How commodity prices swelled globally and then lost some heat

Crude oil price dropped below $100 a barrel on Tuesday, belying forecasts made even before the Ukraine war that it might vault past $150. Wheat price shed more than $1.70 dollar per bushel from its 7 March peak, while both soybean and palm oils marked a gradual decline from week-ago levels, according to latest trends in global commodity futures.

Global market reports suggest that the commodity market, which turned unstable due to the Russia-Ukraine war and the West's sanctions, is cooling down a bit.

As crude oil is the second largest after cotton in the import basket, Bangladesh stands to get some relief in future trades, as the state oil monopoly booked diesel for $129.14 a barrel on 11 March, down from $176 two days back.

May take months for lower LPG price

But it may take months to see the impact on liquefied petroleum gas (LPG) prices, the owner of a leading local LPG company said, while welcoming the declining trend in crude price.

Commodity traders have expressed guarded optimism over the sustainability of the latest trend in the global future trades as supply concerns remain with Russia's war in Ukraine raging on and Western sanctions in force.

Local wholesale prices of some commodities, including edible oil and wheat, marked some declines in the last couple of weeks because of tax and duty waivers at import and retail levels, they said.

Oil futures have shed around 20% since closing at the highest since 2008 a week ago after a tumultuous period of wild fluctuations of prices.

Azam J Chowdhury, Chairperson at East Coast Group and director of Omera Petroleum Limited told TBS that it will take months to see any reflection of the global crude oil price drop on Bangladesh's market.

But the good news is that the oil price has started to decrease in the global market, he noted.

Due to the record hike in oil prices, Bangladesh Petroleum Corporation has been incurring losses as high as Tk80 crore per day. The corporation will not benefit from the price fall soon as it mostly imports refined oil, which is still $120 per barrel as of Monday's data.

In the meantime, the turmoil in the global wheat market has abated somewhat as supplies from Russian ports continued though at a lower number than in the previous week, says a Bloomberg report.

But there are warnings that the situation might change since the war shows no immediate signs of ending and the Russian military was "closing in on Kyiv".

Closed ports, fresh China lockdown new worries

Ports of Ukraine, known as the global breadbasket, are still closed and news of fresh Covid-19 lockdowns in China came as new worries.

While the world is facing slower growth along with surging consumer prices, Europe is at the risk of stagflation as gas prices have trebled amid panic over future supply.

Overall indices of commodity prices are already 26% higher than at the start of 2022. Crude oil is still at the levels difficult for the global economy to absorb.

Market data analysed by The Business Standard indicates that six major import commodities marked declines, or at least plateaued from their recent peaks after the Russian attack on Ukraine disrupted supply through the Black Sea and trade sanctions on Russia.

Palm oil fell more than $260 in a week to $1433 per tonne yesterday, while wheat was traded at $11.24 per bushel (27.2kg). Cotton marked declines since 11 March.

Traders hope for stable Ramadan prices

Local traders, however, are not upbeat about the declining trend in the global market but hoped that local market prices might not see wild fluctuations during Ramadan if the global situation does not turn worse.

They attributed the fall in wholesale prices of some products to the waiver of VAT and duty, not as a reflection of the global trend.

Palm oil marked the biggest decline, by Tk900 per maund (40.9 litre) to Tk5,100 and soybean dropped to Tk6,200 per maund, lower by Tk800 than a couple of days back. Sugar and chickpea, two of the most in demand items during Ramadan, declined by Tk100 and Tk200 per maund. Wheat price also dropped slightly, Tk50 per maund for Indian variety and Tk70 for Canadian wheat.

"Prices fell after the government waived VAT, not because of the global price trend," said Ashutosh Mohajan, owner of Koli Traders, a commodity wholesaler based in Chattogram.

Tareque Ahmed, director of leading commodity importer TK Group, said price declines seen in the global market in the last two-three days do not indicate any vital change. "Global prices rise and fall like this. You cannot predict anything for sure," he told The Business Standard. 

However, he said there are sufficient stocks of major food commodities for Ramadan and local market prices should not see any major fluctuations if the global market does not turn volatile.       

To rein in the spiralling prices of essential commodities in the market, the government has waived VAT on the production and distribution of soybean oil.  The National Board of Revenue has also been directed to impose a minimum duty on imports of other daily essentials including wheat and sugar. 

However, such moves have not had any effect on the country's market yet.

Traders say they are selling daily commodities, including oil and sugar, at prices fixed by the commerce ministry despite a hike in the global market. 

Biswajit Saha, executive director at City Group, the country's largest consumer goods manufacturer, said the ministry will readjust prices in the domestic market as VAT on daily essentials has been waived. And there will be a further downward readjustment following a global fall.

"The international market has somewhat stabilised in the last two or three days which is good news for us. When prices come down, it is good for both importers and consumers. But we are now struggling to deal with the already-increased prices," he added.

There has been a crisis in the production and supply system. We do not know when this will be normalised, he added

The wheat price in Bangladesh has not increased as much as it did in the global market a week ago, said FH Ansarey, president at ACI Agribusinesses – another major consumer goods company.

Price fluctuations in the international market happen based on commodity exchanges. But that is not the case in Bangladesh, he also said, explaining that traders here open a letter of credit, import raw materials, go into production, and then fix product prices.

That is why it will take time for price adjustment, he noted.

Stating that price stability in the international market is a matter of relief, he said traders can now open LCs at lower prices. 

But it will be difficult to control commodity prices with freight charges going high, FH Ansarey added.