A record high in the value of global trade in Q1 this year has been attributed largely to soaring commodity prices, with UN research warning rampant inflation and slow economic growth threaten an uncertain environment for trade.
Goods and services trade totalled US$7.7tn in the first three months of 2022, a year-on-year increase of around US$1tn, according to fresh data published by the UN Conference on Trade and Development (UNCTAD). Exports from China, India and South Africa have risen in value by 49%, 34% and 46% respectively, it finds, compared to Q1 last year.
The Q1 total is also around US$250mn higher than for Q4 last year, surpassing February predictions from the Geneva-based body that trade in goods and services would plateau from the start of 2022.
However, UNCTAD says the rate of trade growth has continued to slow, and that overall trade volumes increased at a much lower rate than corresponding values, suggesting inflation is the primary driver of record high values.
“Most of the merchandise trade growth during the last year was nominal. In Q1 2022 the value of trade was about 30% higher than the pre-pandemic levels of 2019. By contrast, trade volumes increased [by] a much lower extent (about 6%),” it says.
“The divergence between values and volumes is due to rising commodity prices, especially for energy products, and general inflation.”
Commodity price inflation has been drastic in the energy sector. As of press time, Brent crude is 34% higher than this time last year, while natural gas, Dutch TTF gas and coal prices have risen 69%, 424% and 199% respectively year-on-year, according to Trading Economics data.
Price inflation has also affected agricultural commodities, including wheat, oats and dairy products, as well as certain metals such as lithium.
The trend has had a mixed impact on trade and commodity finance. Inflation and price volatility during the first half of 2021 created a highly profitable environment for traders, particularly at the larger end of the market, though smaller trading houses reported growing difficulty accessing trade finance facilities.
Since then, concerns have been raised over the availability of liquidity, with price rises prompting significant margin calls across the market in March this year.
UNCTAD says it also expects global trade to be affected by ongoing uncertainty throughout the rest of 2022, with trade growth likely to slow “due to rising interest rates, inflationary pressures in many economies, and negative global economic spillovers from the conflict in Ukraine”.
Russia’s invasion of Ukraine, and the subsequent imposition of sanctions across swathes of the Russian economy, have added further upward pressure on international energy and primary commodity prices, it finds.
“In the short term, because of the inelastic global demand for food and energy products, rising food and energy prices would likely result in higher trade values, and marginally lower trade volumes,” UNCTAD says.
Russian suppliers have historically played a vital role in the energy market, notably in oil and gas, as well as for metals such as aluminium, palladium and nickel, and agri-food including wheat and corn.
As of press time, there are signs that runaway price increases across many key commodities could be slowing.
Brent crude closed below US$100 per barrel this week for the first time in three months, amid falling demand from China, a strengthening of the US dollar and growing concerns of a worldwide economic slowdown. Prices for wheat and cooking oil have also dipped over the past month.
Beyond commodity prices, the potential introduction of further Covid-19 containment measures could add to supply chain disruptions and global economic uncertainties, UNCTAD says.
In April, shipping and logistics firms warned of diverted cargoes, container congestion and blank sailings as a result of partial lockdown measures imposed in Shanghai.
“Moreover, long-term trends to shorten supply chains and to diversify suppliers may start to influence international trade in 2022,” UNCTAD adds.