Just a few years ago, analysts and investors did not rule out the possibility of a new "super cycle" in commodities, similar to the one that the world was experiencing from the beginning of the 2000 to the crisis of 2008-2009. The calculation was for a rapid economic recovery after the pandemic and the transition to "green energy". However, both of these processes are taking place more slowly than expected, and experts have already started talking about how it has become more difficult to trade commodities now than before.
In this article, a columnist from Finam Financial Group looks at how this happened.
What influences the cost of commodities?
In 2024, the situation on the raw materials market looks unstable. According to The Economist, the prices of lithium and nickel, which are important for the production of electric car batteries, increased in 2021 and 2022. However, since the beginning of 2023, nickel has fallen in price by more than 50%, and lithium prices have collapsed by 80%. The Bloomberg commodity index, consisting of food, fuel and metals, has declined by 29% since its peak in mid-2022.
Commodity prices always depend on many different factors, so they are difficult to predict. For example, from economic cycles, production capacities of mining companies and market demand. Currently, for example, they are hampered by a slowdown in energy consumption. For example, many companies, including Ford and GM, have postponed the construction of factories for the production of electric vehicles, and Tesla shares have declined by 26% this year. In September 2023, the United Kingdom postponed the ban on internal combustion engines.
In addition, during the last super cycle, there was a boom in construction in China, and now the demand for raw materials from the world's second economy has significantly decreased, and a bubble has formed in the Chinese real estate market.
According to The Economist experts, in the modern world, the old methods of forecasting commodity markets are no longer enough. Without understanding the demand for new electric vehicles, technology, and zero-emissions policies, any bets on the future of commodity markets will be nothing more than guesswork.
Should we wait for oil at $100 and gold at $3,000?
Increased tensions in the Middle East have added a premium for geopolitical risk to oil prices. However, concerns about the prospects for China's economy and its impact on consumption, as well as the growth rate of supply from non-OPEC countries, limit success.
As CNBC reports, citing Citi analysts, oil prices may rise to $100 per barrel if geopolitical risks increase, OPEC+ reduces production, and supplies in key oil-producing regions are disrupted. In the baseline scenario, Citi analysts expect oil to be around $75 per barrel this year. Finam analysts in the baseline scenario expect oil to be in the range of $80-90 per barrel in 2024.
Nikolay Dudchenko from Finam notes that 2023 has become one of the most successful years for gold. In the spot market, the price increased by more than 13%, closing the year above $2 thousand per ounce. Before that, the price rose to $ 2 thousand only in August 2020 against the background of the geopolitical risks of the USA - China and the active pumping of additional liquidity into the market, but buyers failed to gain a foothold above $ 2 thousand.
According to the expert, over the past four years, gold has acquired a completely different status, having gone from a protective asset of a cyclical recession to a hedging tool against a systemic crisis. The proof of this is the growing demand for gold from the world's central banks. Despite the fact that according to surveys by the World Global Council (WGC), only 38% of the main holders of gold in the world justify their decision to "hold" by the process of de-dollarization, a year ago there were only about 20% of such participants.
Dudchenko draws attention to the fact that in early February 2024, the WGC updated information on gold reserves for the past year. China took the first place, which increased reserves by 224.88 tons over the year (China's total reserves amount to 2,235.39 tons); Poland took the second place, which increased reserves by 130 tons; Singapore took the third place, which increased reserves by 76.3 tons. The reserves of the Russian Federation have practically not changed, having increased by a "symbolic" 6.2 tons. At the same time, Russia is ahead of China in terms of the amount of gold and ranks 5th in the world, owning almost 25% of the total volume of gold. The United States remains in the first place by a wide margin from other countries with a total volume of 8,133.46 tons.
At the same time, the situation with the gold ETF in January 2024 continues to be negative. Global gold ETFs began 2024 with the eighth monthly outflow of funds. The market lost confidence in the early reduction of rates by the main central banks, gold prices fell in January, which reduced investor interest in gold ETFs.
"Despite this, we continue to believe that the probability of further continued growth in the gold price is higher than the probability of a decline. The price will continue to be supported by demand from global regulators, as well as geopolitical risks. In the baseline scenario, this year we expect the price of gold to reach the levels of $2,070 - 2,150 per ounce, and in the optimistic scenario - in the range of $ 2,250 - 2,350 per ounce," Dudchenko predicts.
Citi analysts are more radical in their forecasts and do not exclude gold at $ 3 thousand per ounce if central banks double gold purchases, there will be a "deep global recession" with a rapid reduction in Fed rates, as well as stagflation with rising inflation, slowing economic growth and increased unemployment.
What about other metals and commodities?
According to CNBC, with reference to the BMI report, the growing demand caused by the transition to "green" energy and the likely depreciation of the US dollar in the second half of 2024 will lead to an increase in copper prices.
In addition, at the recent COP28 climate change conference, more than 60 countries supported a plan to triple global renewable energy capacity by 2030, which, according to Citibank, "would be extremely optimistic for copper."
In a December report, the investment bank predicted that higher renewable energy targets would lead to an increase in copper demand by another 4.2 million tons by 2030. This could lead to an increase in copper prices to $15,000 per tonne in 2025, well above the record peak of $10,730 per tonne reached in March 2023.
According to the international organization International Aluminum Institute (IAI), global aluminum production in January 2024 increased by almost 2.4% compared to the same period in 2023 and reached 6.039 million tons.
Due to the expectation of a new package of anti-Russian sanctions, some metals increased in price on the London LME exchange last week. Aluminum - by 1.3%, nickel - by 3.6%, copper - by 0.5%.
According to "Prime", nickel prices have come under pressure due to the slow issuance of mining licenses in Indonesia. However, on Tuesday, February 26, nickel on the LME was trading almost unchanged at $17,170 per ton.
On Monday, February 26, the price of iron ore fell to its lowest level since October 2023 after falling by almost 9% last week. According to Bloomberg, this was due to the fading hopes for a recovery in steel demand in China after the New Year holidays. According to the Chinese Metallurgy Association, inventories at China's largest steel mills increased by 25.7% in mid-February compared to the beginning of the month. Daily steel production has shown moderate growth over the past period.
