Raw materials 2023: what will happen to prices and supplies in the new year? One of the most important assets for investors and economists under the lens. Commodities will be the protagonists, what estimates?
Commodities: what is the forecast for 2023?
Next year is eagerly awaited amid fears of a sluggish global economic restart, still pressed by inflation and war, and hopes for a full rebound after the uncertainties of 2022. In this context of expectations, the role of commodities will be crucial.
Oil, gas, aluminum, copper, grain will be the undisputed protagonists of the recovery and of the price trend, considering that the inflation rate has skyrocketed in 2022 just fueled by record raw material costs.
Will demand, especially in the Chinese market, and supply of the main commodities find the right balance to avoid shocks that are harmful to the markets and the real economy? Here’s the forecasts on raw materials for 2023.
Commodities: a 2022 balance
Where does 2023 start from on the raw materials front? Looking at the end of 2022, it first emerges that the coal and natural gas markets ended the year with strong gains, after the global energy crisis triggered by the war between Russia and Ukraine fueled prices .
Industrial metals, iron ore and rubber saw declines, driven lower in 2022 by China’s strict anti-Covid policy and fears of a global recession.
Agricultural markets, including grains and palm oil, jumped to all-time highs in March on adverse weather and pandemic-related supply disruptions, triggering higher food prices and warnings of famine, although these commodities lost some of their gains in the second half of the year.
Specifically, Chicago’s benchmark wheat futures jumped to an all-time high of $13.63-1/2 per bushel in March amid supply disruptions. Fewer grain exports from Ukraine put additional pressure. Wheat ended the year up about 3%.
Corn and soybeans hit a decade high, while benchmark Malaysian crude palm oil prices rose to an all-time record. Soybeans and corn both ended the year up about 14%, as severe drought in Argentina raised concerns about South America’s crop.
The rice market, which held back the rally in grain prices in the first half of the year, got a boost after India, the world’s biggest exporter, decided in September to cut supplies.
In industrial metals, copper on the London Metal Exchange is on track to drop 13% this year and aluminum is down about 15%. Both hit record highs in March.
Among precious metals, gold lost about 1% in 2022, falling for a second year, silver was up nearly 3%, platinum gained 11%, and palladium fell by 5%.
Overall, the Bloomberg Commodity Spot Index is down about 20% since its peak in June. But the basket, which tracks the price of more than two dozen commodities, is higher than it was during its records in 2008 and 2011.
Oil has fallen from a peak of over $125 a barrel in early 2022 to around 80 a barrel by the end of the year, but the price remains well above the low set in December 2008 of just over $35 a barrel. The same goes for other commodities, from copper to coal, from corn to tin. The commodity boom is taking a breather, but it’s not ending according to some experts.
Commodities 2023: the supply factor
Analyst Javies Blas on Bloomberg specified that although last year saw skyrocketing prices, the natural resources industry is in no hurry to invest in more capacity to ease supply shortages. Without an investment boom, the only way to rebalance the market in the new year is to reduce demand.
The surge in raw materials will end, according to the expert, only when capital spending on new projects picks up significantly. But that won’t happen in 2023.
Commodities will once again be the best performing asset class in 2023, offering investors returns in excess of 40%, according to Goldman Sachs. The Bank of Wall Street said that while the first quarter could be bumpy due to economic weakness in the US and China, the commodity shortage from oil to natural gas and metals will boost i prices later.
“Despite a nearly doubling year-over-year in many commodity prices by May 2022, capital expenditures across the entire commodity complex have been disappointing,” Goldman analysts wrote on Dec. 14 , including Jeff Currie and Samantha Dart.
Many say the lack of exploration for new oil fields and investment in mines has led to dwindling inventories and tight markets.
“Without sufficient capex (capital expenditures) to build spare supply capacity, commodities will be stuck in a long-term shortage state, with higher and more volatile prices”, the Goldman analysts said.
The bank expects Brent crude to rise to $105 a barrel in the fourth quarter of 2023, up from $82 today. It sees copper rise to $10,050 a tonne from around $8,400, and Asian benchmark liquefied natural gas rise from $33 per million UK thermal units to $53.10.
Global commodity demand: what will happen?
Commodity prices could decline if demand is weak. On the one hand, it is noted that an economic slowdown is already on the way.
The US Federal Reserve, the Bank of England and the European Central Bank are all steadily pushing the brakes on growth through higher interest rates. The British economy is already in a recession and Europe is approaching a precipice. The United States swings between a soft and a hard landing.
However, even if macroeconomic forces ease some pressures on upstream costs, factors such as low inventories and limited spare capacity will keep prices higher than in past recessions, according to Javies Blas.
According to Economist Intelligence Unit experts, in 2023 the slowdown in global economic growth will reduce the demand for base metals, with average prices set to fall by 11%.
However, policy decisions to boost construction and manufacturing in China, as well as increased Asian manufacturing demand in general, with much of Europe’s capacity shut down due to the energy crisis, will keep prices at a low of base metals in 2023, with most finishing the year up from the end of 2022.
The dragon is especially observed. The end of China’s zero-covid policy, with cases soaring, is posing a major downside risk to demand, and global prices forecasts will depend heavily on how quickly China effectively opens up the its economy in 2023.
Beijing’s fiscal stimulus presents upside potential for steel and base metals, depending on how much the Chinese property slump continues to dampen construction activity. Additionally, cotton is likely to be a major beneficiary of China’s reopening. A relaxation of the anti-Covid policy will lead to the opening of its ports and logistics networks, which will increase consumption and textile production.
On energy, after Chinese restrictions were lifted, CNOOC, one of the largest domestic oil companies in the dragon, raised its growth forecast for gas imports in 2023 to 7%. This has the potential to significantly fuel the gas and LNG prices.
Climate and commodities: crucial link for 2023
Economist Intelligence Unit analysts pointed out that the climate played a major role in commodities in 2022 and will likely do so again in 2023.
Scorching heatwaves in the Northern Hemisphere affected wheat production in the United States and Europe in 2022. Extreme weather events like La Niña, which is continuing for an unprecedented third straight year, will be detrimental to corn and soybean production in the first half of 2023, as well as other crops such as sugar and coffee.
Wheat, which was hit hard by war-related supply disruptions in 2022, faces significant climate risks. In the United States large swathes of the Southern Plains remain in drought conditions and crops are in unusually poor condition and heading into winter dormancy.
“US winter wheat is facing harsh weather, and even if the crop improves, we will have those supplies (only) in the second half of 2023”, said a Singapore-based trader.
Extremely dry and occasionally freezing weather in Argentina is wreaking havoc in key producing provinces, though both Russia and Australia are on track for second consecutive year of bumper harvests.
Finally, the weather will also affect the energy sector. The severity of the current crisis in Europe also largely depends on how cold temperatures fall during the winter, not only in 2022/23 but also in 2023/24. The colder the winter, the more countries will have to reduce their stockpiles in 2022. With gas prices rising.
Original article published on Money.it Italy 2022-12-31 15:56:00. Original title: Materie prime: le previsioni del 2023
