Ukraine war, the Covid pandemic and the inflation triggering fears of economic slowdown dominated the commodities market in 2022. The script may pretty well be the same in 2023, though the world has learned to live with the war in its background and an outbreak of the pandemic always lurking nearby.

Economic slowdown, however, will be for real in 2023. All countries might not be facing recession at the same time, though. Inflation and the economic slowdown will continue to dominate the commodities market as long as Russia and Ukraine continue to be at war.  The commodities market is looking to stabilise but the latest Covid outbreak in China could change things. Prices, however, could remain elevated in 2023, though lower than the 2022 average. 

When 2022 began, the world of commodities was set to normalise with market fundamentals seen providing a direction. The market was recovering from the Covid-related problems due to container non-availability and high shipping charges but the Ukraine War changed it all.

War-led price hike

Russia is a significant supplier in the energy commodities market and some metals such as aluminium and nickel. The war led to their prices soaring. In particular, crude oil and natural gas were primarily driven by the war and supplies from Kremlin getting affected. 

Gas prices nearly trebled, as a result, leading to inflation with prices of all commodities increasing. That, in turn, triggered concern among central banks which resorted to hiking interest rates. This flared up fears over an economic slowdown as nations across the globe tried to cope with the impact of the recession. 

Crude oil and natural gas were the primary commodities to be swayed by the three factors — war, Covid and Inflation. As soon as the war broke out, crude oil, which was hovering near $100 a barrel on concerns over the war, topped $125 before winding its way down to around $80 currently. This is despite OPEC+ measures to curb production to keep prices firm. 

Natural gas, one of the top five commodities to gain this year, soared before giving up its gains. But it has been able to retain a part of the gains with prices now up 40 per cent year-to-date. However, high natural gas prices particularly resulted in the rise in prices of chemical fertilisers that have impacted agriculture. 

Coal thrives

Coal has been the biggest beneficiary of the volatile crude and natural gas markets. It is the top gainer in 2022. The war forced some nations to go back to the trusted commodity and its prices topped $400 a tonne. A cold winter in Europe has not helped the situation either.

Geopolitics is a factor that drives bullion metals, particularly gold which zoomed to a new high of $2,074.88 an ounce. But the interest rate hikes burst the bullion bubble and the US dollar’s rise has added to its woes. Silver is turning out to be a dark horse, particularly for 2023. Currently, it is witnessing a physical deficit and this has raised hopes of a sharp spike in the coming months. Both metals will likely have a muted first half before unfolding global events provide a clear direction.

Global developments continued to impact the steel sector and slack economic growth resulted in steel prices declining over 15 per cent in 2022. As a result, iron ore prices declined by 10 per cent. A major factor for slack economic growth has been the spread of Covid in China, the largest consumer of both these commodities. Chinese developments will continue to impact these in 2023.

Copper, aluminium, nickel and other base metals gained soon after the war but the global economy outlook resulted in these commodities paring their gains. Copper topped $10,000 a tonne during the middle of 2022 but fears over recession dragged it lower to $8,300.

Aluminium topped a record $4,000 a tonne soon after the war began as Russia is one of the key suppliers in the global market but it dropped on recession fears. The London Metal Exchange’s move to not ban the metal from Russia has helped to keep a leash on prices, which have slid to $2,400 now.

Nickel surged to a record $100,000 a tonne soon after the war as a Hong Kong trader went on a short-selling spree. LME suspended trading for a couple of weeks to help the trader recover. Despite paring 65 per cent of the gains from the record highs, the metal is up over 40 per cent year-till-date as uncertainty over supplies continues.

Electric vehicles have gained on high energy commodities prices. As a result, lithium prices have more than doubled this year. 

2023 outlook

The war, covid pandemic and economic growth will continue to sway the commodities market in 2023, at least until Russia and Ukraine smoke the peace pipe. But an end to the war could see prices crashing as the markets could be flooded with stocks, particularly from Russia and Ukraine. However, there are other factors. For example, China could come up with a stimulus package for its industries that could boost the market. Indonesia’s plans to ban exports of bauxite from June 2023 may result in a spike in aluminium prices. 

Related Topics
comment COMMENT NOW