all energy Significant additions to capacity are expected over theand metals and minerals conmodities suffered large declines next few years which will result in large surpluses andbecause ofweak demand, r ising production, and increasing low prices. To date there has been limited reduction inlevels of stocks. Only silver had an annual gain in average output. High inventories are expected to continue in theprices due to investment find buying in the first half of the face of weakening industrial demand, and prices couldyear, but prices have since dropped back to earlier levels. remain low well into next year.The agriculture picture is more varied. While prices fell for Beyond 1999 we expect commodity prices to begin toall major groups, the non-food commodities (rubber, timber, recover, but the recovery is expected to be slow and veryand cotton) were particularly hard hit. A few food much dependent upon the growth in the world economies.commodities posted moderate price gains, including robusta A few commodity prices are still projected to decrease incoffee and cocoa in the beverage sector, and palm and 2000- arabica coffee, coconut oil, fertilizers, palm oil, andsoybean oils in the vegetable oils sector. tea. The price increases will be tempered by risingproduction

Prices are expected to decline further this year because and continuing surpluses for a number of commodities.of continued weakness in clemand, large supplies, and rising Excess supplies of both agriculture and metals suggest that itinventories for many ofthe major groups. Economic growth may take several years of rapid economic growth (like inin the industrial countries is expected to slow, and activity in the mid-1990s) to wear off existing surpluses and to providedeveloping countries will be impacted by the recentfinancial conditions for a rise in prices. Prolonged low prices willcrises in Brazil and the Russian Federation. All major negatively impact supply and will help reduce inventories.commodity groups are expected to have declining prices, Over the longer-term period, 2000-2010, mostwith only timber prices projected to rise 7% because of commodity prices are expected to rise from depressedtightness in supplies due to low prices and heavy rains which 1998-99 levels. Global economic growth in excess ofdisruptedloggingin SoutheastAsia. 3% p.a., with growth in developing countries rising at a

Agricultural commodity prices are expected to fall an rate greaterthan 5%, will begin to exert upward pressureadditional 5% in 1999. Beverage prices could decline as on prices. However, in almost all cases, real prices inmuch as 12%, following ample supplies of coffee and the 2010 are expected to remain below 1997 levels becauseeconomic slump in Brazil, the world's largest coffee of projectedmore rapid increases in supply than demand.producer. Fats and oils are projected to decline 4%, mainly No major supply constraints are foreseen which will leadreflecting increases in the palm oil supplies from East Asia. to sustained price increases. There is evidence of aGrain prices are likely to mnaintain last year's levels because fundamental break in the level of commodity prices, dueof lower production and declining stocks, and wheat prices to rapid advances in technology and declining costs ofare expected to rise. Agricultural raw materials are expected production (see Special Feature).

GLOBAL COMMODITY MARKETS januzarv 1999

Figure 1: Weighted Index of Primary Commodity Prices for Low- and Middle-Income Economies

175 EnergY 175 - Non-Energy Commodities

125 -125-

75 75 -

25 25-83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 -83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

Food Metals and Minerals175 175v

125 -125 -

75 75

25 25|2 8 3 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 583 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98

Table 1: Weighted Index of Primary Commodity Prices for Low- and Middle-Income Economies inCurrent Dollars (1990=1 00)

NonEnergy Fats MetalsCom- Agri- and Cther Raw and

Energy modities culture Beverages Food Oils Grains Food Materials Timber Fertiiizers Mineralsi00.00 a/ 99.99 69.13 16.87 29.44 10.13 6.94 12.37 22.82 9.26 2.71 28 15

Annual1996 89.3 115.1 125.4 126.3 123.6 147.0 140.6 95.0 127.1 139.5 119.8 89.11997 83.8 117.6 128.6 170.7 116.1 147.7 112.1 92.4 113.7 125.8 119.7 90.21998 57.1 99.2 107.8 140.6 105.0 132.8 101.3 84.2 87.4 90.9 122.1 75.7Quarterly1997Q4 81.9 109.4 119.3 161.9 112.0 146.3 103.6 88.7 97.1 98.7 118.2 84.1199801 61.5 105.9 116.4 164.3 109.1 140.0 105.7 85.8 90.3 91.9 121.8 78.71998Q2 58.4 101.0 109.7 144.2 106.9 132.5 104.5 87.3 87.7 88.8 123.4 77.41998Q3 56.9 95.2 102.6 129.0 101.1 127.2 98.3 81.4 84.9 86.3 123.0 74.51998Q4 51.8 94.6 102.8 124.9 102.6 131.5 96.5 82.4 86.6 96.7 120.1 72.0Monthly1997M12 74.7 108.2 118.9 168.8 111.7 145.8 103.0 88.6 91.4 91.6 120.0 80.81998M01 65.7 105.9 116.3 168.5 110.2 142.0 104.6 87.4 85.5 81.9 121.8 79.01998M02 61.5 107.6 119.1 168.5 110.2 141.6 106.4 86.7 93.9 97.1 121.8 78.11998M03 57.3 104.2 113.7 155.8 106.9 136.4 106.0 83.2 91.5 96.6 121.8 79.01998M04 59.1 104.2 113.5 152.6 108.8 134.3 104.7 90.2 90.8 94.8 122.4 79.71998M05 61.3 101.4 110.2 145.5 107.6 135.8 105.1 86.0 87.4 87.9 123.7 77.61998M06 54.8 97.3 105.3 134.5 104.4 127.4 103.8 85.9 85.0 83.8 124.2 75.11998M07 55.5 96.3 103.9 129.3 104.8 128.8 102.4 86.5 84.1 81.3 124.2 74.71998M08 54.6 94.8 102.2 132.3 99.4 125.4 96.6 79.7 83.5 84.4 123.0 74.11998M09 60.5 94.6 101.6 125.4 99.2 127.5 95.9 77.9 87.1 93.2 121.8 74.71998M10 58.0 94.1 101.7 123.3 100,2 129.4 98.5 77.3 87.7 95.3 121.4 72.81998M11 51.9 95.1 103.2 125.9 103.5 132.9 95.7 83.8 85.9 95.6 119.4 72.91998M12 45.5 94.6 103.4 125.4 104.2 132.2 95.4 86.2 86.3 99.3 119.4 70.4a/ Crude oil index.Note: Weighted by average 1987-89 export values for low- and middle-income economies.Source: World Bank, Development Prospects Group, Commodites Team.

4

january 1999 GLOBAL AND REGIONAL PRICE INDICES

Figure 2: Regional Price Indices of Non-Energy Commodity Exports (1990=100)

East Asia and Pacific Latin America and Caribbean175 - 175 -

East Asia and Pacific125 - 125 1

75 - 75 - LatinAmerica and Casibbean

2590 91 92 93 94 95 96 97 98 250 91 92 93 94 95 96 97 98

South Asia Sub-Saharan Africa175 175-

125 - 125 -

South Asia

2590 91 92 93 94 95 96 97 98 90 91 92 93 94 95 96 97 98

The declines in commodity prices during the last several index fell to 77.9 in May of 1993 while the world indexyears have had very different effects on individual regions. was at 94.7. The weakness during the early 1990s andIn orderto better understand these effects, we have developed the subsequent recover of the regional index towards theregional indices ofnon-energy commodity prices based on end of the period were caused primarily by tea whichthe export basket of developing countries in each regions. accounts for more than one-fourth of exports of theWe then compare these indices (shown above) with the region. Tea prices began the period very high, at 330¢/world price index and the indices for other regions to gain kg for Calcutta f.o.b. Prices then fell to 11 8¢/kg in 1994insights into some of t:he macroeconomic effects of before recovering to 260¢/kg in late 1998.commodity prices. Sub-Saharan Africa, and Latin American and Caribbean

The East Asia and Pacific region benefited more than region have very similar commodity price indices. Bothother regions from the co]mmodity price boom of 1993 and regional indices are strongly influenced by cocoa, coffee,1994 and then saw those price increases fade more quickly copper, and sugar. These four commodities account forthan other regions during the 1995 to 1998 period. This approximately50percentoftotalexportrevenues. Thetwocontributed to the rapid economic growth during early part periods of sharp increases in the regional price indices wereof the decade and the severe downturn in the region during due to the increase in coffee prices. Prices of arabica coffee,thelasttwoyears. Theregionalindex(1990=100)reached exported by the Latin American and Caribbean region,a peak of 147.5 in March 1995 compared to the world doubled from April to July of 1994, while the prices ofindex value of 120. The region benefited from a heavy robusta coffee, which are exported by Sub-Saharan Africa,concentration of exports in natural rubber and timber -the tripled in 1994. Prices doubled again in 1997 and then fellsame commodities which had the greatest price declines sharply. Cocoa prices contributed to the decline ofthe priceduring the last several yegrs and which caused their index to indices until 1993 and rose throughout the remainder ofthedecline relative to the world index. period. Copper prices doubled from the low of 1993 to the

The South Asia region shows a very different picture. 1995, but then declined again in 1996-98. Sugar accountsDuring the early part of the decade, the prices of for a larger share of export revenues from Latin Americacommodities exported by the region lagged the world and the Caribbean than in Sub-Saharan Africa, but exportindex. This was followed by a gradual recovery of prices revenues are more stable than the world market price offor those commodities to near the world average by about sugar because of the preferential prices received for exports1995, but a full recovery only in 1998. The regional to the European Union and the United States.

5


commodities rose following currency devaluation.WViii Commodty Prices Second, currency devaluations reduced the US dollarprices of commodities exported by these countries, and

Fully Recover? this was most significant for those commodities wherethe affected countries were major exporters.

The prices for many primary commodities have The demand effects were not large enough todeclined more than 50% from their recent highs (see explain the declines in commodity prices. The fivetable). The declines have been equally sharp in EastAsiancountriesmostaffected(Indonesia,Republicagriculture, crude oil, and metals. Natural rubber of Korea, Malaysia, Philippines, and Thailand) accountprices declined nearly 65% from the high in 1995, for less than 10% of world consumption of mostwhile coffee, copper, cotton, crude oil, maize, primary commodities (5.6% of aluminum, 8.9% ofnickel, and sugar prices all declined more than 50%. copper, 5.3% of grains, and 6.7% of petroleum).These declines are generally attributed to events in However, the currency devaluations do largely explainEast Asia, however, there appears to be other the price declines in those commodities which arefactors which greatly contributed to the declines primarily produced and exported in the five countries.and these other factors may have a longer lasting Production of natural rubber, and tropical timber areeffect than recent events in Asia. concentrated in the East Asia five, while Thailand is a

More important than the Asia crisis may have been major exporter of rice.the surge in global commodity supplies in the lastseveral years which appears to go well beyond the Prices were in cyclical declinenormal supply response to higher prices. This supply The cyclical decline in commodity prices hadseems to be fueled by advances in technology which already begun in agriculture, energy, and metals andis allowing firms to operate more efficiently. Increased minerals well before the Asian crisis started. The Worldprivatization and market liberalization have also Bank's food price index peaked in April, 1996 andprovided greater incentives for firms to invest and declined 12.7% by the time the crisis began. The indexadopt new technology. The combined effect of these of metals and minerals prices peaked in August, 1995factors may have led to a structural break in commodity and declined 11.0% by June 1997. Petroleum pricesprice levels as production costs have declined. declined 24.1% by June 1997 from their peak in

December, 1996. Beverages prices (coffee, cocoa,The Asian crisis and tea) peaked in May, 1997 -just before the start

The Asian crisis started with the devaluation of of the crisis and have since fallen by more than 40%Thailand's baht in early July 1997 and then quickly due to large supply increases from South America, butspread to other East Asian countries. There were two not due to weak Asian demand.primary impacts on commodities. First, demand was The decline in commodity prices which began inreduced as incomes fell and prices for imported 1995 was typical of past cycles in which large price

increases (during 1993 -95) led to increased investments*/0 in productive capacity and to eventual price declines

Commodity Units Recent Highs Recent Lows ChangeMo/yr Price Mo/yr Price as supply exceeded demand. Coincidentally, this

Agriculture occurred at about the same time that the Asian crisisCoffee ¢/kg 5/97 491 10/98 225 -54.1 weakened demand in the East Asia region. This led toCotton ¢/kg 5/95 253 12/98 123 -51.3 commodity price declines which exceeded those whichMaize $/ton 5/96 204 9/98 86 -657 would have been expected under a more normalRubber 0/kg 4/95 184 8/98 65 -645 5 ylcldcieSoybeans $/ton 4/97 338 9/98 216 -36.1 cyclical decline.Sugar ¢/kg 1/95 32.5 9/98 15.9 -51.0Wheat $/ton 5/96 262 9/98 107.9 -41.2 Supply increases

Crude oil $/bbl 12/96 23.6 12/98 10.4 -55.9 Encouraged by the high prices during 1993-95, an

Aluminum $/ton 1/95 2061 12/98 1249 -394 unusually large increase in supplies of primaryCopper $/ton 7/95 3076 12/98 1474 -52.1 commodities has occurred in the last several years. InLead ¢/kg 5/96 84 10/98 49.3 -41.3 the case of agriculture, favorable weather conditionsNickel $/ton 1/95 9593 10/98 3872 -59.6 also led to higher yields. The supply increases were

Source: Worla Bank largely unrelated to events in Asia. Agricultural

6

january 1999 SPECIAL FEATURE

production increased sharply as prices rose from their production has seen a surge in productivity as horizontallows in 1993 and culminated in a surge in global drilling has allowed greater recovery, and 3D computerproduction in 1996 and 1997. For example, world seismology has greatly improved the ability to locategrain production increased 10.5% from 1995 to 1997, and exploit oil reserves. Rapid progress has also beenand world soybean production increased by 13.2%. made in deepwater technology, which has opened aThis compares with the long-run trend growth of new frontier to development.production of 1.4% for grains and 3.6% for soybeans. Policy reforms and increased privatization have

The supply increases were widespread and not provided greater incentives to increase production.Qonfined to a few commodities or a few countries.' This was demonstrated in Argentina, where grainThe increases were most rapid in developing countries. production increased from 23.3 million tons in 1995The FAO's index of the volume of agricultural to 40.1 million tons in 1997, and exports from 13.2production rose by 3.8%Vo per year for all developing million tons to 25.7 million tons in response tocountries from 1990 to 1997, and rose the mostrapidly favorable world market prices and reformedfrom 1993 to 1996 when prices were rising. government policy. Soybean production increased from

The global supplies of metals and minerals also 12.4 million tons in 1995 to 18.7 milliontons in 1997.increased rapidly following the sharp increases in prices Deregulation of the ports and maritime sector in 1992in 1993 and 1994. Aluminum production increased led to heavy investment and reduced the cost of loading6% in 1996 and an additional 4.5% in 1997, while grain from $10/ton to $2/ton.consumption grew by a total of 5.6% over this two- Many African countries have also undertakenyear period. Copper production grew by 9.1% in 1996 important liberalization efforts in the last decade inand an additional 2.9%/, in 1997, while consumption their commodity subsectors, especially in foreigngrew by 7.6%. Nickel production increased by 11.4% exchange earning commodities such as coffee,from 1995 to 1997, while consumption fell slightly. cocoa, and cotton. For example, Uganda reformedThe increase in metals was greater in 1996 than in the coffee and cotton sectors following the political1997, even before the Asian crisis was recognized. turmoil of the 1970s and 1980s. The result has

been a resurgence of cotton production from a lowNew technology and policy reforms of 2,000 tons in 1987 to 29,000 tons in the current

The surge in commodity supplies was due to high season (a 23-year high).prices, new and improved technologies, and policyreforms which increased incentives of the private Conclusionsector. It is difficult to quantify the contribution of Commodities may be experiencing a structural breakeach of these, but it appears that the supply response in price levels which is partly related to the Asian crisiswas greater than expected from high prices alone. and partly related to a surge in global supplies. The

Technological advances take many forms, and have Asian crisis has led to currency devaluation thatbeen aided by the increased computerization in many lowered production costs. Advances in technology havefields from agriculture to oil exploration. In metals reduced the cost of producing many commodity, andproduction, expanded use and refinements to leaching policy reforms have increased the incentives to adoptand solvent extraction techniques have reduced mining better technology. These factors have contributed tocosts. Agriculture contlinues to benefit from improved the surge in commodity supplies. The largest supplyseeds which have come from both traditional breeding increases have been in the developing countries, whereprograms and more recently to genetically engineered the policies to liberalize markets and privatizeseeds (40% of US cotton production is now produced production appear to have paid off in higher production.from genetically engineered seeds.) Crude oil If we are experiencing a structural break in

commodity prices, we would not expect prices to fully

These increases did not occur in the countries of the former recover from current low levels. Improvements inSoviet Union where production continued to fall. According to technology and more efficient operations do not erodethe FAO index of agricultural production in transition economies, quickly and their impact would remain even after theproduction fell by 35% from 1990 to 1998. This partially offset Asian crisis has ended. This suggests that commoditygains in other countries and caused the global totals to show prices may have taken another step down in the longsmaller changes than the developing countries. history of declining prices relative to those of

manufactured goods.

7


increased efficiency and growth, and the US showsESconomic OU tlOOK improved productivity performalice. World trade isexpected to show stronger growth in the longer-term,

Slow growth expected in 1999 boosted by expanding global production and falling barriersto trade, transport, and communications.

Global output growth is estimated to have been out nearly Developmng countries also benefit from nearly twoinhalfin 1998,to 1.8%from3.2%in 1997,andisexpected decades of reform. But the period ahead is moreto revive only modestly to 1.9% in 1999. Tempered, but challenging: private capital flows will take longer to returnstill strong, growth in continental Europe and a slowing U.S. and are moie measured, contributing to a reduction ineconomy with room for managing a soft landing are positive long-run growth projections (and the need for higherelements. East Asian crisis countries and Japan are expected domestic saving to finance growth). Following their deepto shift from sharp recession in 1998 to stabilization in 1999, crisis, East Asian economies are unlikely to return to theirexerting less of a drag on world output growth. Developing extremely rapid growth rates of the early 1990s, butcountry growth is estimated to have been reduced by halfto recover to moderately strong growth (with more reliance2% in 1998, from 4.8% in 1997 - the second worst on productivity gains and less on high investment).slowdown in the past 30 years - and to show only a modest There is still a substantial risk that the world economyrecovery in 1999. will plunge into recession in 1999 rather than experience

In the longer term (2001-07), the world economy could the sluggish growth described in the baseline outlook.still grow at slightly more than 3% a year, if policies to This riskderlves fromasetof interconnected andmutuallyprevent a deeper global slump are implemented quickly reinforcing contingencies: aworsening recession in Japan,and developing countries strengthen their financial sectors a loss of confidence in international capital marketsand reforms. The crisis in emerging markets will hit capital leading to an extended shutdown in private capital flowsflows beyond the short-term, but long-tern growth in to developir.g countries (especially Latin America), anddeveloping countries (excluding transition economies) an equity market correction of 20%-30% leading tocould still reach more than 5%, about the same as in depressed growth in the United States and Europe. The1991-97. results would be severe for developing countries, where

Underlying this optimistic longer-term outlook is the the effects of lack of access to private capital flows wouldexpectation that growth in industrial countries will regain be aggravated by even sharper declines in export growthstrength. OECD growth should strengthen as Japan deals and primary commodity prices than in the baselinewith its banking problems, European Monetary Union outlook, reducing aggregate growth by an additional 2(EMU) helps underpin European integration and percentage points, to only 0.7 percent in 1999.

World Grovth, 1981-2007(Annual percentage change in real GDP)

ForecastsRegion 1981-90 1991-97 1997 1998 1999 2000 2001-07

World total 3.1 2.3 3.2 1.8 1.9 2.7 3.2High-income countries 3.1 2.1 2.8 1.7 1.6 2.3 2.6

OECD countries 3.0 2.0 2.7 1.9 1.6 2.2 2.5Non-OECD countries 6.6 6.4 5.3 -1.8 2.0 3.9 5.2

Developing countries 3.0 3.1 4.8 2.0 2.7 4.3 5.2EastAsia 7.7 9.9 7.1 1.3 4.8 5.9 6.6Europe and Central Asia 2.6 -4.4 2.6 0.5 0.1 3.4 5.0Latn America and the Caribbean 1.9 3.4 5.1 2.5 0.6 3.3 4.4Middle East and North Afnca 1.0 2.9 3.1 2.0 2.8 3.1 3.7South Asia 5.7 5.7 5.0 4.6 4.9 5.6 5.5Sub-Saharan Africa 1.9 2.2 3.5 2.4 3.2 3.8 4.1

Memorandum itema

East Asian crisis countries 6.9 7.2 4.5 -8.0 0.1 3.2 5.2Note: GDP is measured at market prices and expressed in 1987 prices and exchangerates. Growth rates over historic intervals are computed using least squares method.a. Indonesia, the Republic of Korea, Malaysia, Philippines, and Thailand.Source: Global Economic Prospects, Worid Bank. Data and baseline projectons November 1998.

8

january 1999 ECONOMIC OUTLOOK AND FREIGHT

in coal prices in Australia. BFI rates for the coal route fromOcean Freight Richards Bay, S. AfricanRepublicto Rotterdarn improvedfrom$4.70/ton in late August to $5.68/ton in late September, before

Excess tonnage weakens ocean freight rates falling to $4.74/ton in late December. The rates for iron orefrom Tubarao, Brazil to the same destination during the same

Dry bulk freight rates continued to fall during the fourth period remained around $4.00/ton.quarter due to excess capacity of all vessel sizes and the low US steel producers filed anti-dumping provisions involume of import demancl for grain and minerals, particularly September against Brazil, Korea, Japan and the Russianfrom Asia. The Baltic FreightIndex(13FI) forCapesize [80,000 Federation. This temporarily increased the demand for+deadweighttonnage(dwx)] andPanamax(50,000-75,000dwt) Handymax size vessels to transport steel to the US beforesizevessels,fellby 15.7%duringthequarter. TheBFIfelltoa the possible application of anti-dumping tariffs. Since12-year low of 780 in mid-January. The Baltic Handy Index November, US steel irnport from these countries has declined(BilH), the index for the Hlandysize vessels (less than 43,000 because tariffs will be imposed retroactively for three monthsdwt), also fell by 15.2% during the fourth quarter. if these provisions are invoked.

Panamax rates suffered from low grain demand, which Strong demand for Handysize tonnage from the Greataccounts for 30% of Panamax tonnage. The BFI rates Lakes to Europe supported the Handysize markets duringfrom the US Gulf to Japan for heavy grain fell from $8.98/ the quarter. However, as the season for the St. Lawrenceton in late September to $8.46/ton in late December after a River route comes to an end, this market is also likely totemporary surge in October partly due to improved import suffer from excess tonnage.demand for grain and fertilizers from China. The freight rates for dry cargo are likely to remain low

The US finalized a $85 million aid packagetothe Russian given the increasing excess capacities. Devaluation of theFederation in late Decernber, which includes a donation of Korean won and the Japanese yen has resulted in a significant1.5 million tons ofwheat. Analysts believe that this tonnage decline in prices of new vessels built in tne two largestis not large enough to lead to a significant increase in supplying countries of new vessels. As a result, the deliveryinternational Panamax rates. However, rates for US flag rate of new vessels has been higher than the demolition ratevessels are likely to increase since a large part of the wheat in terms of tonnage even though the rate of dermolition haswill be shipped by the US flag vessels under a preferential been the highest in the recent past. In addition, weakact. The EU has also agreed to send one million tons of economies in Asian countries suggest that import demandwheat and halfa million tons ofrye to the Russian Federation. for minerals in these countries is likely to weaken as

Capesieratesstrengtlienedduringtheearlypartofthequarter production of manufacturing goods in these countriesbecauseofincreased demand forcoal routes following adecline continues to decrease.

Baltic Freight Index (1985=1000) and Biffex Futures

2,500 - B~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~iffex sf Jaiianlj

1,500 - .

1,000 -. . -

5 0 0 - - - - - - - - - - - - - - - - - - - - - - - - - -

Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99Source: Baltic Exchange anid LIFFE

8/day BFI Selected Time Charter Route $iday BHI Selected Time Charter Routes15,000 15,000

12,000 -- 12,000 -----Trans Pacific Round Voyage Continent Far East

9,000 9,000 .

6,000-6,000 6,n000ent- X 00i _Trans Atlantic Round Voyage

3,000 3,000

Jan-97 May-97 Sep-97 Jan-98 May-98 Sep-98 Jan-97 May-97 Sep-97 Jan-98 May-98 Sep-98Source: Balic Exchange Source: Baltic Exchange

9)

GLOBAL COMMODITY MIARKETS january 1999

CoalUS Monthly Prices (S/mt)

International coal prices under pressure from 42

oversupply 404

International spot coal prices fell 5% in the fourth quarter, Spot

amid weakening global demand. Steam coal prices are 38

expected to decline further this year, with sizeable reductions 36 \expected during negotiations between producers and Japaneseutilities. However, the declines are not expected to be as 34 -. . . -drastic as the recent settlements for coking coal. 32

InDecember, BrokenHillProprietaryCo., Australia'slargest De,-94 Dec-95 De:-96 Dec-97 Dec-98

resources company, agreed to an 18% reduction in the price of Soure Coa Weeklntemational

hard coking coal supplies to Japanese steeelmakers. The $9 perton cut reduces the price to around $41/ton, by far the largest World Balance (million tons)decline on record. It comes at a time of abundant supplies of 4,000coking coal and a slunp in steel demand. 3ou0n -

Australian producers will be cushioned by the comparable 3,S00slump in their currency over the past 18 months and by n

significant reductions in costs, including a 20% reduction in 3,000

the industry's labor force. Nevertheless, further costreductions can now be expected. US producers are expected 2,500

to see their exports drop significantly, being less willing to 2match this large cut in price. 2,000 __ , I - - Imatch this large cut in price. ~1970 1975 1980 1985 1990 1995

US coal prices remained fairly stable in the fourth quarter, Sou-e.J E.EcuBa,9B9nk

particularly Eastem compliance spot coal prices. Demandwas relativelyweak because ofmild weather, the abundance Exports (million tons)of electricity, and ample supplies of alternative fuels to generate 600

electric power. Low oil and gas prices and rising availability 500 Iof nuclear power generation contributed to limited demandfor spot coal purchases. 400 World

The increase in non-coal fuels for power generation could 300

temperthedemandforcoalinthefirsthalfofthisyear. Wiffilow 200

oilandgasprices,EastemSeaboardutilitieshavemadethedecision 10Ito switch some base-load generation to competing hydrocarbonfuels. In addition, a number of utilities have indicated they will 0 _--_ _

Importmorelow-ulfur South American coal this year. Se 1970 1975 1980 1985 1990 1995inlport more low-sulu Sot mrcnca hsya. Scu-e IEA, ot ..US coal demand is expected to rise by less than 2% this

year, due to modest year-on-year growth in electricity demand, US Annual Prices (S/mt)but rising nearly 3% in 2000. Coal production is expected to 80 __'I

grow moderately, with strong growth in the Western region 70 - Constant(1990) Forecas |

of 3% this year and 5% in 2000. In 1998, the Westermregion became the country's largest coal producer, surpassingthe Appalachian region. 50 ------

US coal exports are expected to continue to weaken due 40to the increased availability of lower-cost coals from Australia,South Africa, and the emerging export industries in Colombia, Current - ----Indonesia, andVenezuela. Coal prices are expectedto continue 20 -_ _ __ __l_l

todeclinemodestly becauseofincreasesinminiingproductivity 1975 1980 1985 1990 1995 2000 2005 2010

and rising imports of low sulfur coal. suce Coalf eekktematonalWoddBankforcasts

10

january 1999 ENERGY

Coal Highlights* The Australian coal industry shed nearly 5000 * An AME Mineral Economics study, "Coal Industry

permanent jobs, or almost one-fifth of its workforce, Operating Costs to 2003," found that the average f.o.b.in the year ending June 1998. From over 25,000 costof hard cokingcoal in Australia fell to $33.50/tonemployed, the workforce fell to 20,200 over the 12- in 1998, compared with $39.50 in Canada, and $42.60month period. in the US.

* The European Commi.ssion authorized German coal * The New York Mercantile Exchange is planning tosubsidiesfor 1998,tota]ingDM9.4billion($5.6billion). launch a coal futures contract in mid-1999. TheIt also endorsed chang,es to the German coal industry Commodity Futures Trading Commission approved therestructuring plan for the period 1998-2002. The NYMEX submission for coal futures and optionscontinued reduction in state aid will result in a steady contracts in May 1998.decline in coal production from 47 million tons in 1997to 37 million tons in 2002.

Production (million tons) Exports (million tons)1994 1995 1996 1997 1994 1995 1996 1997

China 1,239.9 1,360.7 1,396.7 1,348.0 Australia 128.8 136.4 138.6 146.4US 857.7 858.6 884.1 908.9 US 64.7 80.3 82.1 78.7India 257.8 273.4 285.6 310.2 South Afica, Rep. 54.8 59.7 60.2 63.4South Afhica, Rep. 195.8 206.2 206.4 220.1 China 24.2 28.6 36.5 30.7Australia 176.7 191.1 193.4 207.5 Indonesia 21.9 31.3 36.4 41.7Russian Fed. 176.8 176.9 166.5 156.6 Canada 31.6 34.0 34.4 36.5Poland 1:33.9 137.2 138.0 138.0 Poland 27.7 31.9 28.9 29.5Kazakhstan 99.6 79.5 73.0 n.a Russian Fed. 23.1 26.3 25.6 21.6Ukraine 91.3 81.3 70.5 n.a Colombia 18.4 18.3 24.8 25.7Germany 57.6 58.9 53.2 51.2 Kazakhstan 26.0 12.9 21.7 n.a.UK 49.3 54.6 51.9 48.5 Czech Republic 6.2 7.0 6.7 6.6Indonesia 32.3 41.1 50.2 54.5 Venezuela 4.4 4.3 3.5 4.2Canada 36.6 38.6 40.0 41.3 Netheriands 3.1 2.9 2.4 3.5Colombia 22.7 25.7 30.1 32.6 Vietnam 2.1 1.8 2.1 1.7Korea, Dem. Rep. 28.0 26.0 24.1 24.0 Ukraine 4.6 2.4 2.0 n.a.Czech Republic 17.4 17.2 16.5 16.0 NewZealand 0.9 1.3 1.6 1.2Spain 14.1 13.7 13.7 13.9 Belgium 1.0 0.8 1.2 1.5Vietnam 6.2 6.6 11.2 10.9 UK 1.2 0.9 1.0 1.1France 8.1 8.5 7.8 6.3 Germany 2.0 1.9 1.0 0.5World 3,551.6 3,698.7 3,754.9 3,775.1 World 413.6 464.6 483.9 494.3

Source: iEA Source. IEA

Global SummaryActual - Annual Growth Rate (%l)-

World Balance (million tons) 1970 1980 1990 1995 1996 1997 1970-80 1980-90 1990-97Producfon 2,185 2,807 3,561 3,699 3,755 3,775 2.8 2.8 1.1ConsumpSon 2,175 2,783 3,516 3,698 3,744 3,777 2.8 2.9 1.3Exports 167 263 401 465 484 494 4.4 4.9 3.5

Actual ForecastPrices ($1ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010

Current 35.10 39.19 37.21 36.39 34.38 34.00 34.25 36.50 39.00Constant 1990 33.10 32.87 32.65 33.64 33.06 32.26 31.69 29.77 28.12

Source: IEA, and World Bank forecasts

11


Natural GasHigher stocks and warm weather lower US gos pFfi-- -

Large inventories and warm weather in Noverrber a-December brought US natural gas prices down to S . ,_

million btu (mmbtu) in December. the lowest ronsince 1995. Because of the high level of stoclks. moo-es a-elunlikely to rise significantly during the winter, o.,' '

extremely cold weather.Storage levels are estimated to have exceeded 2, 7( 'j) r -- -.

cubic feet (Bcf) at the end of 1998, the highest co,-level since 1991. Even with heavy withdrawals. er--winter stocks will still be equal to last year's levt- tSi-_any concems of deliverabilitythis summer. ; _

US gas demand fell slightly last year due to mi d .e in the first and fourth quarters, a slowdown in gas denn ' ? *- ' a

the manufacturing and industral sectors, and theSZ ssiL' LE';

of gaswith heavyfueloiiin dual-fueled markets.s .me ;for power generation increased strongly beca-use-

summer weather, the reduction in hydroelectric o ,5S' , -

the underlying rise in electricity demand. Despite ar evaE . .d -

slowdown in economic activity, gas demand is proiecte d t . _rise moderately this year. Much of the gain w IIi br i .Z -n, - ..

residential and commercial sectors, partly as a result, ' ;.

winter weather in 1998.Canadian imports are rising from two pipeline pron 3 jOI',

totaling 1.1 Bcf per day. TransCanada Pipeline's Q " Bc:-per day expansion was operational in Novembe-, e;' leNorthern Border Pipeline's delayed 0.7 Bcf expansion.'extension is due to begin flowing in January-

US production grew modestlv last year. and .s n .gain is expected in 1999. A downturn in oil drilli. g7Lsautomatically affected associated gas developme.siPermian Basin. Furthermnore, shallow-water drih:iF-< -. h.Gulf of Mexico has been affected by lower indn'.S >- .-Z " L

flow. Production from the deepwater G-ulf and o-,c ;1yMountain states continues to rise.

Barring extremely cold weather, prices are exnecteK .r-Finoe prce ' 'St. _

average less than $2 per mmbtu during the first six rlo&it's .* -- s -,

of this year, as the mark-et works off the su'rpl-os. -

expected supply increases, storage injections may noi' 'o -S

strong as lastyear, norwill levels be as high by end-Octo 0 ,-f'Prices are not expected to rise above $2/mmbuuiae - ' u- ' --he

second half of the year, beginning with the summ7nr -eal-rdemand season for power. In 2000 and beyond, ga s poisec --

to increase its share in electric power generation, ar porov e --moderateupwardpressureonnominalgasprices. 7 -eve_ r.- -: :growing domestic supplies and impor-ts wil3 cause '! ri--`d -c

to decline.

12

january 1999 ENERGY

European natural gas prices fell significantly lastyear due to the decline in oil prices. Because ofthe lagged indexation of gas contract prices to Europe Monthly Prices ($/mmbtu)petroleum product prices, persistently low oil prices 3.5have dragged European border prices down towiard$2/mmbtu. Imported gas from the states of the 3.00 European- orderformer Soviet Union has been below this leve. forsome time. 2.50 - , -

In the liberalized UK market, gas prices roseseasonally on strong demand, partly due to cold 2.00weather. With of the drop in mainland prices, UKspot prices have risen above average border prices inito ___________ ........... _____the continent. But, ample supplies, relatively full Dec-94 Dec-95 Dec-96 Dec-97 Dec-98inventories, and the prospect of winter deliveries from Source WordGasIntelligence

Belgium, have kept a lid on UK gas prices.The first large scale flows of UK gas to mainland 500 Europe Production (BCM)

Europe began in October through the InterconnectorPipeline. The linking of the UK spot market with 400 _ Consumption

mainland Europe, along with the new EU Gas Directive,will bring greater competition to continental gas markets 300over time. Because of the large drop in oil prices,however, gas prices have quickly converged. 200Moreover, a spike in UK gas prices during the wxintercould result in low-priced gas being shipped back to 100the UK. 1970 1975 1980 1985 1990 1995

Despite the convergence of gas prices, competition Source: BP, Wodrd Bankestirrates

in mainland gas markets is just beginning, relative tothe fully liberalized UK market. Few large companies FSU* Production (BCM)dominate gas markets in mainland Europe, based 800mainly on long-term contracts linked to oil. The new ProductionEU Gas Directive dictates that one-third of EU gas 600 - - -markets are to be liberalized over ten years. It is likelythat much greater liberalization will occur sooner due 400r

to competitive pressures, the surplus of gas in Europe, Consumption

and efforts by companies to aggressively participate in 200 , -the new environment.

In the near-term, gas prices will move separately l l1970 1975 1980 1985 1990 1995

on either side of the l,nglish Channel. Seasonal Source BP

arbitrage opportunities will fluctuate, with British spot Countries of the former Soviet Union

prices lower in the summer and higher in the winter. Europe Annual Prices ($/mmbtu)This will largely determine the direction of gas flowing 7

through the Interconnector. 6 - Frer--cast

Gas demand is poisec to grow strongly in Europe, 5 - - ------- --

primarily in the resideni-ial and commercial sectors,but also in the expanding markets in southern Europe, 3and for power generation facilities in the UK. Gas 2

supplies are ample, and a new infrastructure is being ntdeveloped to deliver imported gas into Europe. 'ven 1 --- - ----- ---- --- -if oil prices take gas Drices back up, increasing I

competition is expected to exert downward pressure 1970 1975 1980 1985 1990 1995 2000 2005 2010SoLrce World Gas intelligence, and World Bankforecasts

on real gas prices over time.

13

GLOBAL COMMODITY MARKETS fCAiriary 19Y

Petroleum[ ~~~~Monthly Priices ($/bbl)I

Large inventories weigh heavily on prices 24 M P22

Petroleum prices fell 9% in the fourth quarter, with prices 28

dipping below $10 per barrel (bbi) in December. Average 8

prices in 1998 were 32% lower than a year earlier, with Ispot NY6EXVIhituresDecember prices almost 50% below 1997 average prices of P Ft

more than $19/bbl. )2

Weak oil demand, high inventories, excess supply, and 10 - l -warm weather, all helped push oil prices to their lowest levels g 8 . .- ..... I..l

in 12 years. OPEC decided to leave quota levels unchanged Dec-95 Dec-96 Dec-97 Dec-98 Dec-99its November meeting. and.raqsexpr Source: 8100 iberg and NYMEX

at htS November meeting. and Iraqs exports have continued World Bank average Futures prices are end-December

unimpeded. In 1998, oil supplies are estimated to have exceed

demand by 1.3 mb/d, following a sizeable build in 1997. World Oil Production (mb/d)

Given the prospects of limited demand growvt this year, the

surplus is expected to continue unless more oil is taken off

the market. 7 Production

Oil stocks remain w-ell above last year's levels in North e0

America and Europe, for both crude and products (see

selected charts). European stocks fell in Novemberfollowing

cold weather, and stocks in the OECD Pacific also recorded consumptioI

adecline. InDNorthAmericatherewasonlyaslightdecrease I_40 _ __ _ _._ _

ininvento,ries,mainlybecauseofmildwveatherthatcontinued 1970 1975 1980 1985 I990 1995

well into December. US distillate and crude oil inventories Scurce BP, EA and Wrand Bn

remained high at year-end, with only gasoline stocks starting

to return toward more typical levels. OECD Total Oil Stocks (million bbl)

OPEC crude oil production averaged 27.3 mb/d in the 2,900 -_ - I

fourth quarter, essentially unchanged from the third quarter . ,50

(seetable). ExcludingIraq,productionof24.9mbdisisdown 2(750 1

2.0 mb/d from production the first quarter, following

agreements in March and June to reduce production by 2.6 2,600 -,..mmb/d from February's level of 27.0 mb/d. OPEC remains 24 \Y \ X

0.5 mb/d above quota, with Iran and Venezuela the largest 2,450

over quota. Kuwait, Nigeria and Qatar were in full 2,300compliance, although Nigerian production was adversely Dec-93 Dec-94 Dec-95 Iee-96 Dec-97 Dec-98affected by civil disturbance. Sca,ce BEA DeceniberIB93 to Novernber 998

At its November meeting, OPEC decided to leave

production levels unchanged. At the early December meeting Annual Prices (S/bbl)ofthe Gulf Cooperation Council, the four main producers of 60 , ;Saudi Arabia, Kuwait. UAE, and Qatar agreed to extend Constant (1990)

their production levels ftor six months, until the end of 1999. 45 -- Forfcast-In mid-December, Mexico, Saudi Arabia and Venezuela met

in Madrid and indicated a willingness to consider further 38 -

production cutbacks, but they stated that there would first /have to be greater adherence to the existing agreerent.r Trhe 15

next scheduled gathering of OPEC rninisters is in March / Current

1999. 0 4 ---Iraq's production has continued to Increase, risin.g to 1970 1975 1980 1985 1990 1995 2000 2005 2010Iraq s prductlon as contlueo to Icrease, lSlEg to Source.API, Bloomberg,OPEC,ard),VoddBankfoests

near 2.5 mb/d in November, with exports surging to near S

14

january 1999 ENERGY

Petroleum (Continued)2.0 mb/d. Iraq's fourth six--month UN agreement to export$5.2 billion of oil was renewed with relative ease. Airstrikes against Iraq in December did not disrupt oil C5production, but damage to the Basrah refinery and atemporary shut-in of other refineries diverted oil for 28 __ ----OPE--------------

domestic use to export markets. 21 -------Non-OPEC production rose by 0.6 mb/d in the fourth

quarter, with most of the increase coming from a 0.5 mb/d 14 -gain inthe North Sea, and smaller increases in Latin America. 7Lastyearwas ratherdisappointing for non-OPEC production. usOutput rose only 0.2 mb/d, compared with strong gains of 0 . _ .0.8 mb/d in 1997 and 1.1 mb/d in 1996, mainly because of Source 197 1980 1985 1990 1995

delays in the start-up of new fields in the North Sea. Former Centrally Planned Economies.

Norwegian production fell for the first time since 1981 dueto heavy maintenance, failure to bring on new fields as 25 OPEC Crude Oil Production (mb/d)expected, and the country's voluntary 0.1 mb/d cutback insupport of OPEC's agreements. The UK also suffered from 20 - -- Other-OPECproduction delays, but both countries are expected toexperience increased production this year from new field 15

developments. 10Low prices have had little affect on production, given \

that marginal production costs for most of the world's siSdiAbiaoutput are at or below $4 per barrel. There have been o -some reductions in output in high cost areas, e.g., Canada, 1970 1975 1980 1985 1990 1995

the Russian Federation, and the US, but the total volumes Source: BP and IEA

have been relatively small, but not insignificant. However,should oil prices remain low, it will dramatically reduce OPEC Oil Export Revenues ($ billion)upstream investment, and production a few years forward 200could be less than under a high price environment. OtherOPECReduced industry budgets will be partly offset by a 150 - ----------------------------- -----------------------reduction in drilling costs (from lower demand for rigs 100 - \and services) and increased productivity. Significantadvances in technology and cost-reductions since the 1986 / price collapse can be expected to accelerate with sharply Mde East

lower prices. 0 I .Oildemandgrowthslumpedsignificantlylastyear,mainly 19 70 1975 1980 1985 1990 1995

due to the fmancial crisis in Asia. Between 1991 and 1997, Source: OPEC, andWord Bankestinates

world oil demand outside the countries of the former SovietUnion grew by 1.8 mb/d per year, a rate of nearly 3%. World Oil Demand (mb/d)Approximately half of this growth came from all of Asia. 60Last year total world oil demand only grew by an estimated 50

0.3 mb/d, with Asian demand fallingby 0.5 mb/d. Demand 40 - =ECin the Republic of Korea fell 15%, and in Thailand it declinedby 7%. 30-Oter -

In 1999, oil demand is projected to grow by less than 20 .1%, or about 0.6 mb/d. Moderate growth is expected in 10-Europe and North America, but no growth is anticipated in 0 Athe OECD Pacific, as farther reductions in Japan are 0 - . I . Iexpected. i thenon-OEC'Dregionslittle growthis expected Source: BPand IEAoverall, as declines in Latin America and the countries offthe I Countries of the Former Soviet Union.

15


Petroleum (Continued)

former Soviet Union will partly offset modest growth in theother regions. Demand in Southeast Asia may only stabilize. 2.0 Growth in Quarterly Oil Demand (mb/d)

Non-OPEC supplies are expected to grow moderately, . Oterwith the largest gains expected in the North Sea and LatinAmerica. Assuming OPEC continues to produce at recent 1.0 . -i

levels, it suggests another year of excess supply and a sizeable o.s - -----increase in stocks, approaching 1.0 mb/d (see table). It is Asia-Pificagain possible that stocks will not decline in the first quarter, 0.0 -. ----- y--which is atypical, and large increases could arise in the two -0.5 - -

middle quarters. __ _

It is unlikely that stocks will build at this rate 1Q93 1Q94 1Q95 1Q96 1Q97 1Q98 1Q99

following large gains the last two years, due to limited storage Source: EA

capacity. Last year, idle capacity was found in the main 'Other excludes countries of the former Soviet Union

consuming markets (attimes were extremely full), developing 40 Quarterly Oil Production (mb/d)countries, and at independent storage facilities. Finding spacefor another 300 million barrels could be increasingly difficult,and the implications for price are severe. 35 Non-OPEC- --

For oil prices to recover quickly, more oil needs to betaken offthe market. At present, there are no firm indicationsthat OPEC will take steps to reduce output during the first 30 - ---- --

half of this year. There is speculation that some of the main oil producers may choose to leave production as it is and i -wait for recovery in the market to bring about a price increase. 1Q

The fact that more countries are inviting foreign companies Source: cute of9 the lom7 Soie UQi

to invest in upstream activities is often cited as evidence. * Excludes countries of the former Soviet Union

Under this strategy, it is hoped that surging non-OPEC Europe Crude Oil Stocks (million bbl)supplies would be capped and that OPEC's market sharewould slowly climb. One outcome ofthis strategy could bea prolonged period of low prices. 350 ----------- --- - -A ---

There are many risks to the forecast, in addition to the End-month*

uncertainty of where OPEC might choose to set production 325 -------A- -

levels. Oil demand could be higher or lower depending onthe pace of economic activity in both the industrial and 300 ----- --- -- --developing countries, but a severe global recession is thegreatest threat. Non-OPEC supplies could again prove 275 I . I

disappointing, whilethe impactof lowprices on investment Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98andproductionwill increase overtime. Civildisturbances in * December 1993 to November 1998

a few producing countries could cause atemporary reduction N. America Product Stocks (million bbl)in output, and there remains the constant threat of disruption 750

to Iraq's exports. End-month*

Oil prices are expected to recover in 2000 due to rising 700 - ------- -- ---demand and assumed supply management by OPEC. Butprices are not expected to return to the high levels of 1996- 650 - ---- - - ---- ------97, because of the increasing difficulty sustaining prices athigher levels. Among the pressures on producers are: 600 -- 9increases in technology, declining costs, greater liberalization,the quest for higher market share, competition from natural 550 - I . .gas and other fuels, and growing environmental concerns Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

Source: IEA(both local and global). December 1993 to November 1998

16

january 1999 ENERGY

OPEC Crude Oil Production and Quotas Non-OPEC Oil SupplyMillions of barrels per day Millions of barrels per day

4Q98- ChangeIQ98 2Q98 3Q98 4Q98 Quota Quota 1996 1997 3Q98 4Q98 3Q98 to 4Q98

Algera 0.87 0.82 0.79 0.81 0.79 0.02 Us 8.59 8.66 8.18 8.31 0.13Indonesia 1.31 1.27 1.29 1.31 1.28 0.03 Mexico 3.28 3.41 3.46 3.40 -0.06Iran, Islamic Rep. 3.58 3.75 3.55 3.57 3.32 0.25 Canada 2.46 2.57 2.66 2.67 0.01Iraq 1.58 2.05 2.39 2.41 1.65 0.76 UK 2.81 2.74 2.76 2.98 0.22Kuwaita( 1.94 1.81 1.74 1.69 1.98 -0.29 Norway 3.23 3.28 2.90' 3.18 0.28libya 1.46 1.42 1.34 1.35 1.32 0.03 OtherOECD 1.35 1.41 1.40 1.23 -0.17Neutral Zone 0.52 0.58 0.55 0.54 0.54 Labn America 3.25 3.43 3.68 3.80 0.12Nigeria 2.26 2.19 2.02 1.96 2.03 -0.07 Africa 2.64 2.73 2.74 2.75 0.01Qatar 0.71 0.68 0.63 0.62 0.64 -0.02 Middle East 1.93 1.89 1.86 1.88 0.02Saudi Arabia a/ 8.43 8.17 7.82 7.90 8.02 -0.12 China 3.12 3.19 3.19 3.20 0.01UAE 2.45 2.31 2.20 2.17 2.16 0.01 OtherAsia 2.11 2.11 2.11 2.12 0.01Venezuela 3.36 3.18 2.97 2.97 2.85 0.13 FSU 7.07 7.20 7.24 7.29 0.05Total crude 28.47 28.22 27.29 27.30 26.04 1.26 Eastem Europe 0.21 0.21 0.20 0.20 0.00Excluding Iraq 26.89 2.6.17 24.90 24.89 24.39 0.50 Processing gain 1.52 1.57 1.64 1.64 0.00NGLs b/ 2.82 2.82 2.88 2.91 Total non-OPEC 43.57 44.40 44.02 44.64 0.62Total OPEC 31.29 31.04 30.17 30.22 Note: Includes natural gas liquids (NGLs), unconventional,a/ Quota includes share of Neutral Zone produc6on. and other supply sources.b/ Natural gas liquids. Source: IEASource: IEA and OPECNA

World Petroleum Demand and SupplyMillions of barrels per day

1995 1996 1997 1Q98 2Q98 3Q98 4Q98 1998 1Q99 2Q99 3Q99 4Q99 1999Demand

OECD 44.9 46.0 46.7 47.1 45.0 46.4 47.9 46.6 47.7 45.5 46.8 48.4 47.1FSU 4.8 4.4 4.3 4.6 4.2 4.1 4.1 4.3 4.4 4.1 4.1 4.2 4.2Other 20.4. 21.5 22.6 23.0 23.1 22.9 23.3 23.0 23.0 23.1 23.0 23.8 23.2Total 70.1 71.9 73.6 74.7 72.3 73.4 75.3 73.9 75.1 72.7 73.9 76.4 74.5

SupplyOECD 21.1 21.7 22.1 22.5 21.9 21.4 21.8 21.9 22.1 22.0 22.0 22.7 22.2FSU 7.1 7.1 7.2 7.3 7.2 7.2 7.3 7.3 7.2 7.1 7.1 7.0 7.1Other a/ 14.3; 14.8 15.1 15.4 15.4 15.4 15.5 15.4 15.7 15.7 15.7 15.7 15.7OPEC b/ 27.7 28.5 30.0 31.3 31.0 30.2 30.2 30.7 30.3 30.3 30.4 30.4 30.4Total 70.1 72.0 74.4 76.5 75.6 74.2 74.9 75.3 75.3 75.1 75.2 75.8 75.4

Stock changeOECD -0.3 0.0 0.3 -0.1 1.7 0.4Other/misc. cl 0.4 0.1 0.5 1.9 1.6 0.4Total 0.1 0.1 0.8 1.7 3.3 0.8 -0.5 1.3 0.2 2.4 1.3 -0.6 0.9

Note: Includes natural gas; liquids (NGLs), nonconventonal, and other supply sources.a/ Includes processing gains (1.6 mb/d in 1998 and 1.7 mb/d in 1999).b/ Includes NGLs (2.9 mb/d in 1998 and 3.0 mb/d in 1999).c/ Includes floatng storage, oil in transit, and miscellaneous to balance.Source: IEA data and estimates, and World Bank forecasts

Global SummaryActual - Annual Growth Rate (%) -

World Balance (mil. banrels per day) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98Producton 48.5 63.9 66.9 72.0 74.4 75.3 2.9 1.0 1.6Consumpton 46.7 62.7 66.3 71.9 73.6 73.9 3.1 0.9 1.5Stock Change and Misc. 1.8 1.2 0.6 0.1 0.8 1.3

Actual ForecastPrices ($1bbl) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: BP and IEA, and World Bank foecasts

17

CiOBAL COMMODITY MARKETS 1anzorv 1999

Coco'a19% Monthly Prices (f/kg)

P;v are weakening LIF-_

Cocoa prices averaged l59¢/kg this quarter, down 175LIalmost 6% from last quarter's 1700/kg, and more than 16 FuFres*

7%/- lower than last year's fourth quarter average. Both 160 -ICco ---------

Ncve' York and London futures exhibited similar weaknessas well Foi example, within November the New York 145second position declined by about 12%. Both plentifulsupplies and weak demand are to blame for the bearish 130 . .,--l *.r.._

--arket sentiment. Dec-95 Dec-96 Dec-97 Dec-98 Dec-99Sou,c.: =Oand LIFFE

rtie 1998/99 (October-September) crop is well Futuresprin:esareend-Decemberexpressedin /1kg.

underway in western Africa and LMC estimates suggestthat global production may be as high as 2.74 million Production/Grindings (000 tons)

tons up about 1.5% from last season's 2.70 milliontons. Cte d'Ivoire, the world's dominant producer, is 2expected to reach about 1 .11 million tons, slightly down 2,500roductn

from 1. 13 million tons last season. Ghana, the world's 2 ooo -.. --:ocoild largest producer, is expected to experience asulbstantial decline in cocoa output from 405,000 tons Gridigs

last season to 375,000 tons this season, a drop exceeding79%0. Indonesia is expected to increase its output from i,000 _315,000 tons last season to 350,000 tons this season 1970 1975 1980 1985 1990 1995

(more than an 11% increase) while Malaysia is also Soume tCO

expected to produce 95,000 tons this season, up from End-of-Year Stocks (000 tons)75.200 tons last season. Asia's total output is expected 1,600to be close to half a million tons.

After a long period of falling cocoa production, Latin 1,200 -rAn,erica is becoming an important market player in the , /

0ocoa nrarket. In the mid-1980s, Latin America's share 800 World

in global cocoa production was 35%. Diseases in Braziland Peru along with El Ninio in the last season, pushed 400 - - -that share down to 15%. Latin American cocoaproduction ICCo

this season is expected to reach 419,300 tons, up from \405,200tonslastseason. Mostoftheincreasewillcome 1970 1975 1980 1985 1990 1995

f-rom Ecuador which is expected to produce 75,000 tons. Source ICC

Ecuadoriarn cocoa output was reduced from 112,300 tonsin 1996/97 to 40,000 in 1997/98 due to El Nifio. Annual Prices (¢/kg)

Cocoa grindings, while they are expected to pick up inNorth America by more than 2% and in Latin America bv Forecast

600 - - - - - - -almlnost 7%, will decline close to 1% in Western Europeand between 10% and 20% in the countries of the former Constant (1990)

Soviet IJnion and Eastern Europe, respectively. 400 --- -An increase in production and weakening demand 2 I V

indicate that prices during 1999 are unlikely to retain 200their 1998 average of 168¢/kg. During 1999, prices Current

-,ill most likely fluctuate between 150 and 155¢/kg. O - _, I

'When demand strengthens by 2000, prices are expected Source- CCCOand\odBankforecasts 2000 2005 2010

t-o return to their 1988 average. . __._.

18

january 1999 AGRICULTURE

Cocoa Highlights* In November, Reuter' s reported that the 25-year old EU due to the poor performance of some of the exporters last

negotiations on the formation of a single policy regarding year. The banks are also considering Caistab's outstandingthe use of non-cocoa butter in chocolate production, debts to cocoa exporters (around CFA 100 billion), a resultcontinues. Opponents of the use of non-cocoa fats argue of unpaid subsidies from price stabilization. Along withthat its use not only hurts cocoa producers such as CBte liberalization, CMte d'Ivoire is pushing ahead with itsd'Ivoire but it also degrades the chocolate quality. Austria, intention to increase domestic processing up to 50% byDenmark, Finland, Ireland, Portugal, Sweden, and the the year 2000. Cargill, a large agri-business multinational,UK already allow non-cccoa fats to be used, while Belgium, intends to build a cocoa processing unit with 50,000 annualFrance, Luxembourg, and the Netherlands oppose their capacity.use altogether. * Following liberalization efforts in Cameroon, Nigeria, and

* CMte d'Ivoire's cocoa sector is expected to be liberalized Togo, Ghana has appointed a task force to devise a futureduring 1999. Purchases during the current season have development strategy. The work of the 45-member taskbeen slower than usual', mainly in response to reduced force will concentrate on production, research andpre-financing. The reluctance of banks to pre-finance is extension, marketing, processing, and quality.

ProductionlGrindings Trade1994/95 1995/96 1996/97 1997/98 1994/95 1995/96 1996/97 1997/98

Production (000 tons) Exports (000 tons)C6te d'lvoire 1350 1,200 1,125 1,110 C6te d'lvoire 763 1,038 928 949Ghana .310 404 323 400 Ghana 256 331 267 224Indonesia 240 285 325 325 Indonesia 185 224 264 156Brazil ,225 231 185 165 Nigeria 134 147 150 145Nigeria 143 158 160 160 Cameroon 92 93 95 87Cameroon 108 135 125 125 World 1,720 2,116 1,942 1,711Malaysia 120 115 100 85 Imports (000 tons)Dominican R. 56 55 52 58 US 252 445 353 350Colombia 50 50 50 45 Germany 320 299 327 301Ecuador 80 103 103 40 UK 161 248 176 195World 2,348 2,916 2,705 2,742 Netherlands 393 405 464 143

Grindings (000 tons) France 111 117 111 107Netherlands 350 385 402 420 Russian Fed. 75 75 85 88US 331 342 394 410 Singapore 97 88 92 80Germany 268 266 240 325 Italy 68 71 71 68C6te d'lvoire 110 140 160 200 Estonia 2 5 65 65Brazil 195 205 180 180 Belgium 97 45 54 54UK 254 191 173 175 Japan 39 49 54 47France 107 113 106 110 Spain 43 50 49 47Malaysia 100 95 95 95 Canada 35 39 34 36Russian Fed. 75 75 85 85 Malaysia 39 24 34 32World 2,530 2,713 2,828 2,876 World 1,954 2,191 2,225 1,711

Source: ICCO Source: ICCO

Global SummaryActual - Est - - Annual Growth Rate (/) -

World Balance (000 tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-97Production 1,554 1,695 2,506 2,728 2,680 2,680 0.9 3.9 0.5Grindings 1,418 1,556 2,335 2,764 2,828 2,828 0.9 4.1 1.5Exports 1,186 1,126 1,733 1,942 1,711 1,507 -0.5 4.3 -1.1Ending Stocks 497 675 1,791 1,373 1,172 1,172 3.1 9.8 -3.4

Actual ForecastPrices (¢Ikg) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: ICCO and World BankNotes: All quanbites refer to cocoa beans. Quantites refer to crop year (beginning October 1) and pnces to calendar year.

19

GLOBAL COMMODITY MARKETS oa u:c2

CoffeeMonthly Prices (,/kg)

Prices uncertain in wake of Brazil's economic 600

instability S CJ

The arabica price indicator for October-December CErabica /utes"

averaged 2520/kg,down from 2590/k-g inthethird quarfer, 300 FXutues*and about 32% lower than last year's fourth quarteraverage. Robusta prices. however, increased from 1 740/ 150kg in the third quarter to I 80¢/kg in the fourth quarter Robusta LIFFEand up almost 5% from October-December 1997. Brazil's 0 Futures_bumpercrop(whichmaybelowerthanoriginallyreported), Dec-95 Dec-96 Dec-97 Dec-98 Dec-99

along with fears of a deteriorating economy, are the main Som expressed In FIkg l

factors behind low arabica prices.According to the most recent estimates by the | 20 Production/Exports (million bags)

Interational Coffee Organization and the US Department i rutoiof Agriculture, global coffee production in the 1998/99 i I Production

crop year (October-September) is expected to reach 1 06.8 j /\million bags, up from 97.7 million bags in 1997/98; and is r0second only to the 1986/87 crop of 108 million bags.75.8 million bags are from the arabica group while the 1

remaining 31.0 are from the robusta group. 6 - Expors

Brazil's output this season may exceed 3 5 million bags(30.5 arabica and 4.5 robusta), a more than 50% increase

1970 I 975 I19 80 1985 1990 1995from the 23.5 million bags produced in 1997/98. All the Sorce CrO USDA, ad .J5DA

increase comes from the arabica group. One miust bearin mind, however, that the Brazilian crop may in fact be 1,200 Arabt3a Annual Pnces (&kg las much as 1 0% lower than officially reported, so that its Constam 990 ForecastI

arabica production may be between 26-27 million bags. l :Considerable increase is also expected from Colombia, /

the second largest arabica producer, with an estimated l

output increase of 5% (from 1 1.9 million bags last season 6 T v

to 12.5 million bags this season). Coffee production in I"..AI3004 Central America is falling sharply in the aftermath of

hurricane Mitch, especially in El Salvador, Guatemala, UIM -Iand Honduras. LMC's Coffee Bulleti77, puts the loss at 0 -- i I 1

19 7F C 990 !985 1990 1995 2000 2005 2010approximately one million bags. Costa Rica is also E Sorce C0.j

expected to experience a decline of about 1 0%.A drop of 10% is expected for Indonesian production a P

(from 7.2 million bags in 1997/98 to 6.7 million bags in 1998/ 1,200 - _99). C6te dilvoire is expected to experience a decline in Forecast

robusta production close to 10%, while Uganda, a major 900Africa robusta producer is expected to increase production Constani i990)

from 3.0 million bags to 3.6 million bagsthis season. 600The price prospects do not appear promising for

either arabica or robusta. Following Brazil's recent 300 -l- .devaluation and, potentially, economic instability, Current

arabica prices during 1999 are expected to decline to 0 _.labout 255¢/kg. Robusta prices, which averaged 1 83¢/ 1970 1975 1980 1985 1990 1995 200(0 20t5 -20kg in 1998, are also expected to decline by 1 0 .

20


Coffee Highlights* Given that the magnitude of the Brazilian currency concerns regarding the future of Colombia's coffee

devaluation has been on tfie order of less than 10%, coffee industy. In addition to stagnant demand, he cited amarkets did not reacted in a any significant way. number of domestic factors such as high productionNevertheless, the future of arabica prices depends on (1) costs, lack of investment in agriculture, and diseasewhether any firther devaluation may be undertaken soon control problems.(which many analysts expect to be the case); (2) the extent It has been documented that domestic political turmoilto which recent developments will lead to economicrecession; and (3) the spillover affects to other Latin as well as excessive government interventions encourage

Aeccnisu anighboring Argentina and commodities smuggling. YAHOO! News in AsiaClmbrica antr majos arabicahpoduce. Brgnil, the reported in January that, in 1996/97 coffee smuggledCorlombia, another majorarabicafpro ducer .Brnazbil,the Jfrom the eastern part of the Democratic Republic ofworld's largest coffee producer, is Latin America's biggest Congo to Uganda may have been as much as oneeconomy and the seventhi largest in the world, million bags. According to LMC estimates, Uganda

* Reuters reported last month that the former manager exported 4.65 million bags in 1996 although it onlyof Colombia's National Coffee Federation expressed produced 3.72 million bags.

Production (000 bags) Stocks/Consumption1995/96 1996/97 1997/98 1998/99 1995/96 1996/97 1997/98 1998/99

Brazil* 16,800 28,000 23,500 35,600 Ending Stocks (000 bags)Colombia* 12,939 10,779 11,932 12,500 Brazil 16,000 14,128 11,278 15,278Indonesia 5,800 7,900 7,200 6,800 Colombia 6,328 4,420 3,929 3,669Vietnam 3,917 5,500 6,667 6,333 Congo, D. R. 239 365 790 765Mexico* 5,400 5,300 4,950 4,950 Costa Rica 1,149 1,200 1,050 760India 3,717 3,417 3,833 3,835 C6te d'lvoire 1,499 2,915 1,885 653Cote d'lvoire 2,900 5,333 4,080 3,750 Cameroon 234 529 570 570Uganda 4,200 4,297 3,000 3,600 Kenya 638 367 592 519Ethiopia* 3,800 3,500 3,500 3,500 Indonesia 851 298 368 370Guatemala* 2,827 4,141 3,982 2,825 World 32,699 28,875 25,054 27,002Honduras* 2,254 2,279 2,980 2,260 Consumption (000 bags)Costa Rica* 2,595 2,376 2,400 2,165 US 17,600 18,490 18,130 18,290Peru* 1,811 1,583 1,780 1,900 Brazil 10,230 10,880 10,880 11,320El Salvador' 2,325 2,498 2,040 1,790 Gerrnany 9,480 9,440 9,260 9,300Venezuala* 1,067 843 981 1,380 Japan 5,750 5,820 5,800 5,710Cameroon 581 1,432 1,417 1,200 France 5,230 5,350 5,290 5,300PNG 1,002 1,089 1,080 1,100 Italy 4,640 4,670 4,650 4,700Congo, D. R. 1,000 950 1,143 1,000 Canada 2,800 2,960 2,920 2,291Thailand 1,317 1,403 1,383 1,000 UK 2,380 2,440 2,380 2,419World 88,749 103,696 97,675 106,800 World 96,300 99,500 99,400 98,000

Source: ICO and USDA Source: ICO and USDAGlobal Summary

Actual - Est. - -Annual Growth Rate (%o) -World Balance (000 bags) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98

Producton 64,161 86,174 88,749 103,696 97,675 106,800 2.95 0.29 2.31Consumpton 71,536 79,100 96,300 99,500 99,400 98,000 1.01 1.97 0.22Exports 54,186 60,995 76,163 84,248 77,264 79,771 1.18 2.22 0.58Ending Stocks na 30,979 45,096 28,875 25,054 27,002 na 3.75 -6.41

-- Actual - ForecastArabica Prices (¢Ikg) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Robusta Prices (¢Ikg)Current 262.0 277.1 180.6 173.6 182.3 172.0 172.0 186.0 192.0Constant 1990 237.7 232.4 158.4 160.5 175.2 163.2 159.1 151.7 138.5

Source: ICO and Word BankNotes: (*) indicates that the country is prmarily arabica producer. One bag equals 60 kgs. Quantites refer to country-specific crop years.

21

1 j d ' T h f v pt fanar 1999

Monthly Prices (0/kg)

FUrxl riabitiie on stro•mg Russian imports 290 -iTee prices continued to fall frorm tie 1 4-year high reached 250 -- . --- -------

in1 February 1998 as world production increased by 5% in9978. 'the auctionoprice* averaged 1790/kg during thefurth 210 3fAuction

qirarte,, down 244% from the samne quarter of 1997. Prices Average

i a UrIlcutta and lColombo for the 1998 calendar year were 170Slh1 htlv lower than f4 r 1997 due to second-half declines.N'4 mbhassa prices for 1998 decreased by about 6% compared 130 , ..

io !?997 Dec-94 Dec-95 Dec-96 Dec-97 nec-98Udiaia vroduQtion reached a record high estimated to son-e fTc

lhte 850 million kg, up 6%/o from last year due to favorableycnt her through September in Northern India. Demand 3,500 ____ )

tir TTIdian tea firmAed in Nove-mber following the recovery - -

ofRt i -siapn imnports and buvers' anticipation oftight suppliesI)mendJrl was also strong in the domestic market and in ---- - - _ - ithe lid_dle East. India's tea exports rose 5.2% to 171.1 rotduction

T.illiern kg in the first ten months of 1998. Exports throughAugust were hiiglher than in 1997 but started to fall in -

5epte rhei. The indian Tea Association projects the

(:onawrtrV ^S tea e,xorts to be 205--207 million kg in 1998, 511 -nIp=cts+forConsunrnpc

.lightlxhigherthan l997. 1970 1975 1980 1985 1990 1995

~ri TUka's output was also up 4% for the first nine | SUrce FAO and iTC

Cnn s of 1 9QRX Sri Lanka's exports for the fi-st nineiioroIhs of l998 rose by 3.8%. from 233.6 million kg in End-of-Year Stocks (000 tons)

D0 ' -5 7i m illioni 1 g, Althiough. exports to countries .

tf111e former Sfooviet Union, the largest buyers of Sri 75 --/I aka tea, d teclin.ed by 12.7%,'. during the corresponding Warehouses

I ri' n. XeXports to UAE,. ttihe countty's second largest buyer, | - in UK

.ose1C ov 5 6_2% Demand fromSatudiArabia,SouthAfirica, V.01'j r,llkey. uas also stronig. 5

l>etiva S tea o utput rose 27% to an estimated 280 million Primary

gin i 99 8 due to heavy rains that lasted until early 1998 and 0 bWholesalers inUK _ '

exrpan¢1ed acre-age and rehabilitation programs. With the q 1975 1980 1985 1990 1995

exceu"i;on of highi quality tea, deimand for KenyaiL tea was Sr^: rz

e iea-alk; s veak .an the UKi and Egypt -the two largest buyers-1 nw nvi teas. Demand was also weak in Sudan, Yermeni, Annual Prices (6/kg)

fcOo oihlfer M4iddle Eastern countries. Demnand increased 4So -____*__ _

- ig} tli dule teh the anticipation of fluture tower quatities Fo,e asi

(ll"'Y . >inpd,fr; x-heather in December tie

jii feesforlndianar lad hl_ankanteaare likely to remain firn consont (1990)

I liC shlf -n!rl due to Styong demand fron Russian Federation T -

r'ut'f;-. Prices for fndian tea are likely to stav high until next Phtlie-- 1 tiesv erofŽ fion Nvt.orthern India arrives at the 1 JV -u"-|

- ,- a:a 1• .A r tlbuLmtper crop is likely to keep Mombassa

CrIeos io xViv ;tlne'eeptiolo oflligh (?luiitY tFea s__ _ I . I ,l _ 4J970 1975 1980 1985 1990 1995 2000 2005 2C 19

. , _ .vPrices 'cSource fOdai andWod8ankfn te;pnne o aucton average

-i <ct ~r.;rre--IC fi7etl avnnrae o,t 7rk-e.s irn {'aIcvttutf. _ __ioil5 AJ,,2 ? JS so'-----


Tea HighlightsDarjeering Tea Planters Association intends to introduce agreed to import about $10 million in oil from Iraq.a "Certificate of Origin" for its tea to prevent the use Since 1996 Sri Lanka has been the only country allowedof the name "Darjeering" for tea produced in other to export tea to Iraq through a third party under theregions. The Association is confident that it will obtain lN deal.a trademark under the Trade Related Intellectual The Kenya Tea Development Authority (KTDA)Property Rights Agreerrient (TRIPS). The Association released a final bonus payment to small tea growers in

late October. The final bonus payment this year was* In November, Iraq agreed to import at least four million 12.7 billion shillings ($2 1 0 million), more than double

kg of tea under the United Nations food-for-oil deal, last year's 5.7 billion shillings. This year's higheraccording to Sri Lanka officials. Sri Lanka, in turn, production contributed to this increase.

Production and Crop Areas Trade1995 1996 1997 1998 1994 1995 1996 1997

Production (000 tons) Exports (000 tons)India 753.9 780.0 810.0 860.0 Sri Lanka 224.2 235.0 233.6 257.3China 609.4 616.5 636.1 648.1 China 179.7 166.6 169.7 202.5Kenya 244.5 257.2 220.7 280.0 India 149.3 163.7 160.0 200.7Sn Lanka 246.0 258.4 270.9 270.9 Kenya 183.1 237.5 244.2 194.0Indonesia 154.0 169.4 150.8 152.1 Indonesia 84.9 79.2 101.5 66.8Turkey 102.7 114.5 120.8 120.8 Argentina 43.2 41.1 41.3 56.4Japan 84.8 88.6 91.2 91.2 Malaw 38.7 32.6 36.7 49.2Iran, Islamic Rep. 54.4 62.1 62.1 62.1 Tanzania 18.6 20.5 18.4 19.0Bangladesh 52.0 47.7 53.3 57.0 Bangladesh 23.6 25.4 26.2 25.2Argen6na 47.1 47.1 48.5 48.5 Uganda 11.0 10.7 15.0 18.3Malawi 34.2 37.2 43.9 45.0 World 1,032.6 1,080.1 1,155.3 1,155.9World 2,616.3 2,712.3 2,757.6 2,893.4 Imports for Consumption (000 tons)

Crop Areas (000 hectares) Russian Fed. /a 130.6 161.6 160.1 197.3China 888.1 880.0 900.0 900.0 UK 148.4 136.0 148.5 150.5India 425.0 425.0 440.0 440.0 Pakistan 106.5 115.7 110.7 86.9Sri Lanka 189.0 187.6 187.6 187.6 US 96.1 83.3 89.2 81.2Kenya 111.3 113.7 113.9 115.0 Egypt 56.9 80.0 65.0 77.9Indonesia 113.4 108.5 108.1 109.7 Japan 41.0 45.3 48.4 52.1Africa All 219.0 220.1 225.4 229.3 Morroco 34.0 37.6 28.4 35.0Asia All 2,035.2 2,020.2 2,055.8 2,058.2 Canada 14.3 13.1 13.5 16.7World 2,306.3 2,291.6 2,332.4 2,338.6 World 1,042.9 1,077.1 1,121.8 1,152.4

Source: FAO and World Bank Source: ITC and World Banka? Countries of the former Soviet Union

Global SummaryActual -Est - - Annual Growth Rate (/o) -

World Balance (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-97Production 1,286.8 1,893.5 2,525.8 2,712.3 2,757.6 2,878.4 4.2 3.2 1.3Imports forConsumpton 640.3 858.6 1,098.6 1,060.4 1,071.0 1,081.7 3.0 2.9 -0.1Ending StocksinUK/b 113.9 91.3 48.4 39.2 37.2 39.3 -1.2 -4.1 -2.9

Crop Area (000 hectare) 1,668.3 2,368.5 2,263.0 2,291.6 2,332.4 2,338.6 4.0 -0.9 0.3Yields (hg/ha) 7,713 7,995 11,161 11,836 11,823 12,146 0.2 4.3 1.0

Actual ForecastPrices (¢Ikg) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: ITC, FAO data, and 'Norid Bank forecastsNote: Production, crop areas, exports, imports for consumpton, ending stocks and yields are for the calendar year. Ending stocks for 1998are as of November.b/ Warehouses and wholesalers

23


Fats and OilsMonthly Weighted Price ($/ton)

Prices stay firm 740.

The World Bank oils weighted average reached $664/ton 680in October-December 1998, a 2% increase from last quarter,andl 0% higher than a year ago. It appears that fats and oils 620prices have largely escaped the worst ofthe Asian FinancialCrisis. Oil World reports that global production of the 17 560major fats and oils is expected to reach 104.4 million tons in v

1998/99 (October-September), up from 101.6 tons in 1997/ 500 . .. ...... ........

98. Most ofthe increase is expected to come from soybean., D D- D- D Dec-98Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

palm, rapeseed, and sunflower oil production. Source: Wodd Bank

Exports are expected to reach a record 33.14 million tonsin 1998/89, up from 32.70 million tons in 1997/98. Palm Production/Exports (million tons)

and soybean oil alone account for 36% and 24% of world oil 120exports. Ending stocks for the 17 major fats and oils areexpected to decline to 11.40 million tons in 1998/99, from 90

11.60 million tons in 1997/98. and 11.75 million tons the Productionprevious year. The stock-to-use ratio will decline to an 60xprtestimated 10.94% (from 11.86% in 1996/97). This is the Exportsthird consecutive decline in ending stocks. 30

Imports, which increased by one million tons in 1997/98,are expected to increase further in the next season. Central 0America, China, and South America will account for most of 1970 1975 1980 1985 1990 1995

Sou rce: Oil Wor!dthe import growth. Last season's increase in Central andSouth American imports was related to a slow down in palm Enad-of-Year Stocks (million tons)oil production and a shortfall of fish oil output due to El 13Niho. Chile, Colombia, and Peru were particularly affected.India is also expected to increase its oil imports from 2.11 10million in 1997/98 to 2.42 million in 1998/99. In 1994/95., Worldoil imports in India were less than a million tons. The increase 7 _ --- --

is mainly due to reduced trade restrictions and increased US and EUdisposable incomes. 4

Olive oil appears to be ample for the second consecutiveseason. Although production is expected to decline from 12.71 milliontonsin 1997/98 to 2.50 milliontons in 1998/99. 1970 1975 1980 1985 1990 1995

Suc OilWorldend-of-year stocks are expected to hit a record high of 1.13 AitnualWmillion tons, reaching a stock-to-use ratio of45%, the highest 2,000 Annual Weighted Prices (S/ton)arnong the major oils. Imports of olive oil are expected to , - :e IaIrise, especially in North America, Australia, and Japan. 1 500 C t (1990.Groundnut oil production is also expected to recover to 4.5Cosat190mill ion tons this season after decline of300,000 tons in 1997/98. Most of the increase is expected to come from Argentina, I,000

which accounts for one-fourth ofworld groundnut oil production.Although the record low stock-to-use ratio is supposed to set 500

the tone for a more bullish mood on prices, with the expected Currentexpansion in palm oil production along with good prospects for 0 , ,rapeseed, sunflower, and soybean oil,asmallreduction inthe Sour97097 1980 1985 1990 1995 2000 2005 2010fats and oils price index may appear in the next season.

24


Fats and Oils Highlights* India's recent decision 1:o reduce import restrictions on can be effectively used by banks to widen their banking

soybeans, sunflower oil, and rapeseed has triggered intense networks. Star Publications recently reported that, tolobbying activities between the edible oil industry and the date, the I I designated Malaysian commercial banks haveoilseed growers, reported the Asian Wall Street Journal. successfully established some 500 correspondingThe 45% import duty on oilseeds, however, remains in relationshipswiththeircounterpartsintheBPAparticipatingeffect. While processors are pushing hard for a total drop countries.On the duty, farmners wan t a total ban on imnported oilseeds... . . .. . .

* Despite the Asian Financial Crisis, privatization and* Malaysia, a major oil exporter, has already signed its first globalization are impacting the world oil industry. Two

bilateral payment arrangement (BPA). BPA, an alternative publicly-listed Malaysian companies have been offered atrade mechanism (similar to barter) can be used by total of 100,000 hectares in Cambodia to plant oil palm.countries to overcome temporary shortages of foreign One ofthe companies is now managing an I 1,000 hectarereserves. Malaysia initiated such a mechanism in response plantation on which 2,000 hectares have already beento the Asian Financial Crisis. Despite its drawbacks, BPA planted and are expected to mature in the year 2000.

Production, Exports, and Prices of the 17 Major Fats and Oils- Production (million tons) - - Exports (million tons)- Price ($/ton)

Oil 1996/97 1997/98 1998/99 1996/97 1997/98 1998/99 1996 1997 1998Soybean 20.86 22.97 24.10 6.64 7.52 7.94 552 565 625Palm 17.08 16.74 17.19 11.90 11.62 11.80 531 546 670Rapeseed 11.48 12.20 12.83 1.79 2.05 2.21 556 646 623Sunflower 9.25 8.89 9.61 3.15 2.93 3.13 576 581 728Tallow 7.35 7.63 7.60 1.97 2.20 2.16 506 529 466Lard 6.11 6.37 6.57 0.15 0.16 0.17 580 575 458Butter 5.68 5.74 5.85 0.63 0.60 0.62 3,250Groundnut 4.47 4.28 4.48 0.25 0.26 0.27 897 1,010 909Cotton 3.95 3.93 3.80 0.23 0.22 0.20 595 613 718Coconut 3.22 3.42 2.80 1.76 2.01 1.36 752 657 640Olive 2.85 2.64 2.44 0.46 0.45 0.46 2,503Palm Kemel 2.13 2.14 2.20 1.04 1.03 1.08 728 652 687Com 1.88 1.97 2.01 0.65 0.77 0.78 573 559 676Fish 1.27 0.85 1.05 0.77 0.48 0.54 445 548 727Sesame 0.71 0.72 0.66 0.02 0.02 0.02 1,476Linseed 0.65 0.68 0.72 0.14 0.12 0.14 566 571 708Castor 0.46 0.46 0.49 0.23 0.25 0.27 835 832 1,061

Total 99.39 101.62 104.40 31.77 32.70 33.14Source: Oil World and Woild BankNote: Quanties refer to crop year (beginning October 1) and prices refer to calendar year.

Global SummaryActual - Est - - Annual Growth Rate (°O)-

World Balance (ml. tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-97Producton 39.78 58.09 80.84 98.93 101.41 103.70 3.8 3.3 1.6Consumpton 39.82 56.80 80.77 99.02 101.39 104.12 3.6 3.5 1.6Exports 8.83 17.76 26.89 31.82 33.18 33.25 7.0 4.1 1.5Ending Stocks 5.18 9.25 12.15 11.75 11.60 11.40 5.8 2.7 -0.3

Actual ForecastWeighted Price ($lton) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: Oil World and World BankNote: All quanties are for crp year beginning October 1. The price is a trade weighted average of soybean, palm, coconut and groundnut

25

GLO BAL COMMODITY MARKE.TS jaonuarY 1999

Coconut OilPrices return to pre-crisis level onthly Prices (S/ton)

80 -8Jr--------co'conut oil prices averaged $740/ton in tle fourth i cit Rotterdain

quarter, 12% higher than last quarter's $662/ton, and up 700 /- --- A

21%/o from the same quarter last year. Prices for palm K -k-ernel oil, a close substitute to coconut oil, also averaged | i $741 /ton in the fourth quarter, up 7% from third quarter' s ! -- I - -$694/ton, and 22% higher than the fourth quarter of last vyeaf. In 1997/98, coconut and palm kernel oil accounied 500foraibout3.4% and 2.1%, respectively, ofworldproduction I Dec-94 Dec-95 Dec-96 Dec-97 Dee-98

of the 17 major fats and oils. 72% of coconut oil output Incd 48% of palm kernel oil output are internationally i 0 P'roduction/Trade (thousand tons)

-aded. K R 3 .Acording to the most recent Oil World estimates /

"'orld production of cconut oil is expectec to be about |,' - -2.80 million tons in the 1998/99 season (October- I Production

Sleptember). down from last season's 3,49 million tons ----- . ...The delayed effects of El Nifio are largely to blarire. Palm v J \kernel oil production, on the other hand, is expected to he 1250 -be

about 2.20 million tons, slightly higher than 2.15 million j Exports

torns in the last two seasons.The Philippines, the world's dominant coconut oil Source :O1il9Wod 975 1980 1985 1990 1995

producer, is expected to produce 961,000 tons, down fromi .60 million tons in 1997/98. The reduction reflects lower E;.opra production due to El Nino-caused drought; although 806 _ o

El Nino officially ended in May 1998, its effects are stillvisible as precipitation has notyet retumedto normal levels. 00 - - wor--

indonesia's output, the second highest, is expected toexperience a small decline (from 659,000 tons last season to 400 '

626,000 this season). India's output will remain unchanged Iat around 425,000 tons. Exports (75% of which go to the 20o -u-- - ---- -- us - ------ -- ---. -

TS and the EU) are also set to decline from 2.13 million tons Iin 1997/98 to 1.39 million tons this season. -__-. - .

Palm. kemel oil production is expected to reach 2.20 1970 1975 1980 1985 1990 1995

iriillion tons this season, up from 2.15 million tons in 1997/ Sou,ce98. Exports from Indonesia and Malaysia, the two Annual Prices (S/ton)dominant exporters, are also expected to increase: in 2,500

Indonesia from 458,000 tons last season to 515,000 tons I Forecast

this season, and in Malaysia from 476,000 tons last season 1.900 -o -ons - ---- (199)- - ---to 51 1,000 this season. Constant199

The fundamentals of the coconut oil market definitely 1,300justify the recent higlh prices, which may well remain atthe $750 levelthroughouttherestofthe 1998/99 season. 700-

However, with the close substitutability between coconutoit and palm kernel oil and the eminent expansion of oil u Y rpalm area in Central America, Indonesia, and South 1970 1975 1980 1985 1990 1995 2000 2005 2010

America, the bullish mood on coconut prices may not Source: WVId Bank

necessarily carry into the next season. _ _

26

January 1999 AGRICULTURE

Coconut Oil HighlightsIn response to reduced exports, coconut oil has recently *In order to increase revenue,, the government ofbeen the firnest vegetabl.e oil. In addition to the delayed Malaysia has announced that it will impose a variableEl Nifio effects (it took about 16 to 18 months for the levy on both crude palm oil and crude palm kernel oil,market to realize its full. impact), two typhoons hit the according to Public Ledger. At current prices, the levyPhilippines in October, causing crop damage and would be the equivalent of aboutUS$13/ton. The taxreducing output by an estimated 40%. In 1997/98, the does not come as a surprise and, if it stays at thePhillipines accounted for 46% of global coconut oil proposed level, is not expected to have a noticeableoutput and 65% of world exports. impact on the palm oil and palm kernel oil markets.

Coconut Oil Palm Kemel Oil1995196 1996197 1997/98 1998/99 1995V96 1996/97 1997/98 1998/99

Production (000 tons) Production (000 tons)Philippines 1,772 1,224 1,596 961 Malaysia 1,088 1,157 1,227 1,138Indonesia 675 756 659 626 Indonesia 508 506 552 582India 380 414 426 424 Nigera 169 166 165 168Mexico 110 134 128 126 Thailand 34 36 35 35Vietnam 107 110 109 107 Colombia 39 33 32 33World 2,996 3,219 3,485 2,794 World 2,071 2,133 2,151 2,198

Ending Stocks (000 tons) Ending Stocks (000 tons)US 38 68 178 90 Malaysia 119 144 149 110Philippines 89 83 32 35 US 9 23 29 40Indonesia 50 35 35 35 Indonesia 50 25 25 30India 26 31 32 32 EU 21 15 14 14World 346 379 597 354 World 228 245 260 234

Exports (000 tons) Exports (000 tons)Philippines 899 950 1,385 693 Indonesia 352 435 458 515Indonesia 398 603 519 497 Malaysia 437 483 476 511World 1,358 1,757 2,129 1,386 World 862 1,036 1,036 1,118

Imports (000 tons) Imports (000 tons)EU 594 639 715 616 EU 362 419 421 470US 469 539 633 440 US 118 178 163 200China 37 42 35 40 Japan 55 54 53 52Korea, Dem. 42 44 41 38 Brazil 33 51 45 50World 1,409 1,720 2,108 1,422 World 855 1,041 1,025 1,126

Source: Oil World Source: Oil World

Global SummaryActual -Est - - Annual Growth Rate (o) --

Coconut Oil (000 tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98Producton 2,020 2,842 3,377 3,219 3,415 2,798 3.4 1.7 -1.5Consumption 2,021 2,688 3,169 3,231 3,200 3,100 2.9 1.6 -0.2Exports 608 1,215 1,701 1,756 2,010 1,358 6.9 3.4 -1.8Ending Stocks 292 509 641 385 611 355 5.6 2.3 -4.7

Palm Kemel Oil (000 tons)Producdon 378 570 1,449 2,133 2,151 2,198 1.8 4.1 2.1Consumption 387 528 1,375 2,115 2,124 2,231 1.3 4.2 2.4Exports 160 402 907 1,036 1,036 1,118 4.0 3.5 0.7Ending Stocks 45 134 256 245 260 234 4.7 2.8 0.1

Actual Forecast--Prces ($/ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: Oil World and World Bank

27

GLOBAL COMMODITY MARKETS Januanr 1990

Palm Oil- Palm Oil Monthly Prices ($/ton)

Prices remain steady c E700 c I f N Europe

Palm Oil prices averaged $679/ton from October to

December 1998, virtually unchanged from last quarter 600 .but almost 22% higher than in the same period in 1997.

Palm oil accounts for about 18% ofthe world production 500- goo KLEFruee

of the 17 major fats and oils, and 70% of it is internationally KLCE Ftures*

traded, making it the most highly traded oil. Palm oil is a 0close substitute for soybean oil, which accounts for 21% Dc9 e Dec-97...... .Dc-9 De.....-

of global fats and oils production. Soume: Wond Bankand KLCE

Global palm oil production in 1998/99 (October- ' Futures pnces are end-December expressed ir ¢/kg

December) is projected at 17.17 million tons, 775 20,000 Production/Trade (000 tons)

thousand tons more than a year ago. Production in rMalaysia, the world's dominant producer, is expected to 0 < Ireach 8.53 million tons (almost unchanged from 1997/

98), while Indonesia, the world's second largest producer. 10,000

is expected to produce about 5.35 million tons, up from 10,000Prod

5.16 million tons last season. Smaller producers (such as ProductionColombia, Nigeria, and Thailand) are expected to s,ooo -

experience minor declines in production. ExportsPalm oil exports are expected to reach 11.71 million

tons in 1997/98, virtually unchanged from last season. 1970 1975 1980 1985 199 1995Malaysia, the world's leading exporter, will export 7.50 OilW.1id

million tons, followed by Indonesia with 2.80 million tons. 3,000 End-of-Year Stocks (000 tons)

Imports are also holding strong and are expected to be

60,000 tons higher than last season. 2,250The EU, the dominant palm oil importer, is expected to 2.250

import 2.06 million tons in 1998/99, up from 2.01 million World

tons in 1997/98. China's imports are expected to reach 1.70 1,500

million tons (from 1.48 last season). India and Pakistan, the /third and fourth largest importers, are expected to experience 750

marked declines. End-of-season stocks are expected to decline Indonesiafrom 2.41 million tons last season to 3.36 million tons this

season. While Indonesia is reducing its stocks from 520,000 7 I 1tons last season to 460,000 tons this season, Malaysia is Sou-ce O 10Wod 0

expectedto replenish them from 719,000 tons last seasonto 00Historical Prices (S/ton)780,000 tons this season. 1,700

Palm oil prices may experience a small but noticeable ll Foreea5tdecline in the next few seasons, due to an expected 1,300 lproduction boom. The increase will come mainly from Constant (1990)Indonesia as well as from a number of small producing 900

countries; especially in Central and South America where

production growth has been vigorous in the last few years. 500

Following the El Niflo-related fires which ravaged

Indonesia last year, a vigorous palm tree replanting program Current

is underway. Even at prices as low as 20% to 30% less 100 ! I I -1970 1975 1980 1985 1990 1995 2000 2005 20(CGthan current levels, analysts believe that palm oil s,ume Woad BaO2

production is still a profitable crop.

28


Palm Oil HighlighttsThe Asia Wall Street Journal reported in December, pressured the government for a reduction of the taxthat participants, especially speculators, at the rate; there are some indicators that the rate may beCommodity and Monetary Exchange in Kuala Lumpur reduced on a gradual basis. As expected, the high taxhave partially withdrawn from trading palm oil futures, rate has induced pervasive smuggling, leading marketin response to the capital controls imposed by the analysts to question its effectiveness. A reduction ofgovernment of Malaysia. Prior to the imposition of the tax rate would raise Indonesian exports and hencecontrols, market participants actively speculated on the ease the tightness of the world palm oil market.

ringgit using ringgit-denominated palm oil futures. Due to permanent expansion and improved yields, palm

* Despite pressure from the oil industry, the Indonesian oil production in Central and South America has moregovernment has refused to withdraw or reduce the tax. than doubled to an estimated 1.09 million tons duringIt fears that high domestic palm oil prices, a basic food the last decade. The region is now considered anelement in the Indonesian diet, will lead to civil unrest, important player in the palm oil market, according tothus adding more instability to an already precarious Oil World. Colombia, Costa Rica, and Ecuadorpolitical situation. Inconesian palm oil is currently taxed accounted for more than a third of the production inat a rate of between 5'0% and 60% (depending on the the region in 1997. Apart from a shortfall in yields duequality). The domestic industry (represented by the to El Ninlo this season, production growth is expectedPalm Oil Producers Association) has persistently to resume.

ProductionlStocks Trade1995/96 1996/97 1997/98 1998/99 1995/96 1996197 1997/98 1998/99

Production (000 tons) Exports (000 tons)Malaysia 8,264 9,000 8,509 8,532 Malaysia 6,896 7,794 7,800 7,500Indonesia 4,405 4,724 5,158 5,350 Indonesia 1,972 2,419 2,521 2,800Nigeda 622 615 571 570 PNG 229 302 273 242Colombia 391 440 437 424 Singapore 308 286 245 230Thailand 366 386 375 366 World 10,463 11,895 11,720 11,713C6te d' Ivoire 277 250 251 265 Imports (000 tons)PNG 228 284 231 238 EU 1,838 1,957 2,014 2,055Ecuador 182 201 207 218 China 1,178 1,851 1,478 1,700World 15,871 17,082 16,920 17,165 India 1,213 1,395 1,625 1,560

Ending Stocks (000 tons) Pakistan 1,166 1,020 1,229 1,060Malaysia 894 907 719 780 Singapore 456 402 362 395Indonesia 565 400 520 460 Japan 348 382 355 360China 220 280 110 180 Egypt 387 365 370 330India 190 285 128 150 Myanmar 235 290 236 270World 2,797 2,785 2,410 2,358 World 10,462 11,701 11,682 11,743

Source: Oil Word Source: Oil Woild

Global SummaryActual - Est - - Annual Growth Rate (%) -

World Balance (000 tons) 1970/71 1980/81 1990/91 1996197 1997/98 1998/99 1970-80 1980-90 1990-97Producton 1,742 4,587 10,976 17,082 16,920 17,165 9.7 8.7 3.6Consump9on 1,685 4,822 11,041 17,090 17,285 17,270 10.5 8.3 3.6Exports 920 3,793 8,639 11,895 11,744 11,713 14.2 8.2 2.4Ending Stocks 247 992 2,551 2,785 2,410 2,358 13.9 9.4 -0.6

Actual ForecastPrices ($1ton) 1994 1995 1996 1997 1998 1999 2000 2005. 2010


Source: Oil World and World BankNote: All quantities are for the crop year (beginning October 1) and pices are for calendar year.

29

G1AOBAL CO'MMt UDITFY JARKETS jan nary 1999

So bean Oil ,So b a O60 - Monthly Prices (S/ton)

Price.v likely to decline650 - -- - ---- ----- ----A-- --

outrth quarter soybean oil prices averaged $603/ton, 600 fo.b. Ex-mil (Dutch)

sliohtlgy lower than the previous quarter average of $606/ton,and ablout 5% lower than the same quarter last year. In 550 - -

1 9 7, soybean oil accounted for about 23% of vorld 5 r

production of fats and oils. About one-third is internationally CBOT Futireso

traded, with Argentina, Brazil, and the US accounting for 450more than two-thirds ofworld exports, and China accounting 400 - .I

for more than one-quarter of world imports. Dec-95 Dec-96 Dec-97 Dec-98

(21obal soybean oil output in 1998/99 (October- 7 F=r" p,iD!s re e.-De. mbe,exprnssed in S/to

September) is expected to reach 24.33 million tons, up 26,000 Production/Trade (000 tons)

almost 5% from the 23.19 million tons produced in 1997/-98 According to the most recent estimates from the US 9,0

Deaortment of ixgriculture, US soybean oil output mayhe as high as 8.3 1 milion tons, sligltly exceeding the record Production

hrgh of 8.23 million tons in 1997/98. Due to improved 13,000 t --------

growinTlg conditions, Brazil, the second largest soybean oilproducer, isalsoexpected toreacharecordof4.01 million 6,509 ffi/ _-

tons this season, up from 3.80 million tons in 1997/98. E.Y orts

Argcnitina, the world's fourth largest producer after the __-___J___

Eli, will register an increase of halfa million tons. The 1970 1975 1980 1985 1990 I 95

h'LT s soybean oil output is also expected to cecline from Souce Oid Wodd

291 million tons last season to 2.88 million tons thisseOson 2,800 __ End-of-Year Stocks (000 tons)

Exports are expected to reach a record 7.90 miillion __

tons tlis season. up froi 7.68 rmillion tons in 1997/98. 2,100Much of the increase comes from Argentina (26%) and WorldBrzil (l5%°). Exports fronm the UIS and the EU are 1,400 9.

expected to tegister small but toticeable declines. China.thewvorld''s dominantsoybeanoilimporter, is expected to 700 -------.

increase its soyvbean oil imports by 16%/o (from 1.94 million

tons last season to 2.25 million tons this season).-ices may come under intense dowrnward pressure in 1970 1975 1980 1985 1990 1995

the next year. ln addition to plentiLul availabilitv, the recent Sourme OilWodd

nem-s about the devaluation of the Brazilian currency, willnot oniv make Brazilian exports more competitive in dollar 2,00 Annual Prices ($Iton)

teo-n s, kut also mnay have spillover effects on neighlboring , -- e : Alr5entiPna T aken together, Brazil and Argentina account 1 Fe

foor more than half of world soybean oil exports and aboutonn. fourtb of stocks. It is predicted, therefore, that eveni Cotnstant(1990)

untler conservative assumiptions, soybetan oil prices will 1,100

not average rrore than $566/ton this year and possibly 6\i

nextear as well. This expectation is further reinforced if

rne txkes into account. the fact that the availability of Current

palm oil --- a close substitute for soybean il -- is likely 10 0 0loiNtteaseuetobtttrpeCteyieidaTldhepCtntial 5 y1970 1975 1980 1985 1990 1995 2000 20f)"i 2ft!,1lo tncr !ease dueto bette~r expected Iyields anidthe petentiaI S--.n~

retorit: of Indonesia to the palm oil export market,

t,


Soybean Oil Highlights

* Much in the soybean complex market depends on the China's net imports of vegetable oil, especially soybeanfuture of Brazil's economy. Brazil, the world's second oil, has registered phenomenal growth from 0.9 millionsoybean oil producer and exporter, accounts for 17% of tons in 1992/93 to 3.3 million tons in 1997/98. Chineseglobal soybean oil production (following the US which oil import demand is driven by (1) reduced domestic outputaccounts for 34%) and 18% of world exports (following of indigenous oils, (2) the high income growth in recentArgentinawhichaccountsfor333%). Iffuritherdevaluation years (between 6% and 7%), and (3) relatively low peroccurs, it may well send some uncertain signals to the capita use. India's import groxrth of vegetable oils hassoybean market. The pressure on soybean oil prices may also been imnpressive. China, India, and Pakistan arebe even more intense if Brazil's economic uncertainty considered to be the main driving forces behind the recentspreads to other South American countries. growth in import demand of vegetable oils.

ProductionlStocks of Soybean Oil Trade of Soybean Oil1995/96 1996/97 1997/98 1998/99 1995/96 1996t97 1997/98 1998/99

Production (000 tons) Exports (000 tons)US 6,913 7,145 8,227 8,309 Argentina 1,619 1,993 2,125 2,685Brazil 4,103 3,760 3,803 4,079 Brazil 1,639 1,295 1,204 1,380EU 2,521 2,730 2,914 2,882 US 450 924 1,499 1,340ArgenEna 1,828 1,966 2,300 2,794 EU 494 867 1,028 900China 1,070 1,410 1,696 1,713 Hong Kong 33 523 749 625India 661 607 787 890 China 61 485 320 200Japan 673 687 679 706 World 4,968 6,641 7,682 7,900Mexico 428 496 548 579 Imports (000 tons)Taiwan, China 511 456 439 445 China 1,445 2,041 1,937 2,250World 20,265 21,007 23,195 24,325 Iran, Islamic Rep. 500 400 696 720

Ending Stocks (000 tons) Hong Kong 85 591 798 695US 914 690 627 660 India 73 84 254 290China 430 455 350 390 Bangladesh 187 267 236 245Brazil 410 311 335 360 Pakistan 165 206 198 235Argenfina 251 165 270 300 Venezuela 168 267 236 208EU 153 129 126 135 Turkey 108 162 162 180World 2,846 2,437 2,497 2,588 World 5,123 6,453 7,561 7,940

Source: Oil World Source: Oil Worid

Global SummaryActual -Est - -Annual Growth Rate (%o) -

Soybean Oil (000 tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998U99 1970-80 1980-90 1990-98Pmducton 6,477 13,417 16,141 21,007 23,195 24,325 7.3 1.8 3.3Consumpton 6,245 12,730 16,149 21,231 23,015 24,275 7.1 2.4 3.3Exports 1,140 3,303 3,800 6,641 7,682 7,900 10.6 1.4 5.9Ending Stocks 653 2,094 2,119 2,437 2,497 2,588 11.7 0.1 1.6

Soybean Meal (000 tons)Producton 29,265 59,379 70,528 92,575 101,091 105,798 3.1 0.7 2.0Consumpton 29,012 57,744 69,653 93,046 100,580 105,470 3.0 0.8 2.0Exports 5,636 18,201 26,649 30,293 33,530 37,190 5.1 1.7 1.2Ending Stocks 602 1,992 3,217 4,024 4,790 4,868 5.2 2.1 2.2

Actual - Forecast-Oil Prices ($/ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: Oil World and World BankNote: All quantities are for the crop year beginning October 1 and prces are for the calendar year.

31


SoybeansMonthly Prices ($/ton)

Brazilian currency devaluation threatens pricesc.i.f Rotterdam

300 Soybean prices fell to $21 6/ton in September from an average

of$295/ton in 1997 (c.i.f Rotterdarn). ByNovember. soybean

prices had recovered to $234/ton, but additional price increases 250 - --- --- - - ---

are not expected because the Argentine and Brazilian crops will

begin comingto marketthis quarterandthisnewsupplywill be 200 - --- * i

metbyweakworld soybean importdemand. Therecentcurency Futures Prices (CBOT)

devaluationbyBrazilputsfuxfierdownwardpressureonsoybean 150 . .. .. 1 I

prices. Soybean stocks are also increasing, firtherweakeningthe Dec-95 Dec-96 Dec-97 De c-98 Dec-99chances of p rice increases. source: USDA S Uhistodc pncesand WadlStreet JoumaI futurr spuces

chances ofprice increases. ~~~~~~~~~~~~Note: Futures prices are expressed in $/ton.

Soymeal prices have accounted for most ofthe weakness

in soybean prices during the past year while soyoil prices World Balance (million tons)

have remained strong, keeping soybean prices from falling

firther. Large supplies offeedgrains, especially maize, should Production

keepsoymealpr'cesweakthroughoutthecomingyear,while 125 - -

soyoil prices are expected to remain strong. On balance,

soybean prices are projected to average $235/ton in 1999. Consurption

well below the 1998 level of $242.8/ton.

World soybean import demand is expected to decline about

3% in 1998/99. Import demand has weakened in the 25

European Union (down 6.3% overthe previous year), while 1970 1975 1980 1985 1990 i995

Asian demand remains relatively strong despite the economic Source: USDA

slowdown in the region. Soybean imports by Asian countries

in 1998/99 relative to the previous year are: China (+22%), End-of-Year Stocks (million tons)

Japan (-3.5%), Korea, Rep. (+4.5%), Taiwan, China 20 1_I

(+4.6%), Indonesia(-13.5%). Mexico is expectedto increase TAsoybean imports by 6%. +

World soybean production is projected to total 154.1 million |World

tons in 1998/99 (-1.3% from the previous year), with US 1 -- --

production accounting for nearly half ofthe total production at

75.2milliontons. Worldproductionhasgrownat5.0%peryear

since 1990. The major exporters, the US, Brazil, and Argentina, 0.

increasedproductionby43%,84%,and48%,respectivelysince 1970 1975 1980 1985 1990 1995

1990/91 and collectively accounted fortree-fouriis ofthe gmwth Soumce: USDA

in world production. In the current year, US production is up

2.2%, while Argentine and Brazilian production are expected to Annual Prices ($/ton)

fall by 9.0% and 6.5%, respectively. Forecast

Theincrease in world soybean production during the 1990s Soo -

has been remarkable, with world soybean production up 50%. Constant (1990)

Thisrapidgrowth wasconcentratedinthethreelargestexporting 550-countries where production grew by 4.6%, 7.9%, and 5.0% per

year. The growth came from both improved yields and expanded 3 :

areas devoted to soybeans. Policy changes in Argentina and tie 300

US contributed to the increases. With the recent devaluation of Current (US Price c.f. Rotterdam)

the Brazilian currency, the world prices of soybeans will be under 50 _ 1 l l ldean isnlt 1970 1975 1980 1985 1990 1995 2000 2005 2010pressure. Import demand IS unlikely to rise enough to absorb the Source USDA dat and Wodd Bankforecasts

large world production.

32


Soybeans HighlightsSoybean prices are expected to fall in 1999 relative * World soybean stocks have nearly doubled in theto 1998 due to large supplies, building stocks, and a last two years from 6.9 to 13.3 million tons. Nearly3% decline in world import demand. The Brazilian all the increase has been in the US.currency devaluation on January 1 3 sh is also expected Large supplies of feed grains, especially maize, willto put downward pressure on soybean prices. Brazil provige strong ompeed g r speal maize, andis the second largest soybean producer, with 19% provide strong competition for soymeal exports andof world production, 2 1 % of soybean exports, 27% keep soymeal prices weak.of soymeal exports, and 18% of soyoil exports. * Soyoil prices have remained firm due to a relative

* World soybean production has increased by more shortage of other vegetable oils.than 5% per year since 1990. This rapid growth islikely to decelerate now that prices are falling andimport demand growth has slowed.

Production and Crush Trade and Ending Stocks1995196 1996/97 1997198 1998/99 1995/96 1996/97 1997/98 1998/99

Production (000 tons) Exports (000 tons)US 59,243 64,837 73,552 75,190 US 23,165 23,999 23,690 22,860Brazil 24,150 26,800 31,000 29,000 Brazil 3,450 8,420 8,750 8,300Argentina 12,430 11,200 18,700 17,000 Argentina 2,090 750 3,170 3,200China 13,500 13,220 14,728 13,500 Paraguay 1,600 2,150 2,200 2,400India 4,476 4,100 5,350 5,800 World 31,950 36,960 40,200 38,930Paraguay 2,400 2,771 2,800 3,100 Imports (000 tons)EU 940 1,140 1,570 1,710 EU 14,250 15,310 16,870 15,800Indonesia 1,517 1,460 1,400 1,500 Japan 4,780 5,040 4,870 4,700World 124,978 131,730 156,088 154,130 China 800 2,270 2,940 3,600

Crush (000 tons) Mexico 2,400 2,680 3,200 3,400US 37,273 39,080 43,462 43,680 Taiwan, China 2,650 2,630 2,390 2,500Brazil 21,570 19,900 20,000 20,500 Korea, Rep. 1,420 1,490 1,340 1,400Argentna 10,290 11,050 13,000 14,200 Brazil 1,050 900 1,700 1,000China 7,470 8,690 10,450 10,130 Indonesia 720 680 810 700India 4,046 3,650 4,770 5,170 World 32,400 36,410 40,230 39,020Mexico 2.440 2,690 3,330 3,580 Ending Stocks (000 tons)Japan 3,700 3,810 3,720 3,650 US 4,993 3,576 5,438 10,206Taiwan China 2 356 2,362 2,120 2,240 Brazil 825 525 775 400Korea, Rep. 1183 1,246 1,100 1,100 Argentina 276 266 1,225 400World 112,090 115,470 126,890 129,280 World 8,593 6,856 9,718 13,256

Source: USDA Source: USDA

Global SummaryActual - Est - - Annual Growth Rate (°/0)-

1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980.90 1990-98World Balance (million tons)

Producton 44.3 81.0 104.2 131.7 156.1 154.1 7.1 2.5 5.1Consumpton 48.0 84.3 104.0 134.3 150.2 150.2 6.7 2.3 4.7Ending Stocks 3.6 11.5 13.0 6.9 9.7 13.3 14.3 1.6 -2.5Crop Area (000 ha.) 30.0 49.9 54.3 63.2 69.6 70.7 5.4 1.2 3.3Yields (ton/ha.) 1.5 1.6 1.9 2.1 2.2 2.2 1.6 1.3 1.7



Source: USDA historical data and World Bank price forecastsNote: All quanttes are in local marketng years. Prices are in calendar year.

33

Gf.WIAAt COMMODITY MARKETS January 1999

(J,ainis -_ _ _ _ _ _ _

Monithly Prices ($/ton)

Seazrzih sentiment dominates markets, nu 26l0 ._._l

fa1oa; entals are bulish i ATfhe Asian crisis has had a negative effect on market P T W

seniiiment, cansing grain prices to -fall to severely depressedc 180 - E- Trtd Prighted

ie els. In sharp contrast, the world grain market

fundamientals are bullish and higher prices seem likely. I 4 -o . . .-W orld grain production will fall short of last year's record

cro;ip by about 2%, leading to a 5% decline in world grain i . .I ..

stoecks. The 1999/00 crop could be even smaller than - Dec-94 D)ec-95 Dec-96 Dec-97 Dec-98thisyear's crop if plarntings fall due to current low prices Sotrce USDAdataEndAbidBankcalrulations

and yields rerrmain near or below trend. This would set Ithe stage for a recovery in grain prices in 1999. ,orld Balance (million tons)

I he world grains stock-to-use percentage is projected

to be 16.4% at the end of the current 1998/99 crop year. 1750 -f-,his is below the 1990s average of 17.6%, but still well Proauctiorn*

above the 1995/96 low of 14.4%. The overall level of 1,500wofld grain stocks is probably still adequate, but will Ipr'vide lirtle buffer against a poor harvest next year. 1250nsumption

Stocks of the major grain exporters are projected to

o tal 77 1%/ of world consumption comnpared to the |

decade low of 3.4% in 1995/96 and an average of 6.1 % 1970 1975 1980 1985 1990 1995

f6f the 1990s. The relatively high share of world stocks Source: USDAProduction includers milled rice.

held by the major grain exporting countries (43%) can

partly explain the current low grain prices. These stocks | sno End-of-Year Stocks (million tons)

aret most readily available to meet an increase in import

demand. High stocks also encourage the major grain - -.---

e)porters to aggressively market their grain with World

rricentives such as credit and price discounts. 00

The level of food grains stocks (wheat and rice) is 200 A 4fowver than normal while the level of feed grain stocks Isrelatively high. T'he low quality ofmuch of the wheat -100--------

ciop. which makes it more suitable for livestock feed - MajorExporters*tharn human consumption, further tightens th:e overal 1 0 1

' s C ~~~~~~~~~~~~~1970 1975 1980 1985 1990 1995fOAd grain markets. Prices of all grains remain severely

dlepcessed, with maize and wheat prices falling to decade Major exporters are Argentina, Australia, Canada, EU, and US

ic,ws in 1998. Rice prices remain above their 1997 Annual Prices (Ston)

lows, bi t have been falling in recent months. 500 -Annual Pnces ($1to _

World grain trade remains in the narrow band 400 - :between 200 and 220 million tons which has prevailed

for the past ten years. Current estimates indicate that -- -- - ------- ---

trade will total 206 million tons in 1998/99 compared consant (19%s

to 220 million tons last year. The effects of the Asian_

crisis on world grain trade have been relatively small, loo

"'ith lower imports by some countries in the region; 0 Cirrent I

however, these effects have been offset by other 1 0 9 1 1 2 2005 2^]>untries suh as Indonesa whicll had o increaee 1 1970 1975 1980 19'85 1990 1995 2000 2005 20iO

'ountries, such as Indonesia, which had to increase S-re. USDAhCstosiardataandWodd5ankf.rscasts

imports because of a poor rice crop. L

34


Grains Highlights

' Lower production and falling stocks make fundmentals * Cereal food aid shipments in 1998/99 are expected to reac hbullish despite conl:inued weak prices. 9 million tons, up from the 1997/98 level of 5.3 million

tons according to FAG. This higher level follows four* The European Community has approved a 10% land yeas ofdine an is lag s the r el ofs cer

set-as iderequiremet for the 999 crop.years of decline and Is largely the result of increased cere alsupplies in major donor countries, combined with higher

* The Russian Federation is experiencing a near collapse food aid needs in Asia, due to production problems .inin grain production, with wheat and coarse grain Indonesia, Bangladesh, and the Democratic Republic ofproduction down nearly 42% from the previous year Korea. Shipments to the countries of the forner Soviet(a total decline of 3 6 million tons). Imports have been Union are also expected to increase due to poor harvests.sharply curtailed following the August currency Central American food aid needs will increase due todevaluation causing the domestic food situation to devastation caused by hurricane Mitch. Food a,dbecome serious. shipments from the US and the EU are expected to

increase the most.

ProductionlStocks Trade199i/96 1996/97 1997/98 1998/99 1995/96 1996/97 1997198 1998/99

Production (000 tons) Exports (000 tons)China 356,369 388,458 378,443 377,650 US 99,469 81,272 76,345 82,366US 274,467 335,201 340,026 349,168 EU 52,410 62,378 54,566 61,401EU 175,874 203,840 205,556 209,112 Australia 17,997 24,322 19,285 18,775India 174,870 177,758 183,511 179,400 Canada 20,505 24,898 23,919 18,550Russian Fed. 61,100 66,799 85,265 49,315 Argen6ina 13,167 22,512 25,710 17,710Canada 49,159 57,995 49,221 48,451 China 783 5,738 10,504 6,350Brazil 41,588 46,648 40,005 44,305 Thailand 5,399 5,348 6,199 5,875Indonesia 39,215 38,034 35,925 39,300 World 206,700 213,600 2,220,000 206,600Australia 26,809 34,839 29,559 31,180 Imports (000 tons)Argentina 23,255 35,611 40,125 30,300 EU 43,164 41,379 40,141 40,566Turkey 25,085 26,090 26,255 28,960 Japan 26,831 27,423 27,830 26,990Mexico 27,566 29,865 26,999 28,700 Korea, Rep 12,808 12,242 11,664 11,525Poland 25,910 25,296 25,401 26,875 Egypt 8,177 10,111 10,275 10,275World 1,711,316 1,870,990 1,881,510 1,848,791 Mexico 10,342 7,601 10,395 9,785

Ending Stocks (000 tons) Brazil 7,037 7,010 8,650 8,325China 81,684 96,261 87,710 80,060 Saudi Arabia 5,232 7,601 5,184 7,100US 25,485 39,949 58,739 73,489 Iran, Islamic Rep. 5,739 9,979 7,407 6,000EU 21,327 27,200 38,989 42,890 Taiwan, China 7,130 7,029 5,840 5,760India 23,420 17,520 19,020 16,520 Algeria 4,294 4,772 5,835 5,740World 254,325 288,961 323,590 306,418 World 206,700 213,600 220,000 206,600


Global SummaryActual -Est - - Annual Growth Rate (%o) --

World Balance (mil. tons) 1970/71 1980/81 1990191 1996/97 1997/98 1998/99 1970-80 1980-90 1990-97Production 1,078.7 1,429.5 1,768.7 1,871.0 1,881.5 1,848.8 2.8 1.6 0.9Consumption 1,130.8 1,475.5 1,743.2 1,836.3 1,846.7 1,863.8 2.6 1.7 0.9Trade 109.6 214.7 202.3 213.6 220.0 206.6 6.6 0.1 0.1Ending Stocks 193.0 289.0 339.0 288.8 323.8 305.3 6.0 1.0 -2.4

Crop Area (000 hectarej} 663.0 722.1 694.3 703.7 691.7 683.9 0.9 -0.5 -0.1Yields (tons/ha) 1.8 2.2 2.8 2.9 3.0 3.0 1.9 2.3 1.0

Actual - Forecast Prices ($/ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: USDA historical data and estimates and World Bank price forecastsNote: Quantities are in local marketing years. Production and yields are based on milled rice. Prices are in calendar years.

35


Maize210 Monthly Prices ($/ton)

Prices bounce, but high stocks provide a ceiling 210

US maize export prices hit bottom at $86/ton in 170 USNo.2 f.b

September and have since bounced back to about $1001/ton. Prices are not expected to rise much more because 130 -of large US stocks and weak import demand. Globalproduction is expected to total 588 million tons according 90 e G

to the latest USDA estimate, down from the 597 million CBOT Futures"'

tons estimated in September. The revised estimate was 5 0 ,a,X.ri,,,

largely responsible for the increase in prices during the Dec-95 Dec-96 Dec-97 Dec-98 Vsec-99

fourth quarter. Total coarse grain production w,as also Source USDAhistoncalp5cesandWaSlSteetJourr,ai futurespn-es J-Futures prices are end-December expresser in $/ton

revised down from 894 million to 882 million tons. World

stocks of maize are projected to rise from 85.8 million 7U/orld Balance (million tons)

tons last year to 94.7 million tons in the current marketingyear, and the US holds 46% of these stocks. US stocks 600have increased from 33.2 million tons last year to and Producton

estimated 43.8 million tons at the end of this marketingyear. The US is the world's largest maize exporter, with 400 --70% of the market this year. 3 Vosu.to

Argentina, which is the second largest exporter after 300 Consptin

the US, is expected to export 9.0 million tons in 1998/99 200 -0,_ __,_____i

compared to 12.8 million tons last year. Policy changes 1970 1975 1980 1985 1990 1995

over the last four years have seen progressive liberalization Sou-ce LSDA

and eventual privatization of the grain sector in Argentinaaccording to the International Grains Council (IGC). This End-of-Year Stocks (million tcns)

has made producers much more dependent on andresponsive to world market prices. In 1992, the portsand maritime sector were fully deregulated, thus leading I 135

to heavy investment. The cost of loading grain fell from f I l$10to$2/tonaccordingtotheIGC. ThismadeArgentina

a more competitive exporter and led to a tripling of maizeexports from the 4.1 million tons exported in 1993/94 to 4

the 12.8 million tons exported last year. /\ major Exporters* \/"

World maize imports are expected to be down about 1970 1975 1980 1985 1990 1995

2% in the 1998/99 marketing year compared to last year So.rce JSDA

and down 6.4% from two years ago. Imports are lower Major exporters a Ar3entma, S Africa Rep, and US

in several Asian countries for the second consecutive year 3 Annual Prices (S/ton)

because of the Asian crisis and economic slowdown inthe region. Countries affected and the percentage change / o

in imports reLative to two years ago include: Japan (-2.9%), 250

Korea, Rep. of (-22.0%), Malaysia (-8.0%), and Taiwan, Constant (1990)

China (-21.6%). Howvever these declines are partiallyoffset by higher imports in Latin America. Latin American 150 X,

countries with increased maize imports relative to twoyears ago include: Chile (+27.7%), Mexico (+35.3%), Current(usNo. and Peru (+40%). Imports by Brazil increased from 0.38 50 I ,

to 1.5 million tons over the last two years, but the S 7 1SD5h0to 1dat1andWoddB9 1995 2000 2005 201

percentage is misleading because of the small initial value.

36


Maize Highlights

* Maize prices fall to lowest level of the decade before * Global coarse grain stocks are expected to rise forrecovering in the fourth quarter. the third consecutive year to 13 8 million tons. This

* Large US maize stocks along with weak demand compares to the recent low of 98 million tons infrom Asia will prevent prices fromrisingsignificantly 1995/96. Even if production falls in response tofro Asa wll revnt rics fom isig sgniicatly current low prices this year, stocks should remainin 1998/99. However, current low prices are likely adequate.to reduce production in 1999/00 and this could lead equate.to higher prices. * The EU has announced a 10% land set-aside program

* Total coarse grain stocks in the EU have nearly for 1999.doubled in the last two years to 24 million tons. Thisshould lead to large barley exports from the EU andprovide strong competition for US maize exports.

Production and Stocks Trade1995/96 1996/97 1997/98 1998/99 1995/96 1996/97 1997/98 1998/99

Production (000 tons) Exports (000 tons)US 187,305 236,064 237,897 249,848 US 52,681 46,579 37,697 43,500China 112,000 127,470 104,300 124,000 Argentna 6,952 10,203 12,756 9,000EU 29,224 34,794 38,602 34,064 China 168 3,892 6,173 4,000Brazil 32,480 36,160 31,000 33,500 S. Afnca, Rep. 1,541 2,200 1,497 1,750Mexico 17,780 18,922 17,000 18,000 Hungary 122 250 1,250 800Argentna 11,100 15,500 19,360 13,500 World 64,906 66,169 63,187 61,960India 9,530 10,612 11,088 9,500 Imports (000 tons)S. Afnca, Rep. 10,200 9,012 7,550 9,000 Japan 15,976 15,963 16,422 15,500Canada 7,271 7,380 7,180 8,900 Korea, Rep. of 8,963 8,336 7,528 6,500Romania 9,923 9,610 12,680 8,000 Taiwan, China 5,733 5,741 4,472 4,500World 515,563 591,441 578,061 597,040 Mexico 6,379 3,141 4,373 4,250

Ending Stocks (000 tons) Egypt 2,225 3,123 3,150 3,250US 10,319 22,433 33,220 43,788 EU 2,966 2,595 1,900 2,500China 34,700 45,000 26,000 29,000 Malaysia 2,444 2,500 2,100 2,300EU 2,331 3,280 4,557 2,642 Brazil 160 383 1,322 1,500S. Afica, Rep. 2,200 2,450 2,050 2,050 Colombia 1,495 1,518 1,650 1,500Brazil 3,222 2,282 1,007 1,157 Saudi Arabia 923 1,272 1,230 1,300Argentina 400 750 1,611 600 Iran, Islamic Rep. 1,307 1,550 1,000 1,250Thailand 297 220 123 523 Venezuela 1,205 1,234 1,161 1,200World 69,078 91,382 85,797 94,709 World 64,906 66,169 63,187 61,960


Global SummaryActual -Est - - Annual Growth Rate (°/)-

World Balance (mil. tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98Producton 268.1 408.5 482.3 591.4 578.1 597.0 4.2 1.2 2.7Consumpton 273.0 421.9 474.9 569.1 582.5 588.7 4.1 1.6 2.8Exports a/ 32.2 84.9 64.5 73.3 73.5 70.8 9.5 -0.7 1.4Ending Stocks 36.1 85.5 80.9 91.3 85.6 94.7 10.8 -0.7 0.7

Crop Area (000 hectare) 112.5 131.1 128.5 141.0 136.3 139.4 1.5 -0.1 0.9Yields (tonslha) 2.4 3.1 3.8 4.2 4.2 4.3 2.7 1.3 1.8



Source: USDA historical data and es6mates and World Bank price forecastsNote: Quantities are in local marketng years. Prices are in calendar years.a/ Includes intra-EU trade.

37


RiceMonthly Prices (S/ton)

Prices fall despite 25-year low in stocks 400

Prices for Thai 5% broken white rice fell in the fourth 350 Thai 5% fo.b

quarter as imports weakened and new crop rice becameavailable. The USDA projects the level of world stocks 300 - .- -- \-.--

will fall to about 44 million tons or 11.4% of total use inthe 1998/99 marketing year. This would be the lowest 250 --- -------level in 25 years when measured on a stocks-to-use basisand the lowest actual level in 17 years. Prices are expected 200 ....

to remain low for the next few months as world imports Dec-95 Dec-96 Dec-97 Dec-98 Dec-99Source: USDA hieorlcal prices and 146ISfr,t Journal futures prces

fall from last year's record levels and major exporters Futures prices are expressed on a milled basis in S/ton.

aggressively compete for market share. Total world tradeis projected to total 21-22 million tons, down about 15% 400 World Balance (million tons)from last year.

The current low level of world stocks is a serious 350

concern. World stocks relative to consumption have Produtnaveraged 15.4% since 1980 compared to the 11.4% of 300(nled)

this year. Against this concern, is the recognition thatmajor rice consuming countries are increasingly willing 250 - - -------------to substitute wheat for rice based on price. However,the rice market is also one of the most volatile 200commodity markets and substantially higher prices 1970 1975 1980 1985 1990 1995

seem likely over the next 2-3 years. Source: USDA

Thailand is the largest exporter, with 24% of worldtrade in 1998. The current low prices are due, in large so End-of-Year Stocks (million tons)part, to the devaluation of the Thai Baht in mid- 1997which led to a sharp fall in the US$ price. The Thairice export price fell from $325/ton in May to $252/ton in November 1997. Prices then rose back to $325in June 1998 due largely to large imports from M- - -

Indonesia. Rice prices have declined in the last few d

months and are now down to about $280/ton due to 20 -_reduced import demand for the high quality grades and SelectedExporters*

the arrival of new crop rice to the market. 01970 1975 1980 1985 1990 1995Production is expected to rebound in Indonesia in Soum1e: USDA

1999, following last years poor crop and imports of * Selected exporters include Australia, Pakistan, Thailand, and US.

nearly 6.0 million tons. However, because of low input 1500 Annual Pnices ($/ton)use, output will still fall below trend. Imports will still 150

total 2-3 million tons. Thailand's production is not Forecast

expected to reach last year's record level due to the 1000 ------------------------------------------poor monsoon season. Vietnam is expected to be a Constant (1990)

strong exporter in 1999 due to a large crop andremaining unsold stocks from last year. Pakistan, is 500 - ----------- -expected to harvest a record crop. India's productionwill be lower, but still large enough to build stocks. Current(Thai5%)

On balance, the current low stocks are not enough to 0lead to higher world prices unless production weakens 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: USDAhisorical data andVWVodd8ankforacata

in a major trading country.

38


Rice Highlights

World trade is expected to fall from 26 million tons * World rice production is down 1.6% in 1998/99in 1998 to 21-22 million tons in 1999. Indonesia comparedtothepreviousyear,whileyieldsfell4.5%imported 6.0 million tons of rice in 1998 and is below the long-term trend. Area harvested hasexpected to import 2-3 million tons in 1999. remained nearly constant for the last three years.

' The Asian crisis has not led to cutbacks in rice The relatively tight wheat market provides littleimports although domestic rice prices have risen buffer against a decline in rice production in a majorsharply in some countries. In Indonesia, domestic producer. If rice imports were to rise, prices couldrice prices have more 'than doubled despite heavy rise significantly.government food subsidies.

Production and Stocks Trade1995/96 1996/97 1997198 1998199 1996 1997 1998 1999 (Est.)

Production (000 tons of paddy) Exports (000 tons)China 185,214 195,100 200,700 190,000 Thailand 5,281 5,272 6,100 5,800India 119,442 121,980 123,191 121,512 Vietnam 3,040 3,268 3,750 3,500Indonesia 51,100 49,360 46,500 50,769 US 2,624 2,292 3,100 2,750Vietnam 26,792 27,277 28,592 28,030 India 3,556 1,959 3,500 2,000Bangladesh 26,533 28,326 27,940 26,628 Pakistan 1,677 1,982 1,800 2,000Thailand 21,800 20,700 22,803 22,652 China 265 938 3,500 1,250Japan '13,435 12,930 12,532 10,852 World 19,580 19,040 25,730 21,370Philippines '11,174 11,177 9,923 10,615 Imports (000 tons)Brazil '10,038 9,504 8,529 10,000 Indonesia 1,233 808 5,900 2,000US 7,887 7,770 8,115 8,182 Philippines 687 816 2,200 1,200Pakistan 5,905 6,461 6,547 6,901 Brazil 786 845 1,400 1,000World 551,009 563,426 568,202 559,092 Nigeria 350 731 800 800

Ending Stocks (000 tons) Bangladesh 655 45 1,500 750China 21,732 25,556 26,946 22,196 Japan 445 567 650 725India '11,000 9,500 9,500 7,600 EU 895 834 700 700Indonesia 2,615 1,530 2,180 1,980 Saudi Arabia 786 659 700 700Philippines 1,670 1,590 1,185 1,350 Iraq 236 684 600 700Korea, Rep. 245 497 981 1,106 Iran, Islamic Rep. 1,294 973 500 650Thailand 810 650 850 1,000 Malaysia 573 645 650 600World 49,897 50,785 51,952 43,940 World 19,580 19,040 25,730 21,3T0


Global Summary- Actual - -Est - - Annual Growth Rate (lo)

World Balance (mil. tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98Production (milled) 213.0 270.0 352.0 380.2 384.1 377.4 2.6 2.5 1.2Trade at 8.6 12.7 12.1 19.0 25.7 21.4 4.9 0.8 8.2Consumpton 210.6 275.0 347.4 379.3 383.0 385.4 2.5 2.3 5.3Ending Stocks 28.8 48.5 59.1 50.8 52.0 43.9 8.4 1.9 -2.8

Crop Area (000 hectares) 132.7 144.5 146.6 149.7 149.6 149.4 0.9 0.2 0.2Yields (tons/ha.) 2.4 2.8 3.6 3.8 3.8 3.7 1.7 2.3 (.9



Source: USDA historical data and estimates and Wodd Bank price forecastsNote: Producton is paddy in marketing years. Consumpton and stocks are on a milled basis in marketing years.a/ Trade is on a milled basis in calendar years. Prices are in calendar years.

39

GLOBAL COMMODITY MARKETS January 1999

Wheat --Wheat Monthly Prices ($/ton)

Tight supplies despite weak prices 300 -

There are clear signs that the wheat market is tighter --- -us ------

than previously thought. World production is forecast to 200

be about 4.0% below last year's level rather than therecord high expected earlier in the year. Exports are 150

increasing due to liberal credit programs from major 100 4- e e e '

exporters and increased food aid. World ending stocks CBOT Futures*

are expected to fall after rising in the two previous years. so .......

In response to earlier expectations of a record crop, Dec-95 Dec-96 Dec-97 Dec-98 Dec-99

US wheat export prices fell to $108/ton in August, the Soume USDA5hstoncapncesasdV'a)SsertJolm.i futr-espices' Futures prices are end-December expressed in $Vton

lowest level of the decade. As revised estimates becameavailable, prices rebounded to $130.2/ton by November. World Balance (million tons)

For the calendar year, 1998 prices averaged $126/ton 620

compared to the previous low of$129/ton in 1991. There 5 - ---are other parallels with 1991/92. World ending stockswere 132 million tons in 1991/92, compared to theexpected 126 million this year. Furthermore, stocks of 460major exporters (Argentina, Australia, Canada, EU, and 380US) were 48 million tons in both 1991/92 and 1998/99. /Consumptbn

When stocks are compared relative to total use, the current 300 7 _ _ I_, _l_ _

stocks are lower than in 1991/92. When prices are adjusted 1970 1975 1980 1985 1990 1995

for inflation, 1998 prices are 5% lower than in 1991/92. So.m., USDA

The current situation probably marks the low of the cycle

as was the case in 1991/92 End-of-Year Stocks (million tons)

On balance, wheat prices should remain weak until a 200 -

clear signal on next year's wheat crop is seen. If next World

year's crop is lower than the current crop, then prices 150

should continue to rise in 1999. If production rises to anew record, then prices will remain near current low levels. 100 .The continuing economic slowdown in Asia may keepimport demand weak and the price recovery small. Record 50s-o .-

wheat yields in both the US and the EU have increased MajorExporters|

stocksofwheatforthesemajorexporters. Perhapspartly 1970 1975 1980 1985 1990 1995

in response to these large stocks, the US has agreed to So_e USDA

provide 1.5 million tons of wheat as food aid to the Russian Major exporters are Argentina, Austraia, Canada EJ and US

Federation. Additionally, the EU is reported to be near Annual Prices ($/ton)agreement on an aid package to the country as well. 450

Next year's wheat crop should respond to current low C Forecast

prices. Low prices during the winter wheat planting seasonin the northern hemisphere discouraged planting and 300

reduced fertilizer use, which may lead to lower productionnext year. Recent reports that US winter wheat plantings o50 - .l

are down 8-9% from last year while EU plantings havebeen hampered by heavy rains and flooding, support this 'C.,et (US HRW)

view. The republics ofthe FSU have been hampered by 0 _ , I .- C i - 1 l

severalfactor,includingthelackoffertilizers. Plantings SoumeUScAhl9s7o1970 1975 1980 1985 1990 1995 2000 2005 2010several fatr nldn h ako etlzr.PaLns Soumce USCAhnstoncaWdata,atrddrdBaniforecasts

in the region are behind expectations in a normal year. __i

40


Wheat Highlights

Higher wheat prices are expected in 1999 as supply Wheat food aid shipments are being planned to theadjusts to current low prices. Russian Federation from both the US and EU. The

* Production should be lower next year due to lower US has agreed to provide 1.5 million tons of wheat.US winter wheat plantings and a 10% land sdet-aside The EU is near agreement on providing 1.0 millionU wintherEU Lowhea priceswilldiscourageplantings in tons of wheat as part of an aid package that totalsin the EU. Low prices will discourage plantings in about $470 million.some countries.

* Strong parallels exist with the 1991/92 - rhe low ofthe previous price cycle.

Production and Stocks Trade1S5/96 1996/97 1997/98 1993 1995/96 1996197 1997/98 199/99

Production (000 tons) Expots (000 tons)China 102,215 110,570 123,300 110,000 US 33,681 27,039 28,090 31,000EU 36,161 98,506 94,213 103,360 EU 13,250 17,834 15,500 18,000US 59,400 62,191 68,761 69.&04 Canada 17,066 18,167 21,322 15,500India 35,470 62,097 69,275 66,047 Australia 12,131 18,223 15,500 14,500Russian Fed. 30,100 34,900 44,200 27,000 Argentna 4,442 10,073 9,400 6,500Canada 25,037 29,801 24,280 24,400 Turkey 1,178 1,000 1,500 3,000Austalia 16,504 23,702 19.417 21,000 Kazakhstan 4,422 2,250 1,900 1,800Pakistan 17,002 16,907 16,650 18,700 Ubord 99,056 101,357 100,790 97,785Turkey 15,500 16,000 16,000 18,000 Imports (000tons)Ukraine 16,273 13,550 18,400 15,000 Egypt 5,932 6,897 7,200 7,200Argentna 8,600 15,900 14,800 10,000 Japan 6,101 6,264 6,200 6,200Kazakhstan 6,490 7,700 8,950 5,000 Brazil 5,530 5,573 5,700 6,100Morocco 1.100 5,916 2,317 4.400 Russia 5,242 2,548 2,700 4,700World '38,126 582,947 610,975 585,770 Algeria 3,780 3,628 4,800 4,600

Ending Stocks (000 tons) Korea, Rep. of 2,554 3,465 3,917 4,200China 24,300 24,200 33,400 28,400 Iran, Islamic Rep. 2,793 7,048 3,800 3,500US 10,234 12,073 19,663 22,507 Yemen, Rep. of 2,026 2,292 2,500 2,700EU 11,120 14,758 15,591 17.298 Indonesia 3,613 4,200 3,800 2,500India 12,000 7,000 9,600 8,300 China 12,531 2,692 1,900 2,000Canada 6,728 9,047 5,989 6,889 Peru 956 1,240 1,228 1,300Austalia 1,475 2,395 1,342 3,072 Venezuela 1,022 1,189 1,225 1,300Ubrld '105,746 111,294 136,610 122,969 orMld 99,056 101,357 100,790 97,785


Global Summary--- Actual ---------------- ------- --- -Est. ------ Annual Growth Rate

World Balance (000 tons) 1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98Producton 306.5 436.2 588.0 582.9 611.0 585.8 3.3 2.2 0.6Consumpton 329.5 444.0 561.9 577.4 585.7 599.4 3.0 2.4 0.8Trade 55.0 94i 101.1 101.4 100.8 97.8 4.7 0.6 -1.1Ending Stocks 80.5 113.9 145.1 111.3 136.6 123.0 5.3 1.1 -2.3

Crop Areas (000 ha) 207.0 237.1 231.4 231.2 229.9 225.9 1.2 -0.7 0.1Yields (000 toniha) 1.5 1.S 2.5 2.5 2.7 2.6 2.0 2.9 0.5

------------------------------------ Actual --------------- --------- ----------------- Forecast ------Prices ($1ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010

Current 149.7 177 0 207.6 159.5 126.1 130.0 135.0 165.0 177.9Constant 1990 135.9 14865 182.1 147.4 121.3 123.4 124.9 134.6 128.3

Source: USDA historical data and estmates and World Bank price forecastsNote: Quantfles are in local marketng years. Prices are in calendar years.

41


Bananas750 Monthly Prices ($/ton)

Hurricane Mitch devastates Central America

Banana prices (f.o.b. US ports) averaged $520/ton 650- ----------------------------- -----------------------from October to December, up 14% from last quarter,and almost 30% higher than in the same period in 1997. 550 - ------- --------------

A substantial reduction in Central American exports isthe main reason for the increase in prices. 450 -

Hurricane Mitch, perhaps the worst Atlantic hurricanein 200 years, hit Central America in late October, claiming 350 . I I I

both human lives and capital assets. Honduras received Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

the biggest blow. According to some recent estimates, Source: VWdd Bank

the country may lose as much as $225 million in export 15 Imports (million tons)earnings from bananas, its second largest export-earnerafter coffee. In addition to crop damage, the hurricane 1 2destroyed the area's infrastructure, particularlytransportation. Honduran authorities estimate thatrebuilding the infrastructure may cost as much as US$2 8 -_

billion dollars, twice the national budget, which is expectedto contract by an estimated 2% in 1999. Other Central 5 ---American countries, notably El Salvador, Guatemala, and usNicaragua, have suffered substantial losses as well. 1

Ecuador, the world's dominant banana producer, 19 70 1975 1980 1985 1990 1995

exported 15% fewer bananas in the first eight months of Source: FAO

1998, compared with the same period last year, according 14 Exports (million tons)to Agra Europe. A significant drop in sales to Europeand Asia is largely to blame. In 1997, Ecuador's banana )export-earnings exceeded US$1.3 billion. However, 12following the drastic decline of banana production inCentral America, Ecuadorian exports resumed in 9 _ - - - -

November and December. World

The US-EU banana dispute continues. Following the 7 -- -----

World Trade Organization's (WTO) ruling, the EU agreedto reform its banana policy and raised its import quotas America

from Latin America by 353,000 tons. The US, along 1970 1975 1980 1985 1990 1995

with five Latin American nations (Ecuador, Guatemala, Source: FAQ

Honduras, Mexico, and Panama) contends, however, that Annual Prices ($/ton)the EU's actions are not WTO compliant. The US 900threatens that, unless the EU undertakes more reforms, Forecastit will impose countervailing duties which could be as 700 - ------------------ --- .

high as 100% on a number of imported products from Constant (1990)the EU. Analysts maintain that the importance of the 500 /dispute goes far beyond the industry itself for at leasttwo reasons: 1) the banana dispute may spill over to 3

other markets, thus jeopardizing US-EU traderelationships in general, and 2) it may weaken the WTO's Current

ability to enforce its rulings, as its two largest members 100 I I Ifail to agree on what constitutes compliance and what 1970 1975 1980 1985 1990 1995 2000 2005 2010

does not.

42

january 1999 AGRICULTUIRE

Banana HighlightsThe Banana Improvement Project (BIP), which an effort to increase awareness of the danger of thecommenced on January 1, 1994, ended on December disease among smaliholders by trainingthem in disease31, 1998. BIP, cosponsored bythe Common Fund for management, including fungicides. They are alsoCommodities, the FAO Intergovernmental Group on replacing existing varieties with resistant clones.Bananas, and the World Bank, aimed to contribute tothe improvement anld productivity of bananas through * Lebanlon may soon expand its commercial productionthe mprvemnt ad podutiviy o baanasthrugh of bananas. Sopisco News reported that banana yieldsthe use of higher yielding, disease resistant varieties. A om ex pisco New s repere at 3na yiesmajority of the BIP components have been assessed from experimental greenhouses were about 3.5 timesas performing reasonably well, according to the FAO. higher than those grown outside. The prospects forGermplasm collection and evaluation efforts supported the Lebanese banana export market may be furtherby the project will serve as a valuable resource for all ancent the in-Lebanuary tradebreeding programLs. agreement which went into effect in January 1, 1 999.

Under the agreement, custom duties on goods (including* Black Sigatoka disease still remains one of the most bananas) are to be reduced by 25%. That will give a

important constraints to banana production, especially comparative advantage to Lebanese bananas comparedin Cuba, Peru, and Venezuela. Under the Technical to those of South American or African origin currentlyCooperation Projects initiative, the FAO has undertaken imported into Syria.

Exports (000 tons) Imports (000 tons)1994 1995 1996 1997 1994 1995 1996 1997

Ecuador 3,308 3,737 3,842 4,550 EU 3,184 3,107 3,158 3;412Costa Rica 1,875 2,033 1,933 1,940 US 3,199 3,266 3,368 3.3Q0Colombia 1,572 1,335 1,407 1,491 Japan 873 874 819 880Philippines 1,155 1,213 1,253 1,255 China 48 160 513 610Guatamela 540 646 611 630 Russian Fed. 264 730 431 600Panama 712 705 643 580 Canada 382 400 408 415Honduras 494 522 574 570 Poland 166 227 238 260C6te d'lvoire 157 173 196 230 Argentina 202 201 248 255Cameroon 175 171 166 175 Czech, Rep. 111 159 149 155FWI* 232 193 194 137 Chile 124 145 151 155Mexico 52 110 132 132 Korea, Rep. 138 122 124 124Jamaica 79 85 89 95 Turkey 66 88 97 97World 10,200 11,318 11,478 12,027 World 9,870 10,766 10,869 11,637

Source: FAO Source: FAO

Global SummaryActual - ----- Est --- - - Annual Growth Rate elo, ---

Exports (000 tons) 1970 1980 1990 1995 1996 1997 1970-80 1980-90 1990-97Latn Amerca 4,676 5,288 7,630 9,646 9,738 9,900 1.2 3.7 3.7Asia 406 1,049 960 1,306 1,347 1,440 9.5 -0.9 5.8World 5,731 6,886 9,335 11,318 11,423 12,027 1.8 3.0 3.6

Imports (000 tons)EU 2,108 2,224 3,653 3,107 3,158 3,412 0.5 5.0 -1.0North Amerca 2,045 2,669 3,440 3,666 3,776 3,715 2.7 2.5 1.1World 5,585 6,680 8,887 10,766 10,869 11,637 1.8 2.9 3.9

-------- Actual ------- Forecast- --Prices ($1ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: FAO and World Bank* FWI refers to the Former Windward Islands (Dominica, Grenada, St. Lucia, and St. Vincent & Grenadines).

43

GLOBAL COMMODITY MARKETS januarY 1990v

ShrlmpMonthly Prices (,/kg)

Prices continue to fall due to ample supply and 1,800 7_

low demand in Japan1,600 - --- -Black Tiger

Shrimp prices remained weak despite the increase in M.G.E. Futures'

year-end demand. Abundant supplies worldwide combined 1,400with weak demand in Japan were enough to offset strongdemand in Europe and the US. Hurricane Mitch damaged 1,200 - Mexican No. 1

shrimp farms in Central America but only led to a briefprice rise. Prices for Indian black tiger 16/20 count in the 1000 ........ I..

Japanese market fell from 1650¢/kg inJulyto 13400/kgin Dec-95 Dec-96 Dec-97 Dec-98 Dec-99

late November. Prices for Mexican No. 1 26/30 count in Source NMFS, MSIE

the US market also fell, averaging 14270/kg during the quarter,about 9% lower than last quarter. Production (000 tons)

Output of tropical shrimp in the US Gulf areas for the 1.500

first eight months of 1998 totaled 93.8 million pounds, up18% compared to the same period in 1997. Outputs fromLouisiana and Texas were also abundant. On the other 1,000 Frozen Shrimp, Prawns:hand. 1998 output of cold water shrimp fell from 39 million World

pounds to 10 million pounds, because of the warmer than 500

usual water conditions along the Atlantic and Pacific coasts.Supplies to the US from Ecuador and Asia continued to be--- ---- -- iland-

ample during the quarter though output from Mexico suffered ° - -1975 1980 1985 1990 1995temporarily from tropical storms in October. As the US S0-:FAO

demand remained strong, exports to the US for the firsteight months of 1998 totaled 194,564 MT, up 16.6% over Ithe same period last year. During the corresponding period, 1,500

exports of shell-on shrimp from Ecuador and Mexico increasedby l 9.8% and45.8%, respectively, while exports from Thailand Frozen Shrimp, Prawns:

were down by 25%. Exports of peeled raw shrimp from 1,0004--

Thailandwereup57.9%.The recession in Japan has led to sluggish demand and 500 _

accumulating stocks. Packers accumulated large stocks to Japan

accommodate the expected price surge which normally usI _ =soccurs during the year-end holiday season. However, the 0

increase was less than expected and packers were reluctabnt lst f1975 1980 1985 1990 1995increase wa esta epce n aceswr euctn source, FAO

to sell their stocks at the market prices, which was lowerthan purchased prices. These actions also led to higher Annual Prices (l/kg)stocks in India, a major shrimp exporterto Japan. In response 2.300 -to low demand and high stocks, exports to Japan for the Constant (1990) Forecast

firstnine months of 1998 were I0.5%belowthe 1997 level. 1,900 -

During the same period, exports to Japan from major I

exporting countries fell significantly- 18.I % for China, 1,500

9.2% for India. 9.7% for Indonesia, 33.5% for Thailand,and 16.1%forVietnam. 1,100

Looking ahead, prices for shrimp in the Japanese cu_ent(MexicanNol)markets are likely to remain low as weak economic 700 - , _______:__conditions persist. Conversely, prices in the US and Sot N 1FSht980dt.98d1990ft99, 2000 2005 200

Euirope are likely to remain weak due to large supplies.

44


Shrimp Highlights

* A US attempt to ban the importation of shrimp caught * Outputs in El Salvador, Honduras, and Nicaragua werein nets that could also kill endangered sea turtles was seriously affected by hurricane Mitch in November.rejected by the WTO on appeal in November. The Approximately 80% (about 15,000 hectares) of theWTO said the ban on shrimp imports from India, shrimp farming areas in Honduras and Nicaragua wereMalaysia, Pakistan and Thailand amounted to arbitrary reported to be destroyed.and unjustifiable discrimination. The US formally Trinidad d Tobago settled.a fishing dispute withaccepted this ruling. Venezuela in November and signed a new treaty. The

• Thai Union Frozen Products Pcl, Thailand's largest treaty sets new guidelines for harvesting shrimp in theirseafood exporting company, has decided to complete territorial waters and establishes a bilateral commissionthe acquisition of Songkla Canning Pcl. by early 1999. to regulate the catch. It also promotes cooperationThai Union and Songkla are two major rival Thai between the two countries by encouraging jointcompanies that produce seafood products for export. ventures.The merger is expected to increase the market shareof Thai Union substantially, according to industryexperts.

Production Trade1953 1994 1995 1996 1994 1995 1996 1997

Production, frozen shrimp and prawns (000 tons) Exports, frozen shrimp and prawns (000 tons)Thailand '141.7 191.0 165.7 152.0 Ecuador 72.0 86.4 85.7 109.0US '165.7 153.0 148.8 143.5 India 110.5 101.8 95.7 105.4India 116.1 107.9 101.8 95.7 Thailand 178.5 165.7 152.0 79.4Ecuador 72.5 72.7 84.9 85.7 Indonesia 83.8 76.6 79.6 77.6Indonesia 87.0 88.7 78.2 79.6 Denmark 40.6 34.0 46.7 47.0China 65.0 61.0 48.0 56.9 China 60.9 47.1 35.1 43.1Mexico 42.4 45.9 51.6 44.1 Mexico 31.1 36.5 35.8 35.7Vietnam 55.5 63.1 38.7 38.8 Vietnam 63.1 38.8 38.8 -

Iceland 21.4 31.2 35.1 38.7 World 1,050.4 978.0 1,013.2Greenland 17.1 35.0 33.0 34.7 Imports, frozen shrimp and prawns (000 tons)Bangladesh 19.2 22.1 26.3 26.5 Japan 303.5 293.1 289.0 267.6Spain 37.3 19.4 19.0 21.9 US 263.1 245.2 230.3 259.5Philippines 22.2 21.7 17.8 21.8 Spain 108.3 80.6 82.9 77.2Norway 23.0 25.0 16.1 17.8 France 48.4 53.1 55.1 51.7Pakistan 16.9 13.8 14.8 16.8 Denmark 49.9 40.4 53.1 51.7Canada 11.9 16.9 15.5 15.0 Canada 16.4 22.6 50.8 34.8Australia 7.9 11.1 14.9 10.8 UK 27.9 26.8 25.1 25.9World 1,076.6 1,143.3 1,060.7 1,063.7 World 1,068.9 1,003.3 1,033.5


Global SummaryActual -- Annual Growth Rate (°/)-

World Balance (000 tons) 1980 1985 1990 1994 1995 1996 1976-80 1980-90 1990-96Producton 451.4 593.2 838.9 1143.3 1,060.7 1,063.7 2.2 7.6 3.3Trade 361.9 524.1 905.5 1068.9 1,003.3 1,033.5 5.1 10.6 2.4

Actual Forecast -

Prices (¢Ikg) 1994 1995 1996 1997 1998 1999 2000 2005 2010Current 1,387.7 1,509.2 1,351.6 1,611.6 1,578.9 1,390.0 1,450.0 1,525.0 1,590.0Constant 1990 1,259.3 1,266.1 1,185.7 1,489.6 1,518.0 1,318.9 1,341.6 1,243.7 1,146.6

Source: FAO, NMFS historical data, and World Bank forecasts.Note: Producton, trade, exports and imports are forthe calendaryear.

45

. ORAL tOININIOulit [ARKELTS jan ar 199W

u g a rMonthly Prices (0/kg)

-itS Seboitaid from 10-vea laws, bri 30...

L etge suppi.es and ei.ak import demand are expected Free Market

, Ieep pri esoearcudrret lev-els in 1999, and the Brazilian 25-- --iren C devaluatio-n furrhe r vweoakens -ie chances of a

Ifrice rcc'CveiC- .'. -e:oVCR` in sugar prilces probably 20

d plndi on v orit'd w>O±Oi .lotAlh to, boost demnand, Futures

ha, the 5o rltd rBant s pry je ,ion call for only mnodest( on>liC gres vh ir1 I 990i ftoliokvved byjX mnore rapid growth 15 .. . + _ _,

ih, iti0O SLqp: suLi ksu are la-e-. but nor large onough to Dec-95 Dec-96 Dec-97 Dec-98 Dec-99

vent pri'es frori reco,vei ing if demnand increases. Source International Sugar Organization Futures prices are fromthe Wall Street Journal

ii1-iport demanid 1, ox> 6% /M tn998/9%,,

.rices rebouunued trom tni sevefeiv depressed levels World Balance (million tons)'t1 [394 p:ti/kg; j 7 .) rfwj i in Septemnber to aver age 1781 13. (8.Op'lb,) in December. T he iandustry faces another Production

, f Surlphls prcolductioni anei Lhe second consecutiveXI r of a'-4d impouts A-Ic recent Brazilian

irrncy dovl atiOm' senlds furthe-e slir s-eck I,vaves through .tie industrv sifiec raiil iS the largest exporter with aIo% ,ha e expected tor the 1998,i99 m-narketing year(4eginning in October)ac ordig,to the ;international Sugar I 50--

torganizationn(SO) WVorldproductioni-sprojected tototal 1970 1975 1980 1985 1990 1995

l7. nlii.oo . in I L9 op [S from the previous Source: InternatonalSugarOrganizaton

, ear and up 32 over tw>t o -cears.! hinport demand seems especiaily like'N to disappoinit in End-of-Year Stocks (million tons)

1999. w ith the largCst in;mports expected from those countries 60 1 - - -

hich! either hav-e lar_e sugar produc-tion this year or weakoriomsie s' The Russian Federation Lhas been the largest 50

iipTorte. in recent years. -it about ! of total imports. Wo]Ioe u.eu-t currenc. des aluation haas 1led to severe econiomicol. ntractions and thc prospec-t of lower impors 1le LUS has

u(tilced the Sa-tL e econokmic weakriess as mrrialy other sugar 3 6 - -- - - - ---mirport' s, r.but it has a large c-op and' is ex.pected to reduce its

sLLgar irsnportquota. Ihe 1SDA's esth mate of US production 1970 1975 1980 1985 1990 1995t 9-;r 1 r99 is63%t56, higher thani 19971 [igh enouguhtotriggera soure: Inintematioial sugar Organizatlon

quota cut. lii; t- Uas a strong economvly b-uit also a largeciop that is expecica to keep import demano from increasing Annual Prices (glkg)ovterthepreviouisnL-ar. Japan, the fourth largest irnporter of 1 so - - _

roontvyears, taces a stagnant economy which hias led toer-,arplv iosnet-imports ofothercommroditiesand may incIude 120 nstant Foreast, oar. S'he Aotricuitouce Nl in istry of Japan recentlv anniounced

tilat sugar inports vere expected to fall 6.6°'. during the first i C (r: Mt;iar-erof 1999 AhbRepublic nfKorea hasbeenthefifth I 601..

.r get nuiar irnporter in feernt -ears anci faces severe J

.rorinom.c conditiofis and iv; ah iiuport demarid on nearly allmmr.odities. Indonesia -he si-h largest importer, las severe ononoic conlditions aCpupoliealturmioil, but is expected to 1970 1975 1980 1985 1990 1995 2000 2005 20 konoiii cc'n; on~-do'aiumi bt ecedcSource: Historical data from the Intemational Sugar Organizat on,

Iincrease import's to mneet consumolr dAn [ and World Bank torecasts. .i


Sugar Highlights* Sugar prices are not expectedto recover in 1999 because also pressure sugar prices since Brazil is the world's largest

of weak import deiand and more than adequate global exporter and the devaluation is likely to lower the US$sugar supplies. Most of the major importers have weak export price. The devaluation could also lead to highereconomies or large domestic production which makes it domestic prices and lower demand. This would free morelikely that import demand will decline in 1999 and prices sugar for the international market. Over the longer tenn,will remain weak. Brazil will become more competitive and could be expect.d

* A recovery in sugar prices depends on higher consumption to increase exports,and higher import demand. Growth of the world economy * The Russian Federation is proj ected to be the largest sug aris projected to remain slow in 1999 before recovering in importer in 1999, but the weak economic situation anid2000. Thissuggesttiatsugarpriceswillnotseeasignificant lack of foreign credit to finance sugar imports make thisprice recovery until 2000. position uncertain. If Russian Federation demand does

not meet expectations, sugar prices could retum to their* The currency devaluation in Brazil on January 13"' could recentlows.

Production and Consumption Trade

1995196 1996/97 1997198 1998/99 1995/96 1996/97 1997/98 1998/199Production (000 tons) Exports (000 tons)

EU 16,950 18,756 19,275 17,950 Brazil 5,435 5,995 8,483 7,250Brazil 14,625 15,269 18,105 16,700 EU 4,305 5,064 5,450 5,025India 17,665 14,030 13,900 16,550 Australia 4,365 4,415 4,522 4,532China 6,790 7,323 8,745 8,850 Cuba 3,810 3,597 2,550 2,690US 6,685 6,537 7,190 7,250 Thailand 4,758 4,129 2,570 2,495Australia 5,350 5,793 5,600 5,600 Guatemala 920 1,047 1,275 1,270Mexico 4,750 4,822 5,675 5,150 S. Afnca, Rep. 674 939 1,078 1,070Thailand 6,379 6,099 4,325 4,400 Colombia 900 808 945 950Pakistan 2,675 2,460 3,800 4,000 Mexico 425 742 775 425Cuba 4,635 4,316 3,200 3,400 Pakistan 25 0 525 775World 123,949 123,832 127,733 127,728 World 34,755 35,581 35,225 34,273

Consumption (000 tons) Imports (000 tons)India 14,325 15,625 15,975 16,250 Russian Fed. 3,200 3,060 4,850 3,600EU 13,950 14,605 14,895 15,120 US 2,525 2,620 2,200 2,000Brazil 8,475 8,800 9,200 9,300 EU 4,305 1,902 1,825 1,1825US 8,685 8,838 8,980 9,140 Japan 1,790 1,726 1,605 1,565China 8,100 8,050 8,550 8,625 Korea, Rep. of 1,210 1,446 1,425 1,445Russian Fed. 5,300 5,325 5,300 5,100 Indonesia 735 1,690 1,500 1,200Mexico 4,375 4,140 4,200 4,200 Iran, Islamic Rep. 890 1,390 1,150 1,170Indonesia 3,010 3,280 3,300 3,300 Canada 1,105 1,064 1,175 1,150Pakistan 3,020 2,910 3,005 3,095 Malaysia 1,050 1,122 1,010 1,000Japan 2,600 2,478 2,425 2,385 Egypt 690 1,295 945 985World 118,003 122,831 125,297 126,681 World 34,024 35,573 35,062 32,B71

Source: Intemational Sugar Organization Source: Intematonal Sugar Organizaton

Global SummaryActual - Est - - Annual Growth Rate -

1970/71 1980/81 1990/91 1996/97 1997/98 1998/99 1970-80 1980-90 1990-98World Balance (million tons)

Production 72.9 83.9 110.7 123.8 127.7 127.7 2.2 2.0 1.9Consumption 71.9 88.6 107.9 122.8 125.3 126.7 2.2 2.1 2.2Stocks 30.0 37.7 47.3 52.6 53.4 53.0 4.4 1.2 0.5

Actual Forecast --Prices (¢Ikg) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: Historical data from the Intematonal Sugar Organizaton, and World Bank price forecasts.Note: Quantties are in marketng years (October/September), measured in raw value. Prices are in calendar year.

47

-I.C O.5,V %.0DL 2- fD YA3RKETS ,! U Lt7 'l 9 9 5

C o Co tTo 1

1 trS'SQ Fthl P1'y 3ri.ces LC¢/kg) Dr/cpa Slzdejvor c fiwurra! crcti z3;c;s -'.___- _i'______ ____

Despite tight oroduction prosoects, the me-wro sra-e 2 /

cotton pr.ce inAcaItolQ( ot k dex con-Med its -e

lb-rthefourth-consecotiv/evseasor. reachinga low of 127 7-:kduring October to Deceniber., .omn fro.m 5 ac' u1 \c'r

and 169a/xg i- the ainme season last ywar. 0: *a ' NYtiY

exhaustion of fiinds for the US domesnc spo ee-. utures

(known as the Sten 2 mechanisn-m, the Ne'i- -/rk

conrtract indicated weakness - CC. ng- 9r kg-98 Aug-99 i-COu2-00

DTIe lnternocna-io CottojnAds tsorx 'oor t_ x~O vies--c ./or:atrk N,Y>-

estlimates ;icNat production ir ti-e 1998199 a b . .' S C fc C

8.59 millioon cns. d-own fro.m, 20 million 'tonms tarLso ciS -h trtaoe (rniii'an tons)

while consumptioni is expecten to ibe around P oci.i:, -n -- --- ___-

tons. Ending4 stocks are projected at 9 34 ni il n si00 ni A'99899 .3 iss 9.3 ro1l illio- ons since 'asc c'n''1ow

of ane redct .o -. i stocks I S exuec/vo r; >Xe cc ' t

*<hilw from 20 0o 3/JO im dcillen ton-s 1* Ci . -s e'-> './h US pr -orofAgrliculoure estii.-+'~e'1 2j-_ - "-

nuroluctir "- 3rz xJ'< -vwi1l he 2 83 MilL -- , -

one-rP ird C -rnpareu to last >cason s ro-o oc .09J :nj

tons. T?-e i'"o"> an'rfibtxedto drouig . S.-s 7'; ' :'iJO

spine areas ar.d eScessisvc rain i71 otiters i'": , '~

cotton prod.ic -s th arando'n some l,5

ioxser prie> along, v ih reduction in'g eeifuther i crc itrib biteo, rh c y L-c i Je. A rak ch' r-C n- ,-Cr') -_ __ __ _tI60.t L'v-.i to 4o.i i on so or China. `z cm ... p.'

nm'ion;l tons il' UWbekmstal. is also expno '.-. -' _

ou.cooN; n t n . l, Pacisstan, A.ostraiia, anit / I itli'<o r, Y 1 es Li tno piarnaltsv ottfset In ' 7-

Wior l d f tt. ii s onun cc 9I onr i s etIFr. a d0 -,> -<

ton s, a red;ioon :1 0 uc '0 , , -.

year declinte t-ce 974-V5. Ec -cno l .nn r e c : s;- i J

L ast Asia, j.1nan. 'adnc Ru ossa ar,Z Iar '. .

chemical fiber prices have aDso, lake:-,

to Coftton t. '"J oik. n polyestef priecs n t :

tfor \868;/c ktr Inrbe iff 9e-; 9)5 tL, 75,z`ku il O- ^B .c q.E - 9- ivt .- rfei

L arge poive>'cr t'i cuin;- w'>6le .Zre a'l' - - . +o6__ ; ______,

Sf iOn moooi-up'-'v ~~~~~~~~~~~~'dC'il'd¶xAata',5 ' .~-n - r c iK'rckg)

la rgly io t'n 4 o nip o io os m0 ck - o I' i 'a r -'t '

of texti Ile d e--ll larotaisItos curie: sa as ta<sC- :li .An

aolicies, thP exppe'-tod tiiccrease in it s iic, tc i * /

ncatertalize. Pr:oes mat oa-tla ecover C" LO c nec ,.9

season. but tr mak take to season.s 3 ecore>'r ___

- -- , . . : . - . a . , y ,;5 t u D:~~~~~~~~~~~~~f)? -I 199s ffiQ0 2, S<tS c so 1509/kti, as *0r0' t extmit ae nd :s ' ' - < -,. B e 5

3it'C"O<¶SCa . aa ne%-C year


Cotton HighlightsDespite the need for reform in both internal and about 30¢/kg. The Step 2 payment was based onexternal marketing mechanisms, China has declared the difference between US and world cotton pricesthat its monopoly on export trading will be whiletheStep3mechanismtriggersaweeklyimportmaintained while control over imports will be quota.exercised through a licensing system, thus creating Contrary to weak global outlook for cottonuncertainty regarding its stock-holding policies. consumption, there are some positive signs,

* Funds for the Step 2 mechanism have been accordingtoICAC. CottonimportsbytheRepublicexhausted, thereby allowing US textile mills to import of Korea in AugustlSeptember 1998 were higher thancotton under another provision of the US cotton the same period in 1997. Cotton imports by the EUprogram known as the Step 3 mechanism which may are also increasing. Finally, cotton mill use in Egypt,be in effect as early as March 1999. December South Africa, and Thailand is expected to increase1998 payments under the Step 2 mechanism were this season.

Production/Stocks Trade1996/97 1997/98 1998/99 1999/00 1996/97 1997/98 1998/99 1999/00

Production (000 tons) Exports (000 tons)China 4,100 4,600 4,100 4,100 US 1,550 1,695 942 1,238US 4,803 4,092 2,830 3,700 Uzbekistan 1,050 950 1,214 947India '2,351 2,450 2,800 2,700 West Afca 690 815 877 883Pakistan 1,800 1,530 1,600 1,615 Australia 467 625 662 672Turkey 792 795 802 1,331 Greece 251 200 161 231Uzbekistan 1,198 1,150 1,000 1,100 Argentna 324 189 240 210WestAfnica 716 956 983 1,001 World 6,076 5,982 5,260 5,570Australia 552 681 758 690 Imports (000 tons)Greece 400 348 360 375 Indonesia 475 425 456 470Brazil 368 370 400 336 Brazil 493 380 300 425Argentna 230 275 325 315 Mexico 161 330 330 424Syrian Arab Rep. 223 355 303 280 Italy 356 350 360 365World 19,622 20,015 18,590 19,190 Thailand 298 285 303 310

Ending Stocks (000 tons) Turkey 243 280 253 303China 4,438 4,198 3,397 2,922 Taiwan, China 300 275 275 264India 760 811 1,090 1,090 Korea, Rep. 284 265 290 257US 829 844 551 718 Japan 270 285 270 255Pakistan 312 323 381 406 Russia 406 223 182 227Brazil 213 330 280 280 Portugal 164 172 183 171Uzbekistan 211 142 202 206 India 8 116 50 167World 9,419 9,825 9,340 8,910 World 6,160 5,328 5,673 5,619

Source: ICAC Source: ICAC

Global SummaryActual - Estimated ------ Annual Growth Rate (%)-

World Balance (000 tons) 1970/71 1980/81 1990191 1997/98 1998/99 1999/00 1970-80 1980-90 1990-98Production 11,740 13,832 18,970 20,015 18,590 19,190 1.6 3.2 -0.2Consumpton 12,173 14,215 18,576 19,302 19,020 19,340 1.6 2.7 0.2Exports 3,875 4,414 5,081 5,982 5,260 5,570 1.3 1.4 0.3Ending Stocks 4,605 4,895 6,645 9,825 9,340 8,910 0.6 3.1 2.7

Yields (tonslha) 369 411 574 590 551 574 1.1 3.3 -0.3Actual Forecast

Prices (OIkg) 1994 1995 1996 1997 1998 1999 2000 2005 2C10Current 176.3 212.8 177.3 174.8 144.4 132.0 143.0 198.0 209.0Constant 1990 160.0 178.5 155.6 161.5 138.8 125.3 132.3 161.5 150.7

Source: ICAC and World BankNote: All quantities are for the crop year beginning August 1 and pnces are for the calendar year.

49

GLOBAL COMINIODITX .MARKETS january 1999

Rubber170 Monthly Prices (¢/kg)

Prices remain weak

The Kuala Lumpur rubber price indicator averaged 7 t¢/ 140 RSSI, Malaysiag during October-December. up 4% from July-September

average, and about 13% lowerthan the October-December Ito -1997 averagye of B 1 ¢!kg. New York and Singapore prices SICOM

--egistered marginal gains this quarter over the previous one 80 - Futures- -out were still about 15% lower than October-December of ... a.i

1987. 50 - ...........

Accordingtothelnostrecentestimatesbytheintemational Dec-95 Dec-96 Dec-97 Dec-98 Dec-99

'Rubber Study Group, global natural rubber output during Soune: WaasCandSCOM. Futures prices are end-December expressed in ¢lkg.

the first seven months of 1998 reached 3.60 million tons,

down from 3.80 million tons in the same period lastyear. If 6,900 Production/Trade (000 tons)

the trend continues, rubber production in 1998 will be about

6.44 million tons (in 1997 it was 6.42 million tons, up from 5,800 - --

6.40 million tons in 1996). World production of syntheticrubber is expected to reach 10.18 million tons in 1998 (up 4,700 - -roduction

from 10.06 million tons in 1997). thus continuing itsuninterrupted growth for six consecutive years and almost 3,600reaching the 1989 record of 10.24 million tons. Exports

Despite problerns in East Asia. the Russian Federation, oand Latin America. consumption of natural rubber appears 1975 1980 1985 1990 1995

to follow the production growth. mainly because of strong Source RSG

car sales in both North America and Westem Europe. Even End-of-Year Stocks (000 tons)in Japan, where domestic demand has contracted, demand 2.000 .. ___

for natural rubber is expected to reach 730,000 tons thisyear, up from 724,000 tOn!s in 1997 and 696,000 tons in 1,500 -_ -_ ---

996. Germany, France, Italy. Spain, and the US also World

experienced marked increases in demand in 1998, However, 1,000 - . I

there are reports that car purchases in Chiina have been flatfor most of 1998. indicating not only stagnation in rubberc onsumption, but also calling into question the recent estimate s Exporl in C

of its impressive 8.8% rrowth rate. China produced 444,000 r

tons of natural rubber in 1997 and imported an additional 0 18 , 1995

450,000 tons, thus consuming 14% of global rubber output. Source: IRSG

The short-term. price prospects for natural rubber do notappear very prom isiog as the fundamentals are not likely to 220 Annual Prices (¢/kg)

take a direction which wouldjustify higherprices, With very Constant (1990)

little change in production and some prospects of weakening Aast(lemand. prices (i.e. thc Malaysia, Kuala Lumpur price 170 tlindicator) are likelv to remain in the mid-60s range for atleast one season. B3ut even the longer-term does not appearpromising in the sense that it may take as much as threeyears before prices reach the 80&/kg mark. Much will depend 70 -T- ---- ------- - ---- ------- 4on demand growth (great lv affected by the recent slowdown .1 Current (Malaysia)

in the world economV- as vell as the effectiveness of the 201970 1975 1980 1985 1990 1995 2000 2005 2010Internation alN atural Rubber Organization, whose survival Soume: Wod Bank

has come under question in the last several months. S

50

january 1999 AGRICULTURE'

Rubber Highlights* Malaysia's decision to impose currency rate controls last In the aftermath ofthe Russian crisis (with GDP shrinking

September has intro(luced a number of complications to by about 8.2% and the inflation rate exceeding 20%), onenatural rubber exporters. Significant among the would expect that demand for cars - and demand forcomplications is the question ofwhich exchange rate should rubber - to have plummeted. Recent reports indicate,be used, especially for contracts settled prior to the however, that this has not only been the case so far, butimposition of controls. LMC 'sRubber Bulletin reported car sales have continued to expand. It appears that Russianthat many traders and importers, in order to avoid consumers are purchasing vehicles as a hedge againstcomplications, have tumed to Indonesian exporters, which inflation and as a store of wealth.in tum has generated a welcome boost in demand for According to official data, Myanmar's rubber output roseIndonesian rubber. lIt has been reported that Indonesian by an estimated 4% in 1997/98, to 27,000 tons, and rubbersmaliholders are vigorously tapping their holdings to cash accounted for 3% of export earings. The govermentin on strong rupiahi prices. acutdfr3 fepr aig.Tegvnn

has targeted another increase of 7.4% for 1998/99.

ProductionlStocks of Natural Rubber Trade of Natural Rubber1994 1995 1996 1997 1994 1995 1996 1997

Production (000 tons) Exports (000 tons)Thailand 1,718 1,805 1,970 2,031 Thailand 1,605 1,636 1,763 1,837Indonesia 1,3b1 1,467 1,527 1,582 Indonesia 1,245 1,324 1,434 1,404Malaysia 1,101 1,089 1,082 971 Malaysia 782 778 710 587India 434 500 540 580 World 4,180 4,250 4,480 4,440China 374 424 430 444 Imports (000 tons)Vietnam 121 123 146 146 US 976 1,026 1,014 1,044Cote dIlvoire 70 75 91 108 Japan 644 696 724 730Sr Lanka 105 106 113 106 China 314 297 490 362Nigera 69 121 95 82 Korea, Rep. 301 289 299 299World 5,710 6,040 6,360 6,440 Gerrnany 187 212 193 212

Stocks (000 tons) France 180 176 182 192Malaysia 187 176 190 210 Spain 117 130 130 146Thailand 97 113 148 160 Canada 107 121 118 133India 94 127 123 157 Italy 118 121 119 132US 179 196 204 128 UK 133 120 111 120Japan 73 77 87 87 Brazil 92 106 107 101World 1,600 1,650 1,860 1,870 World 4,088 4,219 4,385 4,450

Source: IRSG Source: IRSG

Global SummaryActual -- Est --- Annual Growth Rate (lo) --

Natural Rubber (000 tons) 1975 1980 1990 1996 1997 1998 1975-80 1980-90 1990-97Producdon 3,350 3,820 5,080 6,360 6,440 6,140 2.6 2.9 3.2Consumpton 3,430 3,770 5,190 6,140 6,520 6,680 1.9 3.2 2.4Exports 2,920 3,280 3,950 4,480 4,440 4,320 23 1.9 1.8Ending Stocks 1,440 1,480 1,500 1,860 1,870 1,520 0.5 0.1 3.1

Synthetic Rubber (000 tons)Producton 6,860 8,640 9,840 9,790 10,060 10,180 2.0 0.6 0.0Consumpton 7,070 8,830 9,620 9,600 10,050 10,100 1.9 0.4 0.0Exports 1,640 2,320 3,370 4,500 4,890 4,980 3.0 1.6 1.8Ending Stocks 1,690 1,740 1,890 2,350 2,360 2,400 0.3 0.4 1.4

- - -Actual - Forecast--Prices-Natural (¢Ikg) 1994 1995 1996 1997 1998 1999 2000 2005 20110


Source: IRSG and Word Bank

__

GLOBAL COMMODITY MARKETS januarv 9

Tropical Timber--. T o1a000 'rlonthly Pnces ($/cum)11000 m

Pfices remain weak775 ~~~ Sawniwood (M4alaysian)

Southeast Asian logs and plywood exports showed signs offirrning during the fourth quarter due to increased demand from Plywood (¢Isheet)

ChinaandJapan,andreducedloggingintheregion.Despitethe 550 v -- - X

increases, Southeast Asian producers find cunrent prices stillunprofitable. Production costs and freight rates continue to rise, 325credit is difficult to secure, and poor weater hampers logging.L

Plywood imports from China increased, helped by the recent lo|. __._E _______ I_

anti-smuggling campaign andthe severe Yangtze floods inJuly. Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

China has banned logging in the upper and middle reaches ofthe Scarce Japan Lumber Jcumal NIKKEI and TropcaI Timbers

YangtzeardYellowRiversAleadingtcohigherimportsoflogsand World Balance of Logs (000,000 cu.rn)

plywood. In Shanghai, imports of sawlogs are 77% above last Production (Hardwood Sawlogs)

year and plywood imports are 15%above lastyear, accordingto 300

Intermational Tropical Timber Organization (I7TO). Malaysiantimber exporters are poised to compete for more trade in China

The strengthening of the yen has kept import pnrces in Japan 2 Istable despite the higher export prices in Southeast Asia. The Irport (Tropical

Japan Forestry Agency has requested funding in the third 100 In-port( Hardwood

supplementarybudgetforconstructionprojectstotaling 198billiony,en as part of its recovery program, according toJapan Lumber o - - -- E

Jowu. However,Novemberdatasuggestthestimuluspackage 1970 1975 1980 1985 1990 1995introduced in autuwn has not eased the unemployment rate, and Source FAO

trhe overall demand remains weak. ITTO reported that total Wold Production of Wood Products

construction orders received by Japan's 50 leading domestic 150 (000,000 cum)contractors fell by 21% in November from a year earlier, andorders from the public sector fell by nearly 15%. Other reports | a Hardwood

indicate that there is significant reorganization in the Japanese 100 -4-- -----

timber distributions system, including the diversification ofsupplyproducts and sources. In Korea, while the demand remainsdepressed,housing constructionpermitsinSeptemberincreased 50 = = -to 2.3 million square meters. up 91% from August. Plywood

African sapele log and sawnwood prices have weakenedurder pressure from the Southeast Asian competition and 1970 1975 1980 1985 1990 1995

lacklusterdemand from Europe. Ghanaian shippers are reportedly Source. FAC

withholding redwood supplies in the hope of better prices.European stocks were sufficient atyear end, supplemented with Annual Prices (S/cum)an influxoflow-pricedAsian imports,tomeetdemand. 4 I -

Brazil, faced ith capital flight andthe prospect ofan austerity os 10t.int (199) Forecast

program to shore up the economy, has seen little activity in much 300 t -

oftetimeberindustry. BeforetherealdevaluedonJanuary lI3", l -B. azilian logs were in short supply, and plywood producers also 200

were faced with intense competition from Southeast Asia. Thedevaluation should provide an opportunity to increase exports. 100 acrcnt (Lgs, Malaysian)Azcording to Tropical Timbers? many mills lacked credit topurchase logs and finance production. The Brazilian government 0

1970 1975 1980 1985 1990 1995 2000 2005 20il0cUrrenly plansto make timber export promotion one of itspnori - Source NIKKI histor ca data, and World Bank forecasts

programs.

3 /


Tropical Timber Highlights* Gabon's government controlled agency SNBG gave Malaysia intends to comply fully with the sustainable

permission to forest Dperators to sell 0.1 million cubic forest management status. Presently 70% of themeters of wood per month to "non-traditional" markets. Malaysian forests has been sustainably managed.The foresters agreed to supply SNBG with 50 Ghana's Timber Export Development Board has draftedthousands cubic meter of logs per month. This supply certification standards to implement sustainable forest

will ease the demand of the French plywood industry, management. The standards,.which provide detailed

* Malaysia announcec new laws for logging to achieve performance requirements, were developed by asustainable forest management by year 2000. Traders committee facilitated by the Ghanaian government inin Malaysia conceded that markets have been lost under collaboration with industry and social groups, andthe pressure of anti-tropical timber campaigners. environmental organizations.

Hardwood Logs (000 cum) Sawn Hardwood (000 cum) Plywuood (000 cum)1995 1996 1995 1996 1995 1996

Production of SaWuogs and Veneer Production ProductionUS 69,470 70,116 US 29,344 29,650 US 17,140 16,975Malaysia 33,980 33,980 Malaysia 14,960 14,960 Indonesia 9,500 9,575Indonesia 31,066 32,250 Indonesia 10,500 10,500 China, PR 7,590 4,900Brazil 26,000 26,000 Brazil 9,661 10,356 Malaysia 3,996 4,100China, PR 20,600 22,000 China, PR 8,232 8,232 Japan 4,421 4,311India 15,812 15,812 India 6,500 7,200 Brazil 1,900 1,900World 307,833 314,658 World 120,764 123,174 World 55,525 52,870

Exports of Tropical Hardwood Exports ExportsMalaysia 7,864 6,987 Malaysia 4,151 3,660 Indonesia 8,376 8,564Papua N. Guinea 2,805 2,962 US 2,495 2,692 Malaysia 3,462 4,068Gabon 1,587 2,231 Brazil 1,100 906 US 1,395 1,384Cameroon 1,236 1,307 Canada 769 850 Canada 819 872Solomon Isl. 703 765 France 782 844 Russian Fed. 670 612World 17,324 16,024 World 16,899 16,713 World 19,511 20,375

Imports of Tropical Hardvwood Imports ImportsJapan 6,526 6,185 Thailand 1,971 2,200 Japan 4,437 5,381Taiwan, China 1,600 1,600 Japan 1,753 1,954 US 1,769 1,866Korea, Rep. 1,800 1,211 Taiwan, China 1,379 1,098 China, PR 2,083 1,775Thailand 1,334 883 Canada 892 930 Germany 1,177 975Philippines 535 776 China, PR 733 870 HK, China 1,114 962World 17,399 16,701 World 19,464 19,054 World 19,033 19,145

Source: FAO Source: FAO Source: FAO

Global SummaryActual -Est - -Annual Growth Rate (°O) -

World Balance (000,000 cum) 1970 1980 1990 1995 1996 1997 1970-80 1980-90 1990-97Hardwood logs producton /1 210 262 300 308 315 295 2.1 1.8 0.3Hardwood logs imporls /1 36.1 42.2 25.1 17.4 16.7 15.5 1.7 -2.0 -6.7Sawn hardwood producton 98.5 115.8 131.7 120.8 123.2 120.0 1.5 1.7 -1.2Sawn hardwood imports 7.1 13.2 16.1 19.5 19.1 18.5 6.7 3.9 2.8Plywood producton 33.4 39.4 48.2 55.5 52.9 52.0 1.4 2.9 2.0Plywood imports 4.9 6.0 14.9 19.0 19.1 19.0 2.2 10.1 4.1

-- Actual ForecastPrices ($/cum) 1994 1995 1996 1997 1998 1999 2000 2005 2010

Logs, current 307.5 255.6 252.1 238.3 162.4 170.0 180.0 230.0 290.0Logs constant 1990 279.1 214.4 221.2 220.2 156.2 161.3 166.5 187.6 209.1Sawn hardwood, current 821.0 740.0 741.4 664.5 484.2 520.0 540.0 720.0 910.0Sawn hardwood constant 1990 745.0 620.8 650.4 614.2 465.5 493.4 499.6 587.2 656.2

Source: FAO, NIKKEI historical data, and World Bank es6mates and forecasts.Notes: /1 Imports for 1970-89 and producton for all years refer to hardwood sawlogs and veneer logs. Imports from 1990 onwards aretropical hardwood sawlogs and veneer logs.

53

3 ,GLOtAL CUIvINODITY Vakh

P -'Iosphates i2s5sphates Monthly Prices ($/ton)255 -_ _ _ _ _ _ _ _ _ _ _ _ _ -

Prices start to weaketi

Prices for diail-nmonian pnesph'ratc DAP) and triple super 225 -DAPphosphate (TSP) were dOio tOr the quarter, buit industry

-xperts seem confident that thie decline wkill be brief and that 19 s--- ------prices will strengthen-n IU 0399. Theie is also e-vidence,ho5,e.ver, that the deeline m-ay be more than a seasonal s3ump 165 T -

and that prices may be heading iover. US phosphateproducers report rising inventories- up i 50%o over last year. 135 I .

Weak grain prices could also contribute to weak demand Dec-94 Dec-95 Dec-96 Dec-97 Žt -1eand lower pricees in the coming planting season. Source: Fertilizer Week

DAP prices average $202'ton in December, fo.b. the USGulf.downfrom-n$2O/ton in AuLgr-s- T SPaveraged$167.5/ton World Balance (million tons)

in December, to.b.the 1IS Gulf dov-n from S177.5/ton in.July. . I Phosphate rock prices reimained urnchanged at approximnately 40 - ----- --- --------$43/ton, fob. Morocco during the fot quartr. Morocco is Production

thneworld's largestexporterof phosophate rock. 35 - - - -

(hinaJ1 the whorld's larg,est iporter ot phosphate fertilizers. 30 ---

has yet to arnounce the import quota for 9 09N The report ConsumptionexpectedsoonfroimC'hinas State-Econonoi'andTradeCouncil. 25 - ---- -

Although notyet an nouncedA reportsarecircuilating th-atthe totalimport requirement for all fertilizers. e Lceptnitrogen fertilizers, 20 _will total about 6.0 million tonis Tihe import authority would be 170 19 1980 1985 1S990 e F95

sihared by provin cial and central authorities Small purchaseshave been made for Decemnher/Januarv deliverv Trade (million tons)

India. the world's third iargest consume-r of phosphate 202fertilizers, has yet to announce its govern1ment policy onfertilizersubsidies for the coming year Ihe issue of subsidy 15 - -

and prlicing policies has lect to bitter debate and is blamed fora shortage of fertilizers, es-pecially DAP, in some states and 10 I

for causing delayed wheat plantings in many states. The txp orts

shortageofDAPoccurred following-the /overnmrentdecision 5 - -last September to revert tc, fixed pricing A decision on the Imports

subsidy and pricing policids as well as whether to allow 0 _ I

imports, is expected soon 1970 1975 1980 1985 1990 1995

The government of indonesia removed the subsidy on Source:FAO

feitilizers effective December !1' and also ehlminated the Annual Prices ($/ton)monopoly on fertilizer imports and distribution held bv Pusri.The Minisny of Agriculture is now in control of fertilizerdistribution to the food crop sector according to Fertilizer 600

WSeek, a trade publication. The removal of subsidies led to Constan(1990)

sharply higher fertilizer prices during the peak planting season 400 - - -and to political pressure to re-instate the subsidies. Importsar(e expectedto increase follow ing the rise in domestic fertilizer 200 -- -- 5prices and the removal of Pusri as the sole fertilizer importer. -However, uncertainty about the government s commitment 0 Curnt (TSr) I _ -

toa free market in fertilizers rnaycause sor-ietradersto be 1970 1975 1980 1985 1990 1995 2000 2005 '0lr iSource: Historcal data from various industrial sources, and

cautious. world Bank forecasts.

5-1

january 1999 FERTILIZERS

Phosphates Highlights* Prices are weakening, but industry experts expect * China has not yet decided on import quotas for 1999,

prices to strengthen in 1999. Other evidence, but the decision will be critical to the phosphateincluding building fertilizer supplies and low grain fertilizer prices since China is the largest importer.prices, suggests prices will continue to fall in 1999. India is expected to announce its government policyWe expect prices to weaken over the next two years on fertilizer subsidies for 1999. However until the

as owgrin riesweaken demand and large supplies onfriie usde or19.Hwvr ni has low grain prices weaken demand and large supplies final decision is made, imports remain small.continue.

Government policy decisions by China, India, and Indonesia freed fertilizer imports and removed theIndonesia hold the key to 1999 phosphate trade. import monopoly held by Pusri. This resulted in

sharply higher prices during the peak planting season.

Producton and Consumption Trade1993/94 1994/95 1995196 1996/97 1993194 1994/95 1995/96 1996/97

Production (000 tons) Imports (000 tons)US 10,233 11,055 10,500 10,900 US 5,200 6,335 5,838 5,679China 4,237 5,041 6,091 5,822 Russian Fed. 1,294 1,262 1,328 1,130India 1,906 2,587 2,626 2,596 Morocco 1,112 767 811 858Russian Fed. 2,512 1,718 1,933 1,571 Tunisia 616 674 686 705Brazil 1,231 1,393 1,242 1,269 Netherands 356 364 439 443Morocco 1,175 894 926 990 Bel-Lux 309 312 311 362Tunisia 653 736 755 807 Jordan 235 318 318 320France 697 667 668 682 Ukraine 84 180 219 232Korea, Rep. 447 463 485 460 Norway 202 181 207 214Indonesia 543 496 325 350 S. Afnca, Rep. 59 68 150 200World 31,797 32,837 33,808 34,131 World 11,069 12,323 12,563 12,447

Consumption (000 tons) Exports (000 tons)China 5,699 7,428 8,912 8,176 China 1,567 2,501 2,952 2,540US 4,102 4,014 4,770 4,145 Australia 452 515 611 651India 2,669 2,932 2,898 2,977 France 496 600 568 561Brazil 1,546 1,744 1,495 1,708 Italy 481 500 538 524France 1,014 1,030 1,032 1,052 Thailand 306 381 453 456Australia 770 865 957 976 Brazil 418 517 341 446Canada 637 582 622 704 Argendna 107 161 225 386Japan 728 703 631 610 Pakistan 541 338 272 342Turkey 787 444 580 578 Germany 310 325 303 314Spain 496 521 510 560 India 722 370 686 219World 28,960 29,460 31,741 31,106 World 10,812 11,128 12,050 11,639


Global SummaryActual -- Annual Growth Rate (%/o)---

1970/71 1980181 1990/91 1994/95 1995/96 1996/97 1970-80 1980-90 1990-96World Balance (million tons)

Producbon 22.0 34.5 39.0 32.8 33.8 34.1 4.1 2.3 -2.5Consumpton 21.1 31.7 36.3 29.5 31.7 31.1 4.0 2.1 -2.5Imports 2.9 7.5 10.7 12.3 12.6 12.4 9.1 5.0 2.8

Actual ------------ ----- -- ForecastTSP Prices ($tton) 1994 1995 1996 1997 1998 1999 2000 2005 2010

Current 132.1 149.6 175.8 171.9 173.1 160.0 150.0 150.0 155.0Constantl990 119.9 125.5 154.3 158.9 166.4 151.8 138.8 122.3 111.8

Source: FAO and Word Bank

55

GLOBAL CO'IMODITY MARKETS january 1999

PotassiumI140 -- Monthly Prices ($/ton)

Prices remain firm, sales strong

Thernarketfor potashfertilizersremainstight,withstrong 130

demand even from Asia. Despite the Asian crisis, sales to Potassium Chloride

Asian buyers have continued at near record pace. For 120 -

example, the Israeli company Dead Sea Works, reported

4.7% higher volumes of exports for the first three quarters of 110

1998 tharn of 1997. Other exporters have also been reporting

strong sales. 100

Pricesroseto $118.5/ton inDecemberforpotassium chloride, Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

fo.b.. Vancouver compared to $1 16.5/ton at the start of the Source: Ferfilize, Week

fourth quarter. C anpotex. the Canadian potash export association.appears ready to try to raise prices for first-half 1999 sales and World Balance (million tons)

the market may be sufficiently tight tojustify' a price increase. 1 odt

Ihemarkettightnessisdue,atleastinpart,tosupplymanagement Production

as major producers try to balance supply and demand to keep 30prices firn. Potash Corp. of Saskatchewan closed someproduction facilities inthe last quarterof 1998 andhasannounced

I 201mine shutdowns forthe first quarter of 1999 to keep inventories --

i line with demand. Canadian exporters account for roughly Consumption

40% of world exports. l 0 iConsiderable uncertainty surrounds several of the major 1970 1975 1980 1985 1990 1995

buyers. The Chinese government has not yet decided on the Source. FAO

fertilizer import quotas for 1999 and the allocation ofthese quotasamongprovincial and central authorities. The Indian goveri-nent Trade (million tons)has not decided on the amount of subsidy to apply to potash for 25 _-I

the coming year and this has delayed imports as well as slowedwheatplanting in several states. Indonesiahasremoved subsidies 20 Imports---on fertilizers ar.d removed the monopoly control on fertilizerimports, but political pressures to reinstate the subsidies makes EYPOrtS

importers cautious. Brazilian imnports have been dampeniedsomewhat bythe govemmentdecisiontoregulatecneditonfertilizer 10

imports. These uncertainties may resolved in the next few weeks,but until thien. demand has slowed. However, the Brazilian 5

1.13th . . ~~~~~~~~~1970 1975 1980 1985 1990 1995currencydevaluationon January m3th mayweaken intpo1. Sourre: FAG 1

China has signed a joint venture with an Israel company

to build a potash plant in the Chinese western province of 2 Annual Prices (S/ton)Qinghai. The plant would produce 860,000 tons of potash 200

I ~~~~~~~~~Forecastper vear and be completed in three years. Production from I - - Constant (1990)

the plant would be used for domestic consumption and would l50

replace imports. C hira is currently the second largest importer

of potashl fertilizers, after theUnited States loo1in a surprise move, Potash Corp. of Saskatchewan bought

a 9% stake in Israel Chemicals Ltd. Both companies arelarge producers of potash and phosphate. Potash Corp. ofSaskatchewan reported 3-z' quarter 1998 profits of $55.7 0 ,

million. down 2%3% from the previous year according to 1970 1975 1980 1985 1990 1995 2000 2005 2010Source; Histonicai data from various industry sources, and WorldFertilizer Up eek. Bank Dnce toiecasts.

56


Potassium Highlights* Prices remain firm and major exporters are expected appears likely to strive for increased domestic

to push for higher pr.ices in 1999. However, the success consumption and smaller imports.of this effort depends on continued strong demand as

welas creu supl maaeet * India has yet to decide on the subsidy for potashfertilizer and this has delayed imports.

* Import demand will depend on major developingcountries such as Brazil, China, and India. The recentcurrency devaluation by Brazil may weaken imports.The earlier decision by the Brazilian govemment toregulate credit on fertilizer imports has also castuncertainty on the market. Over the long-term, China

Production and Consumption Trade1993/94 1994/95 1995/96 1996197 1993/94 1994195 1995196 1996/97

Production (000 tons) Exports (000 tons)Canada 7,293 9,060 8,065 8,070 Canada 6,480 8,216 7,851 7,857Germany 2,360 3,286 3,278 3,334 Germany 2,314 2,759 2,646 2,570Belarus 1,947 2,510 2,789 2,796 Belarus 1,454 1,907 - 2,189 1,978Russian Fed. 2,628 2,498 2,814 2,618 Russian Fed. 1,529 1,974 2,319 1,946Israel 1,310 1,260 1,326 1,500 Israel 1,068 1,257 1,286 1,133Jordan B22 930 1,068 1,059 Jordan 886 910 1,058 1,051US 842 827 843 834 US 493 538 523 597France 890 870 802 751 France 450 500 550 475Spain 890 684 637 681 Spain 501 410 489 470UK 555 580 583 618 UK 356 386 385 375World 20,492 23,014 23,138 23,358 World 15,599 19,093 19,683 19,057

Consumption (000 tons) Imports (000 tons)US 4,779 4,652 4,770 4,871 US 4,661 4,759 5,181 5,073China 1,615 2,355 2,886 2,550 China 1,616 2,338 2,950 2,790Brazil 1,589 1,811 1,679 1,941 Brazil 1,578 1,643 1,539 1,826France 1,375 1,373 1,491 1,488 France 850 900 1,045 1,145India 908 1,125 1,156 1,030 India 862 1,282 1,424 667Malaysia 560 700 603 646 Malaysia 565 758 670 609Germany 645 668 652 646 Poland 200 386 442 529UK 437 475 473 485 Italy 415 439 461 440Spain 488 417 415 451 Japan 487 485 490 439Japan 490 475 486 441 UK 300 350 350 364World 19,271 19,975 20,694 21,038 World 17,449 19,680 20,915 20,088


Global Summary- Actual- - - Annual Growth Rate (°O) -


Producton 17.6 27.5 26.7 23.0 23.1 23.4 4.3 1.1 -2.0Consumption 16.4 24.2 24.5 20.0 20.7 21.0 4.2 1,2 -2.7Exports 9.5 16.7 18.1 19.1 19.7 19.1 5.6 2.0 2.2

Actual - Forecast-Prices ($1ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: FAO and World Bank

57

-_ 0BAL Cf£f!MMODITV JNARKETS january 1999

240. Monthly Prices ($/ton)Prices fial tkz an I -.vear low

.E Europe (Bagged)Black Sea ureaesport prices fellto the lowest level since 200 - ------------- --------

January 1987 during the fourth quarter amid toughcempetition for export market share. Import demand has 160 -

re,ponded to the weak prices and a number of countries areraporling larger imports compared to this time last year. 120 - -

hiowever, demand has been overw helmed by large supplies.While it seems that prices have already fallen beyond what 80 .... ......could have been expected, they appear likely to fall even Dec-94 Dec-95 Dec-96 Dec-97 Dec-98

mlore. Stocks are buildinig at Baltic and Black Sea ports. Source: Ferfiizer eek

Bulk fo.b. exports from Eastem Europe fell to $65/ton while World Balance (million tons)bahged exports were selling at $75-80/ton. The low prices 100.

are finally leading to production cutbacks - or at least _r__t_6i:scussions of cutbacks. Plants in the Russian Federation 80 ---and Ukraine have beei runmn4i at full capacity despite thefil )ing prices. But, build ing stocks may finally be leadingto 60 plant closings and reduced operations. Even with production Consumption

cUts, stock:s are large enough to keep prices low for some 40 --

tnle to come.} Hig her urea prices would result if an increase in demand 20

remov-d the inarket oversupplv, but this is unlikely. The 1970 1975 1980 1985 1990 1995

rain uLse of nitrogen fertilizer is for grain production, and Source: FAO

grain prices fell to the lowest levels ofthe decade duringtherecenttAugust-Septemberperiod. lnthethree largestnitrogen 30 Trade (million tons)l}'iii/er c sulm if lg countrles (£China, US, and India) grainsar .'unnt t6r 57°%O, 59'0% and 52%'/o of total nitrogen fertilizer 25 - - ------- -------------- ---------L, respectively. according to tle FAO. Grainiproduction Impots areas in China and iidia are down slightly overthe lasttwoN ar s. ni'ie grain area in the UIS has fallen 4.6% from the 15 -1 9f196/97 iiei AddMtonald clinescanbeexpected in the UJSi ear duc to ihecurrent low grain prices and large stocks lO -

o Iralze rhe has also announced a 10% acreage set- 5as'le tar nex;t ear. 5W urld orain area has declined in each of5 .aiepastrn,--xtar. dorlclg\aifreaheclidineachof 1970 1975 1980 1985 1990 1995

e past rw- yvears, dox,-i n % rom the high in 1996/97. Source: FAO

P1rices fa6,r In1donesian urea exoorts were about $15-17/t&r hicgher than for Black Sea exports in late Decemrber. The 800Indonesian covertlnment has ordered exporters to halt overseas Forecast

:sales during January ivPn order to supply the domestic market 600 --

1rl an effort t huoost grain production. The 1997/98 grain Constant (1990)

1h 3inc t xa; ndown aboit8froi 2hehigh tvo yearsearlier 400 - -an this 1-d to laic-e rice imports and total grain imports oferarlv 1 Ouiflfion tons in 1997/98. Rice accounts for 60% of 200 - -

t: trogei fertilizer usc in inidonesia. Prices of rice have beenriJinf- sllar o and should encourage farrners to increase 0 C urn .I

f.rtilizeruse V c wae&er,thiedisruiptionsintheeconomvydue 1970 1975 1980 1985 1990 1995 2000 2005 2010h tle ecoionmic and political turmoil of the past year may Source: Historical datE from various industry sources, and

li'ui ltarners abi'r it to obtain) cr editto purchase inputs. World Bank price forecasts.


Urea Highlights

e Urea prices fall to 11 -year low due to large to build an ammonia plant until prices improve.production, especially in Eastern Europe. Buildingstocks of urea suggest prices will continue to fall. * A recovery in prices depends on both a cut-back inFalling grain prices mnake it unlikely that demand will supplies and an increase in demand. Suppliers areexpand enough to reduce the stock buildup any time now beginning to cut production, but demand willsoon. We expect prices to drift lower in 1999 before need to increase bereastocks will be drawn down.recovering slightly in 2000. This could take several years given current low grain

prices.* Low prices are leading to production cutbacks and

causing ew projcts to b put onhold or ancelle. * Lower gJrain area next year will likely weaken ureacausng new projects to be put on hold or cancele. demand.Saudi Arabia's United Jubail has put on hold a project

Production and Consumption Trade1993/94 1994/95 1995/96 1996/97 1993/94 1994/95 1995/96 1996/97

Production (000 tons) Exports (000 tons)China 15,571 16,997 19,035 21,542 Russian Fed. 2,589 2,702 3,715 3,646US 14,415 14,017 14,244 15,243 US 2,504 2,902 2,997 2,989India 7,231 7,944 8,769 8,593 Canada 1,947 1,955 2,179 2,190Russian Fed. 4,477 4,129 4,856 4,900 Ukraine 1,211 1,218 1,227 1,293Canada 3,351 3,801 4,019 4,025 Netherlands 1,546 1,480 1,364 1,234Indonesia 2,357 2,542 2,849 2,986 Indonesia 675 740 914 1,007Ukraine 2,215 1,854 1,810 1,904 Saudi Arabia 581 871 788 845Pakistan 1,566 1,478 1,693 1,682 Romania 576 722 890 833Netherlands 1,756 1,785 1,650 1,600 Bel-Lux 827 809 831 781Poland 1,143 1,269 1,469 1,535 Germany 640 548 740 712World 79,492 80,490 86,961 91,085 World 20,397 21,741 24,853 24,206

Consumption (000 tons) Imports (000 tons)China 18,D03 19,801 23,784 25,779 China 2,519 2,868 4,866 4,421US 11,469 10,631 11,161 11,184 US 4,437 4,702 4,569 4,132India 8,789 9,507 9,823 10,302 France 1,185 1,282 1,306 1,348France 2,222 2,308 2,392 2,525 Germany 1,070 1,226 1,218 1,165Pakistan 1,659 1,668 1,984 1,985 India 1,589 1,473 2,008 1,156Indonesia 1,662 1,642 1,844 1,926 Vietnam 622 847 875 900Germany 1,612 1,787 1,769 1,758 Thailand 646 687 780 811Canada 1,406 1,396 1,507 1,671 UK 592 736 658 805UK 1,268 1,340 1,331 1,346 Italy 590 679 600 736Brazil 1,015 1,177 1,135 1,197 Australia 383 428 493 636World 72,513 73,410 78,830 82,906 World 21,584 22,311 25,531 24,918


Global SummaryActual - Annual Growth Rate--


Producton 33.3 62.8 81.9 80.5 87.0 91.1 6.5 3.6 1.7Consumpton 31.8 60.8 77.2 73.4 78.8 82.9 6.8 3.0 1.0Trade 6.8 13.2 20.0 22.3 25.5 24.9 6.5 5.7 4.6

Actual Forecast -Prices ($1ton) 1994 1995 1996 1997 1998 1999 2000 2005 2010


Source: FAO historical data and World Bank forecasts.Note: Quantties are in marketing years and prices are in calendar years.

59


AluminumPrices weaken on rising stocks 18 Monthly Prces ($/mt)

1,800 ll

Aluminum prices fell 3°,'o in the fourth quarter due to : A 4rising stocks and weak demand. While average 1998 prices 1,60s0 ----- -

were 15% lowerthanayearearlier.pricesfelltoward$1,200/

mt in December, which is more than 20% below June 1997.

LME stocks continued to rise during the quarter, ending 1,400 - LME Futures*

the year at 63 5,525 tons. This level is up from 453,000 tons

at end-August, and similar to levels at end- 1997. Producer 1,200 ,

inventories of unrTought aluminum as reported by the IPAI Dec-95 Dec-96 Dec-97 Dec-98 Dec 99So,e- LME

have been flat since a decline in September, however Futures a-e end-D-camber

unreported stocks are believed to have risen marginally in

the face ofthe rising global surplus. Production (million tons)

Demand continues be underpinned by solid growth in 24 -Refined 5durninum Production

the US and Europe, but declines in Asia prevented any

grow th in global demand in 1998. US consumption has 20 - -

been buoyed by robust consumer spending and a strongC

housing market, but manufacturing output has slowed due 16 o

to shrinking export markets and rising imports. European12

demand rose by nearly 3% last year, with strong growth 2in the auto sector, and the construction sectors of France 8 _

and the UK. In Japan, demand fell by an estimated 10%, 1970 1975 1980 1985 1990 1995 1with weakness in most sectors, particularly autos and S-e:WBMS.ndWoddB.nkestjmates

construction. Elsewhere in Asia, there are limited signs

that demand be bottoming out in the crisis countries, where LME Stocks (000 tons)

demand contracted sharply last year. 2,500 AWorld aluminum production rose an estimated 2.5% in 2,000 .- - ---

1998 which, with no growth in world demand, generated a

sizable surplus. Despite some disruptions to production from 1,500 .----

restricted power supplies, labor disputes, and technical 1,0 YearEnd/ -- l

problems, production continued to rise as a result of 1 -- \

expansions, upgrades and refurbishment of idle capacity. 500 -

In the near-term, prospects for prices are decidedly bearish o

unless existing production is scaled back. While demand is 1970 1975 1980 1985 1990 1995

projected to rise moderately, smelter capacity and output are Soure: LME

set to rise sharply in 1999 and 2000. Major expansions and

upgrades are due to come on line in Australia, Argentina, the Annual Prices ($/mt)

US. and Dubai in 1999, and in Quebec in 2000. While 3,000 I

many of the expansions are brownfield projects already 2500 Constant(1990)

underway, new greenfield projects, such as Alma in Quebec, 2 Forecast

have production costs significantly below $ 1,000/mt. Thus

there is little prospect that these expansions will be brought 1,500

to a halt. 1,000 - - - -- lA sizeable surplus is projected for this year, and a simrilar _00 XCurrent

surplus could develop in 2000 unless production is scaled 500

back. Even if output is reduced sufficiently to balance the 0 I I .

market, prices are unlikely to recover significantly until 2001 Source 1970 197F 1980 1985 1990 1995 2000 2005 2010

because of the projected overhang of stocks. I

60

january 1999 METALS AND MINERALS

Aluminum Highlights

* The New York Mercantile Exchange (NYMEX) at competitive market-related prices. It is reportedlyapproved on December 2, 1998 the introduction of the first time that an aluminum producer has agreed toaluminum futures and options contracts for trading on sign such a contract with an end-user.the Exchange's COMEX Division. It is anticipated that ,the contract Will be launched in the second quarter OfI Nra'sNrkHdoetrdit nareetwt

the government of Trinidad and Tobago to work1999. Delivery locations will be at exchange-licensed towards building a 474,000 tpy aluminum plant, withwarehouses in Illinois, Indiana, Kentucky, Ohio and production from the $1.5 billion project to come onTennessee. stream in 2002. Norsk Hydro has reached a long-terrn

* Alcan Aluminum of Canada and General Motors in the agreement with the National Gas Company for energyUS have signed a ten-year multi-billion dollar aluminum supplies, and electricity will be supplied to the projectpricing agreement, which will ensure aluminum supplies from a dedicated power plant.

Production of Refined Aluminum (000 tons) Consumption of Refined Aluminum (000 tons)1994 1995 1996 1997 1994 1995 1996 1997

US 3,299 3,375 3,577 3,603 US 5,407 5,055 5,348 5,390Russian Fed. 2,671 2,724 2,874 2,906 Japan 2,345 2,336 2,393 2,434Canada 2,255 2,172 2,283 2,327 China 1,484 1,875 2,028 2,013China 1,498 1,676 1,771 2,046 Germany 1,370 1,504 1,355 1,567Australia 1,311 1,293 1,370 1,490 France 736 744 672 724Brazil 1,185 1,188 1,197 1,189 Korea, Rep. 604 675 674 666Norway 857 847 862 919 Italy 660 665 585 653South Afrca, Rep. 173. 233 617 683 Canada 559 612 620 642Venezuela 585 627 635 641 UK 570 620 600 619Germany 503 575 577 572 India 475 581 585 585India 472 537 531 547 Brazil 414 501 497 479Bahrain 452 454 465 490 Russian Fed. 470 476 444 470UAE 246 247 259 381 Spain 352 350 360 410Spain 338 362 362 360 Taiwan, China 355 363 310 374New Zealand 269 273 285 310 Austraia 354 352 321 362UK 231 238 240 248 Belgium 329 336 331 345Netherlands 219 216 227 232 Thailand 183 253 220 233Indonesia 222 228 223 216 Hong K., China 42 109 149 227Tajikistan 237 230 198 189 Greece 143 163 156 204Other 2,126 2,177 2,301 2,454 Other 2,802 2,922 3,055 3,329World 19148 19671 20853 21803 oArld 19,655 20,490 20,703 21,727'

Source: WBMS Source: WBMS

Global SummaryActual Est - - Annual Growth Rate (%) -

World Balance (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98Production 10,257 16,027 19,362 20,854 21,795 22,350 4.1 2.6 1.7Consumpton 9,996 14,771 19,244 20,755 21,650 21,600 4.1 3.3 2.1LME Stocks (year-end) n.a. 68 311 951 622 565 n.a. -0.3 -2.9

Actual - ForecastPrices ($1mt) 1994 1995 1996 1997 1998 1999 2000 2005 2010

Current 1,477 1,806 1,506 1,599 1,357 1,200 1,200 1,700 1,900Constant 1990 1,340 1,515 1,321 1,478 1,305 1,139 1,110 1,386 1,370

Source: WBMS and LME data, and World Bank forecasts

61

GLOBAL C OMMVVDLI NIARKET'S v 2 .

CopperMonthly Prices ($/Mt)

Soaring stocks ecad to price aecline 2,80 92 800 ------- -- - - - - - -

Copper prices fell 6%,o in the fourth quarter due to fising , CaI

supplies and weak demand in Asia. While average 1998 2,400 --- -ECash

prices were more than 25% lower than a year earlier, copper 1 0V0

prices fell below $1,500/mt in December, which was 44% o--

belowthe level inJune 1997. LNMf stocksroseforsixsnraight LME Furcs

rrmonths, reaching a five-year high in December, and were 1

less than I0%short ofthe record 645,300tons, set on January 1,200 T...........

20, 1978 Dec-95 Dec-96 Dec-97 Dec-98 i-S Source. LME

Demand has remained strong in the lJS, particularly in Futures are end-December

the construction industry whiich has been ftieled by strong

economic growth and low interest rates. The auton-otive Production (million tons)industry has performed well silnce the CG M4 strike, but thie 15 -_ _ _ _ __ed Copper_I

manufacturing sector is contracting due to the slump in export Producti3i

markets and pressures from competitively priced imports to

supply robust consumer demand.

European copper demand was up an estimated 7%(1 last Co_sumpn.

year, mainlv due to strong growth in the auto sector,

particelarly in Germany, France and Spain. In Japan,

consumption remains depressed in all main sectors, butthere J I V - --are indications in some Auian coantries that the severe slump 1970 1975 1980 1985 1990 199S

in demand rnay have hit bottom. Auto sales in Thailand rose Soume- MsMSand Vbd Bankestimates

for the second consecuttive mi-onth in November, and

Malaysian car sales have also risen. And in the Republic of LME Stocks (000 tons)

orea, demand is rising in export-led industries.

Copper production continues to rise from new low-cost 600

mnines and expansions, although low prices have started to

curtail, albeit limited. high-costproduction. CLutbacks have 400 - Y---. -

been announced at plants in Canada, Philippines. arid the YearE d

US(Texas). aldAustralia'sMt.LvellMiningCo. lasgone 200

into liquidation. Given the large surpluts, further cutbacks in

production will be necessary to raise prices. / / \

New mine projects and expansions wili addsignificantly 1970 1975 1980 1985 1990 X905

to copper supplies over the next few vears. Much of the SO-e.: L.ME

increases will be in Latin America - mainly Chile - but also

in Argentina, Mexico. and Peru. Other notable increases are Annual Pnces (S/mt)

expected in Australia and Indonesia. it is unclear at what 6,000

price level significant cutbacks in production might occur. :

Improvements in technology and declining costs have low ered 4,500 \ constant<t990) .orc7as I

the threshold from earlier years. Bec.ause of the anticipated

surpius of supply over demandc the next couple of years, 3,000

prices are expected to remain low. With a pick-up in demand

and somereductionin existing production- prices are-projected 1,500-v

to recover in 2001. While long-tem reat prices are expected Current

to average $1 ,600imt ( 1990 $). the repeat of a typical cycle, 0 - I .rising prices followed by new supplies and a price decline, Sou1e9 LMEand95 r19B0a 98 1 1995 20 20 20i

could be expected during the nex.t decade. ___

C 2^


Copper Highlights

* Chile's Collahuasi first copper concentrate shipment * Asarco announced it intended to suspend operationswas made from the small port of Punta Panache. at its 135,000 tpy smelter in El Paso, Texas for threeThe shipment of 8,450 tons of copper concentrate years beginning February 1, 1999. The closing willcontained 3,440 tons of copper. Collahuasi is also result in a further reduction of cathodeexpected to produce 355,000 tons of copper-in- production at the Amarillo refinery. Given the lowconcentrate and 40,000 tons of EW cathode in 1999. copper price and surplus smelting capacity (shortages

of copper concentrates) in the southwest US, there* The A$1.6 billion Olympic Dam copper mining and was speculation on the need for rationalization in

smelting expansion in South Australia is nearly the copper industry in that part of the country. Thecomplete, and three months ahead of schedule. The imbalance between mine production and smeltingexpansion will increase copper production from capacity in the region requires concentrates to be85,000 tpy to 200,000 tpy. Copper anodes from the imported, and which are expensive to transport bysmelter have been cast and production will reach rail.full capacity this year.

Production of Refined Copper (000 tons) Consumption of Refined Copper (000 tons)1994 1995 1996 1997 1994 1995 1996 1997

US 2,220 2,280 2,347 2,450 US 2,678 2,534 2,621 2,790Chile 1,277 1,492 1,748 2,117 Japan 1,375 1,415 1,480 1,441Japan 1,119 1,188 1,251 1,279 China 798 1,148 1,161 1,241China 736 1,080 1,119 1,230 Germany 997 1,066 960 1,040Germany 592 616 671 674 Korea, Rep. 476 540 588 618Russian Fed. 552 560 599 640 Taiwan, China 547 563 544 588Canada 550 573 559 560 France 513 540 518 558Poland 405 407 425 441 Italy 480 498 504 521Belgium 375 376 354 386 UK 377 398 396 409Penu 253 282 342 384 Belgium 408 362 359 355Zambia 370 314 317 328 Brazil 181 198 233 253Kazakhstan 279 256 267 303 Mexico 210 172 192 230Mexico 200 208 246 297 Poland 151 213 226 230Spain 188 164 264 292 Canada 199 190 218 225Australia 340 266 311 271 Spain 178 175 191 203Korea, Rep. 222 233 244 263 Turkey 108 139 160 188Brazil 170 165 172 177 Australia 141 160 180 182Phillippines 155 158 156 147 Russian Fed. 192 187 165 165Sweden 103 111 126 128 India 137 116 140 160Other 1,061 1,091 1,177 1,288 Other 1,519 1,553 1,602 1,693World 11,166 11,818 12,697 13,653 World 11,664 12,165 12,438 13,089

Source: WBMS Source: WBMS

Global SummaryActual Est - -Annual Growth Rate (%) --

World Balance (000 tons) 1970 1980 1990 1996 1997 1998 1970-80 1980-90 1990-98Producton 7,583 9,242 10,809 12,697 13,653 14,000 2.1 1.6 3.5Consumpbon 7,294 9,400 10,780 12,438 13,089 13,300 2.9 1.8 3.1LME Stocks (year-end) 73 123 179 125 338 511 n.a. -6.3 2.7


Current 2,307 2,936 2,295 2,277 1,654 1,500 1,550 2,000 2,200Constant 1990 2,094 2,463 2,013 2,104 1,590 1,423 1,434 1,631 1,587

Source: WBMS and LME data, and Word Bank forecasts

63


GoldI M~~~Nonthly Prices ($/toz)

Prices remain stable and ran gehound onthl Prices(It

4(00 -A 0T 00 T

Gold prices averaged $294 per troy ounce (toz) in the v pot

fourth quarter, up 2% from the third quarter, during vwhiclhprices slumped to a 19-year low at end-August. For the 350past fourteen months, monthlv gold prices have rangedbetween 5284 and S306 per toz, averaging $295 over toe 300 4 '

period. Tfhis is down bv nearly S100 (25%) -from the

1996 prices of $388/toz In fact, over the 17-year period p 250 ,,,,. 1 I

from July'1981 to Jiune 1997. nomoinal goldprices averaged Dec-95 Dec-96 Dec-97 Dec-98 Dec-99

$381/toz. Sourne Plattsie MeasWeek, LME

This ne-w trading range reflects a fairly stable supply I. . , -I Production (tons)

demand balance, arid reflects significant declines in the CSt s 2,5 30

of production for manyproducers. Generally, when prices Worldfall out of this range, strong buying has developed, And 2,000when prices pusll much above $300, heavy producer elling 0 2

sets in. Central Ban.k sales have added to oressure on orices. !_5=Demand in main markets continued to stren,gthen in ,ooo

the third quarter, hut this was up from depressed levels Fduring the first half of the year, especially in the first quarter 500 So A-ri-a

when significant dishoarding occurred in the Republic of |Korea and Indonesia (see cha t. Demand in the six main - _97 _ __75 _98 _ _985 _990 _99

1970 1975 1980 1985 1990 1995developed countries w;as up 1 6% in Lhe third quarter, in Scurce 'NBMS, Aekd Bankestimates

anticipation of a strong holiday buying season. However,demand in the developing countries remains wa I Dernand Main Countries 1Q90-3Q98

particularly ill Asia. Demand in China, Hong Konag. and 600Taiwan, Chira -was down- 25%. In the countries of South 500

East Asia and the Republic of'Korea. demand was slightly eveloping rahead of the previous year. However, demand in the 1 400 \ / --third quarter of 1997 was already low from dishoardi g

in Thailand followving the outbreak of the finmancia' crisis.Demand has slurmped in 1ndia, the worid's iagest 200

consumingn country. bul this mnay be d-ue to strong'buvying Oelnped iin the first part of the year ahead of rising import duties 1Q90 1Q92 1Q94 iQ96 1Q98

World production rose an estimatLed 7% In ] 9iS. 998 ih Soc,ce sordGocCourcilc

the largest gains occurring in Latin America. The inreaseswere due to the developmtent of rew low-cost Tinmes Annual Prices ($/toz)

restructurinu and cost-cutting at existing mines, andsuccessful hedging by producers. ThYese trends are I 80ta0 1 Cohsu(1990) Forecast

expected to continue. resulting in moderate growth inr gold I II 600 -

supplies. I !/

Prices are expected to contirue tradirg in the range of 400 /1

the last several months. with currency fluctuations often

affecting day-to-day movemTients. A surge in demriand 200 J Hwould be required to take prices tar above this range.However, rising production. declining cos-s, and further I _ _ _ E

t 970 1975 1980 19'85 1990 1995 2000 2005 2010Central bank sales, are expected cause a deci:ne in rea l Source Plaitsrtetals Week -andwidEBa-kf-recasit

gold prices over time.

64


Gold HighlightsThe European Central Bank shows the European System * India announced that the import duty on gold was toof Central Bank's total gold holdings at euro99.6 billion, rise 400 rupees per 10 grams on January 5, 1999, raisingequivalent to 404.3 million ounces (12,574 tons). The the duty from 7% of the gold price to near 10%.valuation will be updated quarterly according to gold's Net sales of gold by goverment bodies and centralmarket value on the last day of the preceding quarter. banks rose 8 percent in 1998, to 437 metric tons,Gold makes up some 30% of the ESCB's total reserve according to Gold Field Mineral Services.holdings of euro327.0 billion.

Mine Production (tons) Consumption in Main Markets (tons)1994 1995 1996 1997 1994 1995 1996 1997

South Aftica, Rep. 583.9 522.4 494.6 492.5 India 415.0 477.2 507.8 736.7US 326.0 313.0 312.0 338.0 US 300.6 314.7 331.9 362.0Australia 255.2 253.5 289.5 311.0 China 224.3 223.9 210.7 213.8Canada 146.4 150.9 166.4 168.1 Turkey 80.8 139.4 153.0 202.0China 124.1 136.4 120.6 149.6 Saudi Arabia 174.0 193.1 184.9 199.0Russian Fed. 142.6 131.9 123.4 123.0 Taiwan, China 162.0 160.2 123.3 142.1Indonesia 42.5 63.3 83.6 90.0 Korea, Rep. 106.0 121.0 125.5 114.4Uzbekistan 64.4 63.6 71.0 82.0 Italy 103.0 108.0 102.2 107.7Brazil 80.0 76.8 76.8 76.8 Japan 212.1 272.1 152.2 107.1Peru 54.7 56.5 65.1 74.3 Indonesia 97.0 119.0 129.0 92.5Ghana 44.5 53.9 48.1 52.5 United Arab Emirates 33.2 39.2 52.6 71.5Papua New Guinea 58.7 51.7 51.6 48.5 Germany 58.9 73.4 57.7 59.1Chile 36.9 44.2 51.8 47.8 Brazil 50.0 54.0 59.0 58.0Mexico 14.6 19.9 23.1 26.4 France 50.5 52.0 52.5 53.0Zmbabwe 20.5 24.0 24.7 24.3 Hong Kong, China 47.5 43.2 40.4 51.0Venezuela 9.9 10.0 11.7 22.3 UK 34.8 39.3 40.0 50.0Kyrgyz Republic 4.0 4.0 4.1 16.1 Mexico 47.0 31.0 41.0 49.0Bolivia 12.8 14.4 12.6 13.3 Vietnam 35.0 36.0 41.0 45.0NewZealand 10.1 12.1 11.5 11.4 Kuwait 25.0 35.1 34.7 35.4Philippines 15.3 12.8 8.1 11.2 Malaysia 24.8 29.6 33.6 30.1Kazakhstan 14.1 10.9 10.2 9.7 Singapore 23.9 24.1 20.0 22.4Mongolia 1.8 4.5 4.9 8.5 Oman 16.5 16.5 16.5 17.8Japan 9.6 9.2 8.6 8.4 Thailand 124.0 116.0 106.0 14.0Ecuador 1.2 7.4 7.2 7.2 Bahrain 7.4 7.8 8.0 10.6Sweden 6.4 6.5 6.1 7.0 Qatar 6.0 6.1 6.2 6.8World 2,139.9 2,096.5 2,130.4 2,265.9 World 2,459 2,732 2,630 2,851

Source: WBMS Source: World Gold Council

Global Summary-- Actual --- - % p.a. -

World Balance (tons) 1990 1991 1992 1993 1994 1995 1996 1997 1990-97Jewelry 2,145 2,306 2,693 2,501 2,610 2,767 2,807 3,328 6.5Other Fabricaton 494 511 450 487 464 500 483 562 1.9Bar Hoarding 224 252 273 137 231 306 182 337 6.0Other 218 45 154 413 52 61 5 28Total Demand 3,080 3,114 3,570 3,538 3,357 3,634 3,477 4,254 4.7Mine Producton 2,133 2,161 2,237 2,281 2,278 2,269 2,347 2,464 2.1Net Official Sales 187 119 602 522 94 182 239 406 11.7Old Gold Scrap 524 461 463 535 615 625 644 611 2.2Forward Sales 224 96 165 198 158 466 10 329 5.6Other 12 278 103 2 212 92 237 444 -

Total Supply 3,080 3,114 3,570 3,538 3,357 3,634 3,477 4,254 4.7-- -Actual -- Forecast -

Prices ($Stoz) 1994 1995 1996 1997 1998 1999 2000 2005 2010Current 384 384 388 331 294 300 300 325 350Constant 1990 348 322 340 306 283 285 278 265 252

Source: Gold Fields Minerals Services and LME data, and Wodd Bank forecasts

65


Iron Ore and SteelMonthly Prices ($/mt)

Iron Ore prices to drop this year 30

Iron Ore Contract / Negotiations between Australian iron ore producers and 29 -

Japanese steel makers are expected to result in price declines of 28 l

7-10% for the financial year beginning April 1, 1999. Thepressures on iron ore producers to accept lower prices is because 27 Iof the depressed global steel market. Extremely weak Asian rdemand and the slump in crude steel production is reducing the 26demand for iron ore. 25- .. ... ..... _ _.....I ....

The recently negotiated 18% drop in coking coal prices for Dec-95 Dec-96 Dec-97 Dec-98 Dec-99

the year beginning April 1, partly reflects the depressed Japanese Source: CVRD

steel industry. Japanese steel production is reportedly at thelowest level in 27 years. As coking coal and iron ore are the Ion Ore Production (million tons)primary raw materials used in the manufacture of blast fumace 1,000 --- - ---- -------------------crude steel, the coking coal agreement will not go unnoticed So0 ----- on l

during the iron ore negotiations. However, the coal price settlementalso reflected a large oversupply ofcoking coal, thus the anticipated 600 -

decline in iron ore pnces is not expectedto be as steep. 400

The multinational steel group, IspatIntemational, would liketo negotiate iron ore prices at least twice and perhaps as much as 200 - Exports

four times a year in order to react to price fluctuations in othermetallics, particularly scrap. Ispat tried to renegotiate prices 1970 1975 1980 1985 1990 1995

downward at mid-contract year in 1998, but producers did not Source: I1S

altertheir prices.Steel prices fell 6% in tlie fourth quarter, with December Steel Production (million tons)

prices down nearly 20% from a year earlier. While world _production during the first eleven months of 1998 fell 1.8% from 800a year earlier, the severe contraction in Asian demand has not 600 Crude Steel Productionbeen met with commensurate declines in output. Steel exportshave been diverted to the US and Europe where demand has 400 - -

been strong, butwhere output has been rising. Despitethe demand Semi and Finished Exports

strengt, the surge of imports could not be absorbed without 200 --- -

declines in pnices. ___

The flood of low cost exports has generated a flood oftrade .15 1980 1985 1990 1995

complaints. US companies and the Steelworkers Union filed Source 119

cases against Brazil, Japan and the Russian Federation inSeptember. In early January, the Clinton Administration Iron Ore Annual Prices ($/mt)announced that it secured an agreement from Japanese Ct (90 Forecast

steelmakers to cut 1999 exports to the US close to 1997 levels. 40 ------------tant-- - -

The Adrninistration also said that it would seek agreements tocap shipments from other main steel exporters to the US. 30

Europeanmillsfiledananti-dunipingcaseinNovemberagainst 20

imports ofhot-rolled coil from Bulgaria, India, Iran, South Africa Current

Taiwan and Yugoslavia. A main problem for European steel 10 - -producers is the lack of export opportunities. While productionis being scaled back in response to trade complaints, the expected ---- I -.- I.I --slowdown in US and European demand is expectd to contribute 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: CVRD and Word Bank forecaststo another year of low prices.

66


Iron Ore SteelProduction (000 tons) Producion of Crude Steel (000 tons)

1994 1995 1996 1997 1994 1995 1996 1997

China 250,695 261,919 252,283 268,612 China 92,613 95,360 101,237 108,911Brazil 167,310 178,380 179,870 187,950 Japan 98,295 101,640 98,801 104,545Australia 128,662 139,067 147,200 160,889 US 91,244 95,191 95,535 98,485Russian Fed. 73,259 78,348 72,136 69,906 Russian Fed. 48,812 51,589 49,253 48,442India 58,390 62,000 67,264 69,400 Germany 40,837 42,051 39,793 45,007US 58,382 62,645 62,132 63,000 Korea Rep. 33,745 36,772 38,903 42,554Ukraine 51,464 50,741 47,745 52,541 Brazil 25,747 25,076 25,237 26,153Canada 37,710 37,629 37,042 37,313 Ialy 26,151 27,767 24,285 25,770S. Afnica, Rep. 32,321 32,650 30,830 33,230 Ukraine 24,081 22,309 22,332 25,627Sweden 19,909 21,663 21,288 21,893 India 19,282 22,003 23,753 24,579Venezuela 18,216 19,452 18,720 18,660 France 18,031 18,100 17,633 19,767Mexico 13,521 12,910 14,202 14,500 UK 17,286 17,604 17,992 18,489Iran, Islamic Rep. 4,300 9,080 9,850 12,750 Taiwan, China 11,594 11,605 12,350 15,994Kazakhstan 24,915 36,512 25,000 12,627 Canada 13,897 14,415 14,735 15,554Mauritania 10,443 11,330 11,400 11,700 Turkey 12,624 13,183 13,552 14,491Chile 7,600 7,950 8,480 8,090 Mexico 10,260 12,147 13,172 14,254Peru 6,943 5,975 4,740 5,030 Spain 13,445 13,802 12,154 13,683Turkey 5,079 5,510 5,150 4,800 Poland 11,113 11,890 10,432 11,591Egypt 2,460 2,099 2,700 3,000 Belgium 11,331 11,606 10,818 10,784New Zealand 2,480 2,570 2,600 2,500 Australia 8,424 8,460 8,415 8,831Other 11,792 21,695 13,726 10,418 Other 96,395 99,787 100,118 105,459brld 986,651 1,060,125 1,034,358 1,068,809 World 725,207 752,357 750,500 798,970

Source: IISI Source: IISI

Exports (000 tons) Exports of Semi-finished and Finished Steel (000 tons)1994 1995 1996 1997 1994 1995 1996 1997

Australia 119,285 130,223 128,606 144,914 Russian Fed. 25,645 27,371 26,994 26,120Brazil 125,000 131,358 129,740 140,419 Germany 19,785 20,324 20,437 23,663Canada 29,993 28,833 27,920 32,340 Japan 22,407 22,129 19,262 22,892India 30,638 32,332 31,700 31,900 Bel-Lux. 14,926 14,190 14,673 16,459S. African Rep. 19,605 21,847 19,300 20,700 France 12,826 12,796 13,124 14,884Ukraine 21,135 21,015 20,570 20,000 Ukraine 11,638 11,653 11,780 14,406Sweden 15,386 17,083 16,071 18,282 Korea Dem Rep. 10,029 9,795 10,438 11,739Russian Fed. 18,846 20,218 17,126 17,000 Italy 10,722 10,173 10,922 10,695Mauritania 10,342 11,514 11,158 11,700 UK 8,829 8,896 9,336 9,371Venezuela 10,691 10,609 9,580 9,322 Brazil 11,078 9,655 10,257 9,163Kazakhstan 1,180 3,747 9,270 China 2,566 10,745 7,131 8,765Chile 6,631 6,114 6,911 7,052 Turkey 8,340 6,211 6,697 7,227US 4 972 5,270 6,256 6,336 Nethedands 6,609 6,317 6,481 6,819Philippines 4,329 4,744 4,546 4,500 US 3,656 6,623 4,641 5,568Peru 6,547 6,008 4,029 3,712 Spain 5,994 4,947 5,486 5,556Bahrain 3,000 3,200 2,800 3,000 Mexico 2,246 5,930 5,352 5,452NewZealand 1,279 1,316 1,382 1,300 Taiwan, China 2,817 3,027 3,765 5,119France 2,443 2,185 1,297 580 Canada 4,445 4,716 4,929 4,787Norway 2,064 1,018 611 271 Poland 4,119 3,622 3,709 4,176Korea, Dem Rep. 300 300 200 200 Czech Rep. 4,298 3,703 3,808 4,000Other 2,056 2,388 1,766 209 Other 45,982 45,654 47,039 48,796Wobld 434,542 458,755 445,316 483,007 World 238,957 248,477 246,261 265,657Source: IISI Source: IISI

67


Table Al: Commoditv Prices and Price Projections in Constant US Dollars

Short-term Long-termActual projections projections

Commodity Unit 1970 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2005 2010

EnergyCoal, US $/nt ... 59.88 67.96 41.67 32.87 32.65 33.64 33.06 32.26 31.69 31.09 29.77 28.12Crude oil, avg, spot $/bbi 4.82 51.22 39.62 22.88 14.41 17.91 17.72 12.57 11.39 13.88 14.42 14.68 13.70Natural gas, Europe $/mmbtu ... 4.72 5.39 2.55 229 2.50 2.53 2.32 2.09 2.13 2.11 2C4 1 92Natural gas, US $/mmbtu 0.68 2.15 3.57 1.70 1 44 2.40 2 29 2.01 1.90 1.94 1.94 1 92 87Non-Energy CommoditiesAgricultureBeveragesCocoa v'kg 269.1 361.7 328.6 126.7 120 2 127.7 149.6 161.2 147.1 152.7 172.1 17i 3 1H 9Coftee, arabira cdkg 457.2 481.6 4709 197.2 279.5 236.4 385.2 286.6 241.0 224.8 212.7 207.1 9' 1Coffee, robusta ckg 362.8 450.6 386.0 118.2 232.4 158.4 160.5 175.2 163.2 159.1 160.4 151.7 138 5Tea, auclons (3) av c/kg 332.9 230.5 255.0 205.8 124.9 145.7 190.4 196.8 168.0 155.4 154 4 146.0 14' 2.9FoodFats and oilsCoconutoil $/,Mt 1583.7 936.1 860.2 336 5 561.7 659.3 607.1 632.6 711.6 647.7 585.7 505.56 468.7Copra $/mt 896.5 629.0 562.6 23C.7 367.8 428.9 400.9 395.2 408.0 384.0 383.0 375.1 345.3Groundnutmeal $/mt 407.4 333.9 211.7 184.8 141.4 186.6 204.3 111.7 194.5 197.1 193.7 187.0 156.1Groundnutoil $/rnt 1509.4 1193.0 1318.9 963.7 831.2 787.1 933.9 874.4 759.1 740.2 693.8 068.7 613.CPalm oil $/mt 1036 9 810.9 729.6 289.8 527.0 465 8 504.5 645.2 593.0 508.9 450.5 367.J 331Soybean meal $/mt 409.0 364.6 229.1 200.2 165.2 234.7 254.9 163.8 156.6 161.9 166.7 1791 'S5.5Soybean oil $/mt 1141.7 830.2 833.7 447.3 524.4 483.8 522.0 601.8 536.1 522.8 513.6 481 2 447'Soybeans $/mt 466.2 411.5 327.1 246.8 217.5 267.4 273.1 233.47 218.2 217.4 220.8 224 3 22C0GrainsMaize $imt 232.9 174.0 163.6 109.3 103.6 145.5 108.2 98.1 98.7 IC1.8 103.6 1074 099Rice, Thai, 5% $/mt 503.6 570.6 287.0 270.9 269.2 297.3 280.5 292.4 284.7 296.1 297.4 277.i 1567 0Sorghum $/mt 206.5 179.0 150.1 103.9 99.8 131.6 101.3 94.3 97.2 987 100 6 104.1 9. 9'Meat US, HRW S/mt 218.9 240.0 198.0 135.5 148.5 182.1 147.4 121.3 123.4 124.9 126.2 134.6 2E 3Other foodBananas S/mt 662.2 524.1 551.0 540.9 373.4 412.0 464.6 472.6 449.8 444.1 437.0 440.4 417.5Beef, US ckg 520.1 383.4 314.0 256.3 160.0 156.6 171.5 165.9 156.6 152.7 156.0 170.5 1637Oranges $/mt 670.0 556.0 580.7 531.1 445.8 431.3 424.2 425.3 472.5 485.8 448.7 461.7 .37.CShrimp, Mexican c/Kg ... 1,600 1.745 1,069 1 266 1,186 1490 1,518 1,319 1,342 1,320 244 t '47Sugar, world c/kg 32.8 87.75 13.04 27.67 24.56 23.12 23.17 18.91 16.32 16.93 17.88 20 63 ' 2C-Agricultural raw materais

/rimberLogs, Malaysia $/crum 172 0 271.6 177.4 177.2 214 4 221.2 220.2 156.2 1613 166.5 171.2 1/7.6 .209cLogs, Cameroon $/cum 171.5 349.7 253.4 343.5 284.8 249.4 263.2 275.4 256.2 254.4 261.3 285.4 317 3Sawnwood, Malaysia $Scum 697.8 550.2 447.5 533.0 620.7 650.4 614.2 465.5 493.4 499.6 504.6 587 2 656 2Other raw materialsCotor c/<g 269.7 286.5 192 1 181.9 178.5 155.6 161.5 138.9 125.3 132.3 138.8 '61 r 150 7Rubber RSS1, Malaysia dkg 162.4 197.9 110.6 86.5 132.5 122.3 94.1 69.4 62.7 71.4 81.5 899 '7.5Tobacco $/mt 4,290 3,162 3,807 3,392 2 214 2,670 3,261 3,228 2.847 2,776 2,703 2 653 2 385FertilizersDAP $/mt 215.3 308.7 246.3 171.4 181.7 187.0 184.8 195.6 189.8 183.2 180.2 1672 15' 4Phosohate rocsk /rnt 43.86 64.89 49.43 40.50 29.36 34.21 37.90 41.34 40.80 39.79 38.75 35.88 33 1 7PotassiuLmchloride $/mt 127 6 160.8 122.4 98.1 98.8 102.6 107.7 112.4 110.5 109.2 106.3 101.1 92.3TSP $imt 171.5 250.4 1769 131.8 125.5 154.3 158.9 166.4 151.8 138.8 135.2 122.3 1 ' &area, E. Europe. bagged $/mt 191.4 308.6 185.2 130.7 162.7 164.5 118.3 99.2 92.9 94.6 99.8 '123 118.3Metals and mineralsAluminum S/mt 2,217 2,023 1,517 1,639 1:515 1,321 1.478 1,305 1139 1.110 1,307 1,386 ' 37^Copper $/mnt 5.645 3,032 2,066 2,661 2,463 2,013 2,104 1,590 1,423 1,434 577 1,631 '587Sold $'tz 143.5 &44.7 463.4 383.5 322.3 340.1 306.0 282.8 284.7 277.6 274.8 265.1 2534ron ore c/dmu 39.23 39.02 38.71 30.80 22.61 25.06 26.69 28.55 25.62 25.44 25.68 25 28 23 08Lead c/kg 120.8 125.8 57.0 81.1 52.9 67.9 57.7 50.8 45.6 46.3 48.7 58.9 46 2Nickel $/mt 11,348 9 056 7,140 8 864 6,902 6.580 6,403 4,451 3,606 3,701 4,055 4 893 h 7R8Silver c/toz 705.7 2.866.9 895.2 482.0 435.5 454.7 452.2 532.1 474.4 462.6 455.0 428.2 396.6Tin c/kg 1,465 2,330 1,682 608.5 521.3 540.8 521.9 532.7 479.2 481.1 495.6 48' 2 439 9Zinc dkg 118.0 105.8 114.2 151.4 86.5 89.9 121.7 98.5 90.1 90.2 94.6 93.8 595

Not available

Note: Computed from unrounded data and detated by MUV (1990=100). Forecastas 0&.anuary 18, 1999.

Souroe: 'Airud Bank, Developpment Econornics, Development Prospect Group

68

january 1999 COMMODITY PRICE PROJECTIONS

Table A2: Commodity Prices and Price Projections in Current US DollarsShort-term Long-term

Actual projections projections

Commodity Unit 1970 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2005 2010

EnergyCoal, US $/mt ... 43.10 46.63 41.67 39.19 37.21 36.39 34.38 34.00 34.25 34.50 36.50 39.00Crude oil, avg, spot $/bbl 1.21 36.87 27.18 22.88 17.17 20.42 19.17 13.07 12.00 15.00 16.00 18.00 19.00Natural gas, Europe $/nmbtu ... 3.40 3.70 2.55 2.73 2.84 2.74 2.42 2.20 2.30 2.34 2.50 2.66Natural gas, US $/mmbtu 0.17 1.55 2.45 1.70 1.72 2.73 2.48 2.09 2.00 2.10 2.15 2.35 2.60Non-Energy CommnoditiesAgricultureBeveragesCocoa c/kg 67.5 260.4 225.4 126.7 143.2 145.6 161.9 167.6 155.0 165.0 191.0 210.0 230.0Cofiee, arabica c/kg 114.7 346.6 323.1 197.2 333.2 269.4 416.8 298.1 254.0 243.0 236.0 254.0 265.0Coffee, robusta c/kg 91.0 324.3 264.9 118.2 277.1 180.6 173.6 182.3 172.0 172.0 178.0 186.0 192.0Tea, auctons (3) av. c/kg 83.5 165.9 175.0 205.8 148.9 166.1 206.0 204.7 177.0 168.0 171.4 179.0 198.0FoodFats and oilsCoconut oil $/mt 397.2 673.8 590.2 336.5 669.6 751.6 656.8 657.9 750.0 700.0 650.0 620.0 650.0Copra $/mt 224.8 452.7 386.0 230.7 438.5 488.9 433.8 411.1 430.0 415.0 425.0 460.0 483.0Groundnutmeal $1mt 102.2 240.3 145.3 184.8 168.6 212.8 221.0 116.2 205.0 213.0 215.0 230.0 258.0Groundnutoil $/mt 378.6 858.8 904.9 963.7 990.9 897.3 1010.4 909.4 800.0 800.0 770.0 820.0 850.0Palm oil $/mt 260.1 583.7 500.6 289.8 628.3 530.9 545.8 671.1 625.0 550.0 500.0 450.0 460.0Soybean meal $/mt 102.6 262.4 157.2 200.2 196.9 267.5 275.8 170.3 165.0 175.0 185.0 220.0 230.0Soybean oil $/mt 286.3 597.6 572.0 447.3 625.1 551.5 564.8 625.9 565.0 565.0 570.0 590.0 620.0Soybeans $/mt 116.9 296.2 224.4 246.8 259.3 304.8 295.4 242.8 230.0 235.0 245.0 275.0 305.0GrainsMaize $/mt 58.4 125.3 112.2 109.3 123.5 165.8 117.1 102.0 104.0 110.0 115.0 131.7 138.5Rice, Thai, 5% $)mt 126.3 410.7 196.9 270.9 321.0 338.9 303.5 304.2 300.0 320.0 330.0 339.8 370.3Sorghum $/mt 51.8 128.9 103.0 103.9 119.0 150.0 109.6 98.0 102.4 106.7 111.6 127.7 134.3WMeat US, HRW $/mt 54.9 172.7 135.8 135.5 177.0 207.6 159.5 126.1 130.0 135.0 140.0 165.0 177.9Other foodBananas $/mt 166.1 377.3 378.1 540.9 445.1 469.6 502.7 491.6 474.0 480.0 485.0 540.0 579.0Beef, US c/kg 130.4 276.0 215.4 256.3 190.7 178.5 185.5 172.6 165.0 165.0 174.0 209.0 227.0Oranges $/mt 168.0 400.2 398.4 531.1 531.5 491.7 459.0 442.4 498.0 525.0 498.0 566.1 605.9Shrimp, Mexican c/kg ... 1,152 1,197 1,069 1,509 1,352 1,612 1,579 1,390 1,450 1,465 1,525 1,590Sugar, world c/kg 8.22 63.16 8.95 27.67 29.28 26.36 25.06 19.67 17.20 18.30 19.84 25.30 28.00Agricultural raw materialsTimberLogs, Malaysia $/cum 43.1 195.5 121.7 177.2 255.6 252.1 238.3 162.4 170.0 180.0 190.0 230.0 290.0Logs, Cameroon $/cum 43.0 251.7 173.9 343.5 339.5 284.3 284.8 286.4 270.0 275.0 290.0 350.0 440.0Sawnwood, Malaysia $/cum 175.0 396.0 307.0 533.0 740.0 741.4 664.5 484.2 520.0 540.0 560.0 720.0 910.0Other rawmaterialsCottn c/kg 67.6 206.2 131.8 181.9 212.8 177.3 174.8 144.5 132.0 143.0 154.0 198.0 209.0Rubber, RSS1, Malaysia c/kg 40.7 142.5 75.9 86.5 158.0 139.4 101.8 72.2 66.1 77.2 90.4 110.2 121.3Tobacco $/mt 1,076 2,276 2,612 3,392 2,639 3,051 3,529 3,357 3,000 3,000 3,000 3,250 3,300FertilizersDAP $/mt 54.0 222.2 169.0 171.4 216.6 213.2 199.9 203.4 200.0 198.0 200.0 205.0 210.0Phosphate rock $/mt 11.00 46.71 33.92 40.50 35.00 39.00 41.00 43.00 43.00 43.00 43.00 44.00 46.00Potassiumchloride $fmt 32.0 115.7 84.0 98.1 117.8 116.9 116.5 116.9 116.5 118.0 118.0 124.0 128.0TSP $/mt 43.0 180.3 121.4 131.8 149.6 175.8 171.9 173.1 160.0 150.0 150.0 150.0 155.0Urea, E. Europe, bagged $/mt 48.0 222.1 127.1 130.7 193.9 187.5 127.9 103.2 97.9 102.2 110.7 137.7 164.0Metals and mineralsAluminum $/mt 556 1,456 1,041 1,639 1,806 1,506 1,599 1,357 1,200 1,200 1,450 1,700 1,900Copper $/mt 1,416 2,182 1,417 2,661 2,936 2,295 2,277 1,654 1,500 1,550 1,750 2,000 2,200Gold $/toz 36.0 608.0 317.9 383.5 384.2 387.7 331.1 294.2 300.0 300.0 305.0 325.0 350.0Iron ore c/dmtu 9.84 28.09 26.56 30.80 26.95 28.57 28.88 29.69 27.00 27.50 28.50 31.00 32.00Lead ckg 30.3 90.6 39.1 81.1 63.1 77.4 62.4 52.9 48.0 50.0 54.0 60.0 64.0Nickel $/mt 2,846 6,519 4,899 8,864 8,228 7,501 6,927 4,630 3,800 4,000 4,500 6,000 6,640Silver c/loz 177.0 2,063.6 614.2 482.0 519.1 518.3 489.2 553.4 500.0 500.0 505.0 525.0 550.0Tin c/kg 367 1,677 1,154 608.5 621.4 616.5 564.7 554.0 505.0 520.0 550.0 590.0 610.0Zinc c/kg 29.6 76.1 78.3 151.4 103.1 102.5 131.6 102.5 95.0 97.5 105.0 115.0 120.0

Not available.

Note: Computed tom unrounded data and defated by MUV (1990=100). Forecastas ofJanuary 18,1999.

Source: World Bank, Development Economics, Development Prospects Group.

69

GLOBAL COMMODITY MARKETS january I9Slj

TABLE A3: Weighted Index of Commodity Prices in Current Dollars and in Constant 1990 Dollars

Mon-energy Fatscorn- Total agri- Bever- Total and Other Total raw Metals and

Year Energyr modities culture ages food oils Grains food materials Timber Fertilizers minerals

Current dollars1980 161.2 125 8 138.11 181.5 139.3 148.7 134.3 134.3 104.6 79.0 128.9 95711985 118.8 91.4 '00.1 f63.7 86.3 '13.C 89.2 62.8 7C.8 59.1 89.0 70.21990 100.0 100 0 100.0 100.0 10H 100.' 10. 100.0 100.0 100.0 100.0 100.0

1993 73.6 91.3 98.7 83.2 98.6 111.5 93.7 90.7 110.3 152.4 83.7 73.S1994 69.4 111.5 123.2 148.2 106.8 125.9 102.1 93.9 125.8 156.6 93,4 8451995 75.1 122.2 131.3 '50.9 116.9 136.6 120.4 98.8 135.2 139.5 103.6 101.61996 89.3 115.1 125.4 126.3 123.6 147.0 '40.6 95.0 127.1 139.5 119.8 89.1,1997 838 117,6 128.6 170.7 116.1 147,7 -'2.1 92.4 113.7 125.8 119.7 90.21998 57.1 99.2 107 8 140.6 105.0 132.8 101.3 84 2 87.4 90.9 122.1 75 71999 52.5 92.9 102.3 123.7 103.0 127.5; 102.1 83.4 85.4 97.3 115.8 67.92000 65.6 94.5 104.1 122.0 103.8 123: 107.8 85.6 91.3 101.3 111.0 69.22001 69.9 99.3 107.6 125.7 104.8 121.l 111.8 87.6 97.8 105.3 111.0 77.7

2005 78.7 112.1 121.6 135.2 113.9 126.7 123.1 98.3 121.5 134.4 111.9 88 72010 83.0 121.6 132.1 143.6 119.2 133.1 132.4 100.4 140.4 169.8 116.5 96.2

Constant 1990 dollars1980 223.9 174.7 191.9 252.1 193.5 206.6 186.6 186.6 145.3 109.8 179.1 132.11985 173.2 133.2 145.9 238.7 125.8 164.7 130.1 91.5 103.3 86.1 129.8 102.31990 100.0 10C.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

1993 69.2 85.9 92.8 78.3 92.7 104.9 88.1 85.3 103.7 143.3 78.7 59.51994 63.0 101.2 111.8 134,5 96.9 114.3 92.6 85.2 114.2 142.1 84.7 76.81995 63.0 102.5 110.1 126.6 98.1 114.6 ^01.0 82.9 113.4 117.1 86.9 85.21996 78.3 100.9 110.0 110.8 108.5 129.C 123.3 83.3 111.5 122.4 105.1 78.21997 77.5 108.7 ,18.9 157.8 107.3 136.c 103.6 854 105.1 116.3 110.7 8341998 54.9 95.4 103.7 135.2 100.9 127.7 97.4 81.0 84.0 87.4 117.4 72.81999 49.8 88.2 97.0 117.4 97.7 121.0 96.9 79.2 81.1 92.4 109.9 64.42000 60.7 87.4 96.3 112.9 96.0 113.9 99.8 79.2 84.5 93.8 102.7 64.12001 63.0 89.4 96.9 113.3 94.5 109.i '00.7 78.9 88.1 94.9 100.0 70.0

2005 64.2 91.4 99.2 110.3 92.9 1C3.3 100.4 801 99.1 109.6 91.3 72.42010 59.9 87 7 95.3 103.6 86.0 96.0 95.4 72.4 101.2 122.4 84.0 69.4

Note: Figures for 1999-2010 are projecons. VVeights used are the average 1987-89 exportvalues for low- aind middle-income econornies. Forecastas January 18.1999.

Source: World Bank, Development Economics, Develooment Prospects Group.

70

january 1999 COMMODITY PRICE INDICES AND INFLATION

Table A4: Inflation Indices for Selected Years

G-5 MUV index Ia US GDP deflatorYear 1990=100 % change 1990=100 % change

1980 71.98 64.531985 68.61 -0.95 83.76 5.361990 100.00 7.83 100.00 3.61

1993 106.33 2.07 109.66 2.641994 110.21 3.65 112.28 2.391995 119.21 8.17 115.13 2.541996 113.99 -4.38 117.75 2.271997 108.19 -5.09 120.09 1.991998 104.01 -3.87 122.01 1.601999 105.39 1.32 124.32 1.902000 108.08 2.56 127.43 2.502001 110.98 2.68 130.24 2.20

2005 122.62 2.56 141.80 2,16

2010 138.67 2.49 157.33 2.10

Note: Figures for 1998-2010 are projections. For 1997, US GDP deflator is actual; MUV is a preliminary estimate.Forecastas of September 30, 1998. Growth rates for years 1985, 1990, 1993, 2005 and 2010 are compound annualrates of change between adjacent end-point years; all others are annual growth rates from the previous year.a/ Unit value index in US dollar terms of manufactures exported from the G-5 countries (France, Germany,Japan, UK, and US), weighted proportionally to the countries' exports to the developing countries.Source: World Bank, Development Prospects Group. Historical US GDP deflator: US Departmentof Commerce.

71

GLOlBAL CONVNIODIFT NARKET 0 junu<Sv i 9Y

Table A5: Commodity Price Probability Distributions in Constant 1990 Dollars

Commodity Unit 1999 2000 2001 2005

EnergyCoal, US $/mt 26.09 - 37.95 24.52 - 37.93 23.20 - 37.84 19.78 - 38 33

Crudeoi'.avg spo: $/bbl 9.01 - 1423 9.25 - 18.50 9.01 - 19.82 8.16 - 21.20

Natura! gas. Europe $/mm btu 1.71 - 247 1.62 - 2.64 1.56 - 2.66 1.35 - 2.73Naturalgas, US $/mmbtu 52 - 2.28 1.43 - 245 1.35 - 2.52 1.14 - 2.69

BeveragesCocoa ¢/k5 126 - 159 121 - 185 117 - 228 94 - 250

Coffee othermilds ¢/kg 201- 281 172 - 278 139 - 287 109 - 303

Coffee,robusta ¢,kg 137 - '92 124 - 196 108 - 214 92 - 213Tea,auctions(31,aav. 44•o '28 212 15- 199 111 - 201 105 - 190FoodFats and ollCocontt o/l l/mt v04 - 835 538 - 825 445 - 835 369 - 733

C~opra $/mt 350 - 467 316 - 453 287 - 482 241 50^

Groundnutmea! $/mt 176 - 214 171 - 224 155 - 233 135 - 241

Groundnu: oil 5/mt 668 - 851 626 - 867 539 - 875 475 - 928Palm c $/mt 522 - 683 438 - 637 354 - 617 266 - 514

Soybear Tea! $/Mt '25 - 194 121 - 202 120 - 220 117 255

Soyoean oil S/mt 473 - 611 453 - 651 412 - 702 363 - 674

Soybeans $/mt 175 - 271 163 - 272 159 - 291 149 - 318GrainsMaize 5/mt 81 - 120 79 - 128 77 - 135 70 - '54

Rice,Thai,5% Simt 228 - 353 225 - 385 214 - 401 166 - 416

Sorchim 5/mt 80 - '19 77 - 124 74 - 131 68 149

Wheat 'JS. HRW $/rr 13' - 150 97 157 93 - 164 87 192Other foodBaranas $/mt 424 - 476 408 - 480 384 - 491 365 - 515

3eef, JS 4/kg 122 191 115 - 191 113 - 201 11i - 239

Oranges $/mt 418 - 462 347 566 341 - 610 309 - 61

Shrimp, Mexican c/kg 1,.55 - 1,609 1,046 - 1,664 977 1,690 920 1 .592Sugar. word 0/kg 1309 - 20.2I 12.68 - 21.19 12.52 - 24.15 13.86 3099

Agricuitural raw materialsTi'be-Logs,ltalaysia $/cr '34 '93 125 - 2'3 125 - 223 '13 - 253

Logs Cameroon S/cm 205 - 313 186 - 33i 186 - 345 166 - 405

Sawnwood, Malaysia S/cm 410 - 587 375 - 640 368 - 656 352 - 822

Other raw materialsColon ¢,/kg 109 - 142 '12 - 154 104 - 174 104 - 2'9Ruober RSS1,Malays'.a ¢/kc 56 - 69 62 - 81 65 - 98 63 118Tobacco $,n 2 235 - 3,45 2,382 - 3,470 1,946 - 3,460 1 776 - 3,525FertilizersCA? $/mt 144 - 228 132 - 238 126 - 234 139 - 226

PhosphaLe rook S8mt 35 - 47 32 - 48 30 - 47 25 - 47

Potassium ch.orideia S/mt 84 - 133 79 - 142 74 - 138 61 -12

TSP Slr.- '15 -182 100C- 175 95 -176 73- 171

J-ea. Easterr uScoe $/nt 74 - 115 72 - 123 72 - 133 78 - '63

Metals and mineralsAlminum S/mt 925 - 1,352 879 - 1,388 879 - 1,739 836 - 1,937

Copoer 5/nMt 1,067 - 1,7C8 1,041 - 1,804 1.054 - 2,099 979 - 2:283Golc $/toz 228 - 342 208 - 347 185 - 365 163 - 367

ron ore ¢/dmtu 20.87 - 30.36 20.36 - 30.53 19,37 - 31.99 17.13 - 33.44

Lead p/kg 36 -54 35 -58 32 -65 29 -69Nicket 5/mt 2,941 - 4.270 2 776 - 4,626 2,703 - 5,406 2.936 - 6,524

S Iver ¢/toz 380 - 569 347 - 578 302 - 608 257 - 599T n ¢/kg 380 - 579 352 - 611 329 - 662 290 - 673

Zinc 0 g 72 108 68- 113 63- 126 56 131

Note. FcrecastasofJanuaryl8 1999a/Aso known as murate ot potash.Scurce: World Bank. Deveicpment Economics. Development Prospects Group.

72

january 1999 COMMODITY PRICE PROBABILITIES

Table A6: Commodiity Price Probability Distributions in Current Dollars

Commodity Unit 1999 2000 2001 2005EnergyCoal, US $/mt 27.50 - 40.00 26.50 - 41.00 25.75 - 42.00 24.25 - 47.00Crude oil, avg. spot $/bbl 9.50 - 15.00 10.00 - 20.00 10.00 - 22.00 10.00 - 26.00Natural gas, Europe $/mmbtu 1.80 - 2.60 1.75 - 2.85 1.73 - 2.95 1.65 - 3.35Natural gas, US $/mmbtu 1.60 - 2.40 1.55 - 2.65 1.50 - 2.80 1.40 - 3.30BeveragesCocoa ¢/kg 133 - 178 131 - 200 130 - 253 115 - 306Coffee,othermilds ¢ /kg 212 - 296 186 - 300 154 - 319 134 - 372Coffee,robusta ¢ / kg 144 - 202 134 - 212 120 - 238 113 - 261Tea,auctons(3),avg. ¢ / kg 135 - 223 124 - 215 123 - 223 129 - 233FoodFats and oilCoconut oil $/mt 637 - 880 582 - 892 494 - 927 452 - 899Copra $/mt 369 - 492 341 - 490 318 - 535 296 - 613Groundnutmeal $/mt 185 - 226 185 - 242 172 - 259 165 - 296Groundnutoil $/mt 704 - 897 677 - 937 598 - 971 583 - 1,138Palm oil $/mt 550 - 720 473 - 688 393 - 685 326 - 630Soybean meal $/mt 132 - 205 131 - 219 133 - 244 143 - 312Soybean oil $/mt 498 - 644 490 - 704 457 - 779 445 - 826Soybeans $/mt 184 - 285 176 - 294 176 - 323 179 - 391GrainsMaize $/mt 85- 127 86- 139 85- 150 86 -188Rice, Thai, 5% $/mt 240 - 372 243 - 416 238 - 446 204 - 510Sorghum $/mt 84 - 125 83 - 134 83 - 145 83 - 183Wheat, US, HRW $/mt 107 - 159 105 - 170 104 - 182 107 - 236Other foodBananas $/mt 447 - 502 441 - 519 426 - 545 449 - 632Beef,US ¢/kg 129 - 201 124 - 206 125 - 223 136 - 293Oranges $/mt 441 - 487 375 - 612 378 - 677 379 - 753Shrimp,Mexican ¢ /kg 1,112 - 1,696 1,131 - 1,798 1,084 - 1,875 1,129 - 1,952Sugar,world ¢/kg 13.80 - 21.30 13.70 - 22.90 13.90 - 26.80 17.00 - 38.00Agricultural rawmaterialsTimberLogs, Malaysia $/cm 141 - 203 135 - 230 139 - 247 138 - 322Logs, Cameroon $/cm 216 - 329 201 - 358 206 - 383 203 - 497Sawnwood, Malaysia $/cm 432 - 619 405 - 691 409 - 728 432 - 1,008Other rawmaterialsCotton ¢/kg 115 - 150 121 - 166 115 - 193 128 - 268Rubber, RSS1, Malaysia ¢ /kg 59 - 73 67 - 88 72 - 109 77 - 145Tobacco $/mt 2,355 - 3,645 2,250 - 3,750 2,160 - 3,840 2,178 - 4,323FertilizersDAP $/mt 152 - 240 143 - 257 140 - 260 133 - 277Phosphate rock $/mt 37 - 50 34 - 52 34 - 53 31 - 57Potassium chloride/a $/mt 89 - 140 85 - 153 83 - 153 74 - 174TSP $/mt 122 - 192 108 - 189 105 - 195 90- 210Urea, Eastern Europe $/mt 78 - 121 78 - 133 80 - 147 96 - 200Metals and mineralsAluminum $/mt 975 - 1,425 950 - 1,500 975 - 1,930 1,025 - 2,375Copper $/mt 1,125 - 1,800 1,125 - 1,950 1,170 - 2,330 1,200 - 2,800Gold $/toz 240 - 360 225 - 375 205 - 405 200 - 450Iron ore ¢/dmtu 22.00 - 32.00 22.00 - 33.00 21.50 - 35.50 21.00 - 41.00Lead ¢/kg 38.00 - 57.00 37.50 - 62.50 36.00 - 72.00 36.00 - 84.00Nickel $/mt 3,100 - 4,500 3,000 - 5,000 3,000 - 6,000 3,600 - 8,000Silver ¢/toz 400 - 600 375 - 625 335 - 675 315 - 735Tin ¢/kg 400 - 610 380 - 660 365 - 735 355 - 825Zinc ¢/kg 76 - 114 73 - 122 70 - 140 69 - 161

Note: Forecast as of January 18, 1999a/Also known as muriate of potash.Source: World Bank, Development Economics, Development Prospects Group.

73

1-LUILAL tUr0VIVIUlM IY IV1ARKl IS january 1999

Table A7: Commodity Price Data

Annual averages -- --- Quarterly averages-----------------------Monthly averages------Jan-Dec Jan-Dec Jan-Dec Oct-Dec Jan-Mar Apr-Jun Jul-Sep Oct-Dec Oct Nov Dec

Commodity Unit 1298 1297 ?398 1997 198 198 1998 S98 1998 1998 sa8

EnergyCcal Australia 38.07 35.10 29.23 34.05 32.24 30.49 27.76 26.43 27.10 26.1t 26.1tCoal, US $S-nt 37.21 36.39 34.38 35.66 35.24 34.76 34.04 33.50 33.50 33.50 33.50Crudeol, average spot at $bbl 20.42 19.17 13.07 18.74 14.07 13.36 13.01 185 13.26 1l88 12.41Crude al, Brent a/ $bbI 20.65 19.09 12.72 18,62 14.08 13.29 2.42 110 12.56 1D.92 9.80Crude oil, Dubai a/ $tbl 18.54 18.10 12.l2 17.87 2.44 1208 12.41 156 12.81 1176 10.12Crude cil, West Texas Int. a/ $'bbl 22.07 20.33 14.35 19.73 15.69 14.64 14.12 1290 14.42 12.96 1131Natural gas, Europe Smmbtu 2.84 2.74 2.42 2.65 2.63 2.52 2.37 2.15 2.17 Z15 2.13Natural gas, US $Smmbtu 2.73 2.48 2.09 2.80 21t 2.24 2.01 191 l89 2.t1 t74

Non-Energy CommoditiesAgriculture

BeveragesCocoa b/ c,kg 145.6 16l9 67.6 1725 167.8 174.2 129.5 159.1 154.8 t60.0 152.4Coffee, Arabica b/ cAg 269.4 416.8 298.1 3714 377.5 303.5 259.2 252.4 24t9 256.6 258.8Coffee, Robusta b/ cAkg 180.6 173.6 122.3 17l3 13.0 192.9 173.5 179.7 177.0 176.7 125.3Tea, Calcutta auctons bl ckg ?67.0 214.5 212.8 2410 2318 229.5 214.5 19l2 200.2 192.8 120.6Tea, Colombo auctons b/ ckg 128.9 202.0 207.4 224.2 236.0 215.3 197.3 10.9 83.9 127.6 1712Tea, Mombasa auchtons bi cakg 142.3 2075 19.9 233.5 254.8 19.0 1772 24.7 173.8 158.8 1215

FoodFats and Oils

Coconut al bi Stmt 7516 656.8 657.9 609.7 565.0 664.3 662 0 7403 695.0 752.0 774.0Copra $tmt 488.9 433.8 41l1 406.0 375.7 404.7 404.7 459.3 439.0 465.0 474.0Groundnut meal Stt 2t2.8 9710 1t6.2 175.7 137.3 114.3 180 1t5,0 1)5.0 15.0 125.0C-roundnutdcl b/ Snt 897.3 1212.4 909.4 1277.0 t1lo 90.3 862.7 857.7 850.0 862.0 860OPalm oil b/iSmt 530.9 545.8 6771 556.3 650.3 675.3 679.3 679.3 694.0 6800 6030

+Palmkemel dl Smt 728.0 65l8 6867 606.7 605.0 706.3 694.3 7470 714.0 746.0 763.0Soybean meal bi Smnt 267.5 275.8 170.3 265.7 209.7 W-0 149.0 88.7 1520 123.0 128.0Soybean cil bi $rmt 55l5 564.8 625.9 636.3 637.0 654.0 606.3 606.3 614.0 614.0 5910Soybeans bi Sirt 304.8 295.4 242 8 283.3 270.3 247.7 2243 229.0 223.0 234.0 230.0

GrainsMaize bi S/mt '65.8 117.1 102.0 117.0 1A4.1 15.8 916 96.5 95.5 98.1 95.8Rce, Thal, 5% bi 9mt 338 9 303.5 304.2 262.6 293.8 318.4 322.3 2822 298.8 270.0 277.8

+Rce, Thai, 25% $frt 286.1 257.1 259.9 230.3 246.0 262.0 273.7 257.7 2770 250.7 2575Rce, Thai, 35% SYmt 275.8 246.8 249.7 222.9 235.3 249.7 262.1 2576 2B4.0 245.7 245.3Rce,Thai, AlSpecial Srnt 232.7 212.4 213.0 189.5 128.2 129.8 225.6 2385 2518 2370 232.8Sorghum b/ Smt 150.0 129.6 98.0 11l8 1112 130.4 92.5 90.0 87.7 92.2 90.2Wheat, Canada Smt 230.8 1824 1629 172.7 18.7 '165.3 153.0 124.7 120.5 125.9 t67.6Wheat, US, HRW bl $nt 207.6 159.5 1261 1487 1387 126.6 6 27.7 26.5 130.2 26.2Wheat, US, SRN $fht 17.4 143.7 11l5 139.2 29.1 12L6 95.3 129.0 127.6 115.3 124.1

Other FoodBananas b/ $hit 469.6 502.7 4976 404.8 422.2 567.5 456.5 520.1 400.1 542.9 617.3Beef b/ ckg 178.5 125.5 172.6 1277 1273 176.1 136.7 1ff.2 123.7 156.6 28.3Fishmeal Smtt 586.0 605.3 65l9 698.3 694.7 6833 670.3 6073 652.0 6070 5470Lamb ckg 329.5 339.3 275.0 333.0 312.5 272.3 2511 264.2 275.3 263.3 254.1Oranges bi Shit 4977 459.0 442.4 420.5 388.2 450.1 512.3 415.1 433.0 428.2 383.9Shnmp, US Gulf cAg 13119 1476.3 1424.0 1216.5 1539.3 1566.2 1372.0 1213.4 12472 t2075 12 .5Shnmp, Mexican ckg 135l6 16176 1578.9 1539.5 1253.5 1660.8 1574.1 1427.1 1412.4 1433.0 1433.0Sugar, EU. domestic bi ckg 68.31 62.72 59.75 60.50 59.94 59.59 58.59 60.88 60.78 60.76 6709Sugar, US, doriesdc b/ ckg 49.29 48.36 48.64 48.52 48.05 49.15 49.12 48.27 47.75 48.13 48.92Sugar, uwld b/c*g 26.36 25.06 1967 26.27 23.57 19.85 17.92 17.34 16.45 17.77 17.81

Raw MateriaIsTimber

Logs. Cameroon Scum 284.3 284.8 286.4 2979 287.7 282.7 279.4 295.9 300.3 292.7 294.6Logs, Malaysia bi S(cum 252.1 238.3 t'2.d 217.8 W.9 150.2 140.7 12.0 123.0 159.5 123.5Plycd c/sheet 529.5 485.0 375.4 439.5 403.6 3611 344.3 3924 379.2 389.8 408.1

+Savnod, Cameroon Scum 512.4 563.6 526.3 572.3 530.5 523.6 512.2 532.0 555.1 523.2 517.9Sawnviwtxl, Ghana Scum 540.8 567.5 534.7 578.3 5676 529.3 5271 526.6 532.6 522.3 525.0Saiviod, Malyasia hl Scum 7414 664.5 484.2 509.4 474.6 476.7 465.5 519.8 512.5 514.0 535.0Woodpulp S5nt 574.1 55.5 508.8 597.0 527.5 540.5 507.5 459.6 463.1 457.8 457.8

74

january yyy COMMODITY PRICE DATA

Table A7: Commodity Price Data (Continued)

........ Annual averages- ---------- Quarterly averages---------------------Monthly averages----Jan-Dec Jan-Dec Jan-Dec Oct-Dec Jan-Mar Apr-Jun Jul-Se Oct-Dec Oct Nov Dec

Commodity Unit s9 t997 1998 1997 1998 19998 9 1998 198 198

Other Raw MaterialsCotton, CalookAIndex b/dkg 177.3 174.8 144.5 168.5 153.9 146.2 150.2 127.5 135.5 123.6 123.5Jute $(it 457.5 304.6 258.0 242.3 243.3 258.8 260.0 270.0 280.0 280.0 250.0Rubber, Madaysia bJclkg 139.4 1)18 722 813 74.8 75.3 68.0 70.6 72.9 719 67.1Rubber, US ckg 160.7 1216 89.5 103.3 92.8 92.0 86.1 87.0 88.7 88.2 84.3Rubber Singapore cAg 140.9 10lO 70.9 80.8 73.1 734 68.3 69.0 734 69.3 64.2Sisal $frd 868.3 776.6 820.8 760.0 778.3 805.0 850.0 850.0 850.0 850.0 850.0Wool clkg 416.3 430.3 336.3 412.9 3743 350.8 313.0 307.2 303.7 312.4 305.7

FertilizersDAP $tnt 213.2 19.9 203.4 200.1 194.6 205.3 209.5 2044 205.9 204.4 202.0Phosphate rock b/ $Nt 39.0 410 43.0 4lO 43.0 43.0 43.0 43.0 43.0 43.0 43.0Pdtasium chloride $tnt T1.9 1tt.5 11t.9 116.5 116.5 116.5 116.5 118.1 117.1 1.5 11B 5TSP b/ $tnt 175.8 1719 173.1 168.7 172.5 175.9 175.0 18.9 1716 67.5 17.5

+Lrea, E.Europe bagged $tnt 187.5 127.9 103.2 11.8 11.3 117 12.3 88.5 92.0 89.4 84.2+Urea, E.Eurpe, bulk $SNt 179.0 114.0 83.1 92.0 89.7 89.5 84.8 68.4 69.5 69.5 66.3

Lrea, W. Europe, bagged $It 205.5 146.1 212 128.9 128.5 29.0 120.5 13.8 1t.2 1)7.6 1)Z5

Metals and MineralsAluminum h/ $tnTt t505.7 1599.3 1357.5 1579.1 14630 1363.4 1320.8 28.7 1304.1 295.0 249.1Copper b/ $mt 2294.9 2276.8 E)54.1 110.7 1700.4 17313 1639.9 1544.6 1)8&4 1574.0 1473.6Gold StOz 387.7 3311 294.2 306.6 294.2 299.9 288.7 293.9 295.9 294.1 2917Iron ore b/ cdmtu 28.57 28.88 29.69 28.88 29.69 29.69 29.69 29.69 29.69 29.69 29.69Lead b/ cAkg 77.4 624 5Z9 56.3 53.6 54.8 53.4 49.6 49.3 49.4 50.1Nckel IV $hit 7500.8 6927.4 4629.5 615.1 5424.8 4963.2 41t9.4 3990.7 38719 41319 3878.2Silver CAOz 518.3 489.2 553.4 526.2 624.8 5712 5220 495.8 500.2 498.4 488.7Steel products (8) index c. 1990=100 96.3 89.1 74.9 84.5 80.4 76.7 73.4 69.0 70.9 69.7 66.4Stee, cold rolled coilsheet $tnt 483.9 448.2 370.8 443.3 415.7 386.7 360.0 320.0 330.0 320.0 31D.0Stee, hdrdledcoilsheet $nt 365.6 337.3 279.2 330.0 3t1.7 293.3 270.0 236.7 250.0 240.0 220.0Stel, rebar $nt 360.2 325.2 257.5 306.7 296.7 260.0 233.3 240.0 240.0 240.0 240.0Steel, virerod $`Int 438.5 3827 332.1 346.7 328.3 336.7 336.7 326.7 340.0 330.0 31D.0Tin bI/ ckg 615.5 564.7 554.0 557.8 530.9 585.3 5610 538.9 543.2 547.8 5258Zinc b/ cAg 1)2.5 1316 102.5 11t.5 t6.3 105.6 1)Z3 95.6 94.1 96.7 95.9

World Bank commodity price indexes for low and middle income countries( 1990 =100)Petroleum 89.3 83.8 57.1 819 615 58.4 56.9 518 58.0 519 45.5Non-Energy Commodites 115.1 17.6 99.2 19.4 135.9 1O10 95.2 94.6 94.1 95.1 94.6

Agriculture 25.5 28.7 1)7.9 119.3 11.4 t9.7 102.6 1)28 1D17 103.2 103.5Beverages 26.5 1710 140.6 1)2.1 1)4.3 144.2 129.0 124.9 123.3 126.0 125.4Food 23.6 1t6.1 1)5.0 12.0 1)9.1 106.9 1011 1)26 10.2 13.5 1)4.2

Fats and OiIs 147.0 147.7 132.8 146.3 400 132.5 27.2 1315 29.4 132.9 13M2Grains 140.6 112.1 V13 1D3.6 5.7 104.5 98.3 99.5 98.5 95.7 95.4Other Food 95.0 924 84.2 88.7 85.8 87.3 814 82.4 77.3 83.8 86.2

RawMaterials 127.1 113.7 87.4 97.1 90.3 87.7 84.9 86.6 87.7 85.9 863Timber 139.5 125.8 90.9 98.7 919 88.8 86.3 96.7 95.3 95.6 99.3Other Raw Materals 11).7 115.5 85.0 96.1 89.2 87.0 83.9 79.8 826 79.4 77.4

Fertilizers 1T.8 119.7 '22.1 118.2 1218 123.4 123.0 120.1 1214 119.4 119.4Metals and Minerals 89.1 90.2 75.7 84.1 78.7 77.4 74.5 72.0 72.8 72.9 70.4

at Induded in the petroleum index b/ Included in the non-eergy index Cl Steel not induded in the non-energy index$= US. dollar c= US. cent bbl = barel cum = cubicmeter dmtu = ry MetricTon Unit kg = kilogram mmbtu = million Britsh themTal units

mt = metric ton ttz = troy cz + = newseries

Description of Price Series

Coal (Australian), thermal, 12,000 btuAb, less than 1.0% sulfur, 14% ash, f.o.b. piers, NewcastlelPort KemblaCoal (US), thermal, 12,000 btuAb, less than 1.0% sulfur, 12% ash, f.o.b. piers, Hampton Road,NorfolkCrude oil (spot), average spot price of Brent, Dubal and West Texas Intermediate, equally weighedCrude oil (spot), U.K. Brent 38 API, f.o.b. U.K portsCrude oil (spot), Dubai Fateh 32 API, f.o.b. DubaiCrude oil (spot), WestTexas Intermediate (WTI) 40' API, f.o.b. Midland TexasNatural Gas (Europe), average import border priceNatural Gas (U.S.), spot price at Henry Hub, Louisiana

7 5

t9_UtSAL LUIVII.V 0JI I Y MAKKE I january 1999

Table A7: Description and Price Series

Cocoa (ICCO), International Cocoa Organization daily price, average of the first three positions on the 'erminal markets of New York and London,nearest three future trading months.

Coffee (ICO), International Coffee Organization indicator price, other mild Arabicas. average New York and Bremen/Hamburg markets, ex-dockCoffee (ICO), International Coffee Organization indicator price, Robustas, average New York and Le Havre,tarseilles markets, ex-dockTea (Calcutta auctions). leaf, include excise duty, arithmetic averages of weekly quotes.Tea (Colombo auctions), Sri Lankan origin, all tea, arithmetic averages of weekly quotes.Tea (Mombasa,Nairobi auctions) African origin, ail tea, arithmetic averages of weekly quotes.

Coconut oil (Philippinesfindones:an), bulk, c.i.f. RotterdamCopra (PhilippinesAndonesian), bulk, c.i.f. N.W. EuropeGroundnut meal (Argentine), 48/50%, c.i.f. RotterdamGroundnut oil (any origin), c.i.f. RotterdamPalm oil (Malaysian), 5% bulk, c i.f. N. W. EuropePalmkernel Oil (Malaysian', c.l.f. RotterdamSoybean meal (any origin), Argentine 45/46% extraction, c.i.f. Rotterdam: prior to 1990, US 44%Soybean oil (Dutch), crude. f.o.b. ex-millSoybeans (US), c.i.f. Rotterdam

Maize (US), no. 2, yellow, f.o.b. US Gulf portsRice (Thai), 5% broken, WR, milled, indicative price based on weekly surveys of export transactions (indicative survey price), government standard, fro.b. BangkokRice (Thai), 25% broken, WR, milled indicative survey price, government standard, f.o.b. BangkokRice (Thai), 35% broken, WR, milled., indicative survey price, government standard, f.o.b. BangkokRice (Thai), 100% broken, A.1 Special, broken kernei obtained from the milling of WR 15%, 20%, and 25%, indicative price, government standard, f.o.b. BangkokSorghum (US). no. 2 milo yellow, f.o.b. Gulf portsWheat (Canadian), no. 1, Western Red Spring (CWRS), in store, St. Lawrence, export priceWheat (US), no. 1, hard red winter, ordinary protein, export price delivered at the Gulf portfor prompt cr 30 days shipmentWheat (US) no.2, soft red winter, export price delivered atthe Gulf portfor promptor 30days shipment

Bananas (Central & South American), first-class quality tropical pack, importer's price tojobber or pro-essor, f.o.r. US portsBeef (Australian/New Zealand), cow forequarters, frozen boneless, 85% chemical lean. c.i.f. U.S. port I East Coast), ex-dockFishmeal (any origin), 64-65%, c&f Hamburg, nfsLamb (New Zealand), frozen whole carcasses, wholesale price, Smithfield market, LondonOranges (Mediterranean exporters) navel, EEC indicative import price, cJi.f ParisShrimp (US), frozen. Gulf brown, shell-on, headless, 26to 3C count per pound, wholesale price at New YorkShrimp , (Mexican), frozen, white, No. 1, shell-on, headless, 26 to 30 count per pound, wholesale price at New YorkSugar (EU), European Union negotiated import price for raw unpackaged sugarfrom African, Caribbean and Pacific (ACP) under Lome Conventions,

c.l.f. European portsSugar (US), import price. nearest future, c.i.f. New YorkSugar (world), International Sugar Agreement (ISA) daily price, raw, f o.b. and stowed at greater Caribbean ports

Logs (Malaysian), meranti, Sarawak, sale price charged by importers, Tokyo: prior to February 1993, average of Sabah and Sarawak weighted by Japaneseimport volumes

Logs (West African), sapele, h igh quality (loyal and marchand LM), f.o.b. Cameroon: beginning January 1996, LM 80 centimeter or morePlywood (African and Southeast Asian), Lauan, 3-ply, extra, 91 cum x 182 cum x 4 mm, wholesale price, spot TokyoSawnwood (Malaysian), dark red serayaimeranti, select and better quality, General Market Specificaticn (GMS), width 6 inches or more, average 7 to 8 inches:

length 8 inches or more, average 12 to 14 inches: thickness lto 2 inch(es); kiln dry. c. & f. UK portsSawnwood (Ghanaian), sapele, bundled, f.o.b. TakoradiSawnwood (Cameroonian). sapele, width 6 inches or more, length 6feetor more. f a.s. Cameroonian portsWoodpulp (Swedish), softwood, sulphate, bleached. air-dry weight, c.i.f. North Sea ports

Cotton ("cotton outlook", "A" index), middling 1-3132 inch, c.i.f. EuropeJute (Bangladesh), raw, white D, f.o.b. ChittagongiChalnaRubber (Malaysian), RSS no. 1. in bales, Malaysian Rubber Exchange & Licensing Boarc. midday buyers' asking pricefor prompt or 30 days delivery,

f.o b Kuala LumpurRubber (any origin), RSS no 1, in bales, RubberTraders Association (RTA), spot, NewYorkRubber (Asian), RSS no 1, in bales, RubberAssociation of Singapore Commodity Exchange (RASCE:)/Singapore Commodity Exchange, midday buyers'

asking pricefor prompt or 30 days delivery; prior to June 1992, spot, SingaporeSisal (East African), UG (rejects), c.i.f. UKWool (Dominion), crossbred, 56's, clean, c.i f. UK

DAP (diammonium phosphate), buik, spot, f.o.b. US GulfPhosphate rock (Moroccan), 70% BPL, contract, f.a.s. CasablancaPotassium chloride (muriate of potash). standard grade, spot, f o.b. VancouverTSP (triple superphosphate), bulk, spot, f.o.b. US GulfUrea, (varying origins), bagged, spot, f.o.b. Eastern EuropeUrea, (varying origins), bulk, spot, f.o.b. Eastern EuropeUrea (varying origins), bagged, spot, f.o.b West Europe

Aluminum (LME) London Metal Exchange. unalloyed primary ingots, high grade, minimum 99.7% pujrity, cash priceCopper (LME), grade A, minimum 99.9935% purity, cathodes and wire bar shapes, settlement priceGold (UK), 99.5% fine, London afternoon fixing, average of daily ratesIron ore (Brazilian), CVRD Southern System standard sinterfines (SSF), 64 2% Fe (iron) content (dry weight) ores, moisture content 6.5%, contract price

to Europe, f.o.b. Tubarao. Unit dry metric ton unit (dmtu) stands for mt l/. Fe-unit To convert price in cents/dmtu to $/dmt SSF (dry ore), multiply bypercent Fe content. For examrple, 28.88 centsidmtu is $18.54 /dmt SSF To convert to wet mt SSF (natural orwet ore), multiply by percent Fe content by(1 minus percent moisture content). 28.88 cents Idmtu is $17.34 ANet mt SSF Iron ore in most countries is traded in terms of dry mt, and shipped in wet mtFor 1989-96, Fe contentwas 64.3% and moisture content 8.9%

Lead (LME), refined, 99.97% purity, settlement price

76

january 1999 DESCRIPTIONS AND EXPLANATIONS

Nickel (LME), cathodes, minimum 99.8% purity, official morning session, weekly average bid/asked priceSilver (Handy & Harman), 99.9% grade refined, New YorkSteel products price index, 1990=100, (Japanese), composite price index for eight selected steel products based on quotations f.o.b. Japan excluding

shipments to the United States and China, weighted by product shares of apparent combined consumption (volume of deliveries) at Germany, Japan andthe United States. The eight products are as follow: rebar (concrete reinforcing bars), merch bar (merchant bars), wire rod, section (H-shape), plate (medium),hot rolled coillkheet, cold rolled coil/sheet, and galvanized iron sheet

Tin (LME), refined, 99.85% purity, setlement priceZinc (LME), special high grade, minimum 99.995% purity, weekly average bid/asked price, official morning session; prior to April 1990, high grade, minimum 99.95%

purity, settlement price

Definitions and Notes

Constant prices are prices which are deflated by the Manufactures Unit Value Index (MUV), with a base of1990=100. The MUJV is the unit value index in US dollar terms of manufactures exported from the G-5countries (France, Germany, Japan, UK, and US), weighted proportionally to the countries' exports to thedeveloping countries.

Current prices are actual market prices which are not adjusted for inflation or exchange rate changes.

Dollars are United States dollars unless otherwise specified.

Futures prices shown in this report are closing prices as of the date noted. The prices are converted to the sameunits as the monthly data for comparison purposes, however they are not adjusted for quality or transportation.Thus, the futures prices will often have a significant margin from the actual monthly prices, but this marginshould not be interpreted as the expected direction of future price movements. Rather, it is the path of futuresprices which is considered to have economic meaning by many commodity analysts.

Growth rates, except where noted, are computed by least squares regression.

Price indexes were computed by the Laspeyres formula. Index is comprised of 33 commodities. U.S. dollarprices of eachcommodity are weighted by 1987-89 average exportvalues. Baseyearreference for all indexesis 1990. Countries comprised of all low and middle income economies according to World Bank incomeclassification. Details are shown in Table A7 Commodity Price Data.

Regions are classified according to World Bank analytical groupings.

Reporting period. Calendar vs. crop or marketing year refers to the span of the year. It is common in manyagricultural commodities to refer to production and other variables over the twelve month period which beginswith harvest. A crop or marketing year will often differ by commodity and also by country. Other commoditiessuch as metals use a calendar year.

Tons refer to metric tons (1,000 kilograms) unless otherwise noted.

77

GLOBAL COMMODITY MARKETS fanuc.r, 1

Acronyms and Abbreviations

AP! American Petroleuim Institute lb poundsbhi barrels LIBOR London Interbank Offer Ratei3P British Petroleum LIFFE London International Financial anri Firuresc .i.f cost, insurance, and freight and Options ExchangeCBOT Chicago Board of Trade LME London Metal ExchangeCSCE Coffee, Sugar. and Cocoa Exchange mb/d rnillion barrels per daycum cubic rneter mmbtu rnillions of British thermal unitsCVRD Companhia Vale do Rio Doce MSE MAinneapolis Grain Exchangedmntu dry metric ton unit mt metric tonf.o.b. free on board mtoe rnillion tons of oil equivalentt.o.r. free on rail MUV Manufactures unit valueFAO Food and Agriculture Organization of the n.a. data not available

United Nations NIKKEI Nihon Keizai Shimbun, Inc.t?AO Food and Agriculture Organization nil. data less than half the unit shownFPIU Former Soviet Jnion NMFS The National Marine Fisheries SerireG-5 France, Germany, Japan, United Kingdom, NYCE N ew York Cotton Exchange

and United States NYNEX New York Mercantile ExchangeG-7 G-5 plus Canada and Italy OECD Organization for Economic Cooperati-l; andtGATT General Agreement on Tariffs and Trade DevelopmentGDP Grossdomestic prodtuct OPEC Organization for Petroleunm iqSrnnGNP Gross national product Countriesha hectare PNG Papua New GuineaICAC International Cotton Advisory Committee SDR Special drawing rightfCCO International Cocoa Organization SICOM Singapore Commodity ExchangeIC'O Intemational Coffee Organization ton metric tonlEA Intemational Energy Agency UTN lJnited NationsiGC International Grains Council UNCTAD lJnited Nations Conference on I rade ain:llSI International Iron and Steel Institute DevelopmentIMF International Monetary Fund US DOE IJS Department of EnergyINRO International Natural Rubber Organization USDA lJnited States Department of AgricultureIRSG International Rubber Study Group USDA lJnited States Department of AgricultureISO International Sugar Organization WBMS World Bureau of Metal StatisticsTTC International Tea Committee WFP World Food ProgrammeITTO International Tropical Timber Organization WHO 'World Health Organizationkg kilograms WSJ The Wall Street JournalKLCE Kuala Lumpur Commodity Exchange WTO 'World Trade Organization

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