Industrial metals, iron ore and rubber prices fell in 2022 due to China’s strict Zero Covid policy and fears of a global recession.
Agricultural markets, including grains and palm oil, rallied to all-time highs in March 2022 as adverse weather and pandemic-related supply disruptions fueled inflation in food prices. However, these items have decreased quite a lot in the last 6 months of 2022.
Goldman Sachs said in its 2022 World Commodity Market Outlook: “Despite recent price declines, commodity markets still end 2022 as a strong asset class most effective for investors…”.
“From a fundamentals perspective, the forecast for most commodities in 2023 will be higher than at any point since we first mentioned the supercycle, in October/October/ 2020,” said Goldman Sachs bank.
Commodities have the biggest increase in prices among assets in 2022.
Competing for gas and coal supplies
The global gas market in 2022 has been rattled after Russia cut off supplies to Europe and a major pipeline was damaged during the war in Ukraine, prompting European countries to import record volumes in order to save energy and ensure supplies for the winter.
Increased additional demand for liquefied natural gas (LNG) amid tight pipeline gas supplies has put enormous pressure on the global market, creating an energy crisis and gas prices to historic highs.
The Newcastle coal futures contract has risen by nearly 140% in 2022, the biggest increase since 2008. Meanwhile, the price of US gas futures and wholesale gas prices in the market. The Dutch market has increased by more than 20% in 2022, which is the 3rd year in a row and the 2nd highest price increase item in 2022.
Power generation fuels – coal, gas and oil – outperformed the energy group in 2022.
As Europe will continue to import LNG in 2023 to rebuild its gas reserves after the winter, gas prices are expected to continue to rise as new supply coming to market remains a limited regime.
The lifting of pandemic control measures by China, the world’s second-biggest importer, could also boost the world economy’s recovery, leading to an increase in LNG consumption in 2023.
However, a European ceiling on gas prices starting in February could help curb market stress and ease the volatility that has occurred in 2022.
Oil prices in 2022 rose for the second year in a row, with Brent up nearly 6%, while U.S. light sweet crude rose nearly 5%.
For industrial metals, three-month copper futures on the London Metal Exchange (LME) are down more than 13% in 2022, while aluminum is down around 15%, although both metals reached a record high in March 2022.
Metal price movements in 2022.
Spot iron ore prices in China, which consumes about two-thirds of the global iron ore supply, have fallen about 5% in 2022, to nearly $115 a tonne.
Citi analysts forecast a decline in nickel and zinc prices over the next six to 12 months due to strong supply, while forecasting a rise in iron ore and aluminum prices.
According to Citi: “Iron ore prices are expected to remain high in the near term and may continue to increase in the event that China aggressively loosens credit …”
China’s end to its Zero Covid policy and its pledge to increase support for its ailing real estate sector helped support ferrous and non-ferrous prices in December 2022.
However, the optimism in the market was tempered by the increasing number of Covid-19 cases in China and the increased risk of a global recession in 2023 if central banks continue to increase interest rates as expected to curb inflation.
Nickel prices in 2022 outperformed the metals group, with a 45% increase – the most since 2010, partly due to a shortage in the supply of contract-deliverable nickel in the LME and partly due to the market volatility since volume contracted in March.
Food price inflation
Wheat futures on the Chicago Mercantile Exchange rose to an all-time high, of $13.63-1/2/bushel, in March 2022 after a conflict between Russia and Ukraine reduced supplies supply from the main grain exporter, Ukraine, to the global market, where prices have increased due to adverse weather and restrictions related to the Covid-19 epidemic.
Maize and soybean prices have also hit a decade high, while Malaysian crude palm oil prices have surged to an all-time record.
Grain and oilseed prices surged in 2022, fueling inflation concerns.
In the future, food prices will certainly remain high, as wheat production is unlikely to be enough to replenish the world’s dwindling stockpiles, at least in the first half of 2023, while the Oil-producing crops are suffering from adverse weather in Latin America and Southeast Asia.
“The US winter wheat crop is facing extreme cold weather and even if the crop improves, we will (only) have that supply in the second half of 2023,” said a trader with one Singapore-based international trading company.
The rice market, which has been outside the grain price spike in the first half of 2022, has picked up after India, the world’s largest exporter, decided to limit supply in September 2022. The price of Indian 5% broken parboiled rice will increase by nearly 6% in 2022, and Vietnam’s 5% broken rice price will increase by more than 15%.
Among precious metals, gold has lost about 1% in 2022, its second consecutive year of decline, with silver up nearly 3%, platinum up 9% and palladium down 4%.
Coffee was one of the biggest losers, with robusta down 23% and arabica losing a quarter of its value.
The price of rubber on the Osaka market has lost more than 7% in 2022, while raw sugar has increased by more than 7%. Cotton prices fall by more than 26% in 2022….
Reference: Reuters
Source: Vietnam Insider