Commodities are traded in the commodity markets, where they are bought or sold. Commodities refer to primary products or raw materials. There are two main types of commodities: soft commodities and hard commodities. The former includes the livestock (e.g., pork and chicken) or products (e.g., soybeans, sugar, coffee, wheat, and corn) from agriculture. Items that fall under the latter (hard commodities) consist of natural resources. These have to be extracted. Examples are gold, silver, oil, and rubber.
Overview of the Commodity Market for 2023
The pandemic led to a large drop in commodity prices, and these have declined further in 2023 with an anticipation of the biggest downturn of 21% since Covid between April and October.This is expected to remain stable in the coming year (2024). Overall, the forecast is that energy prices will be 23% down from 2022 and also stay at this level during 2024. The forecasts still remain at risk of even lower figures due to a number of factors that continue to exert an effect:
Global Events
Global events in the first quarter of 2023 have had a large impact on the commodity market. This is hitting many countries. Some of the most significant of these are:
- global supply chains as the war continues beyond initial predictions.
These events have created a volatile commodities landscape. Businesses must keep adapting to these challenges. Despite the general resilience of the market, the risks remain.
Credit Risks
With rapidly rising inflation, central banks have been forced to increase the interest rates at which they lend money to consumers. Many of the latter are facing bad debt as their repayments increase and they are unable to repay their new monthly instalments. This may cause banks to become reluctant to offer new loans and increase the costs that commodity traders face.
Sanctions
The cap on the Russian oil price is another risk. Shipping and maritime industries, along with companies involved in energy trade, must make sure to not violate the sanctions. If they do, their own finances and reputations are at stake.
The End of China’s Zero-Covid Regulations
The change in China’s Covid policy occurred sooner than expected. This has led to increased economic growth and consumer spending has also improved. This new demand can exacerbate the risk of supply chains becoming vulnerable. The result could be shortages of commodities and prices surging upwards.
Investors are advised to stay attuned to commodity market news. They should also make use of professional advice. Additionally, they need to monitor their portfolios more regularly in light of news items and input from their brokers.
Time will tell whether the predictions will come true or not.
