Explore the highlights from our recent Commodity in Focus webinar, where we forecast predictions for metals, oil, resins, and more in 2024.
Over the past year, many commodity markets have been subject to major disruption. Whether it’s geopolitical events such as the Russia-Ukraine war, rising interest rates in key regions like the US and Europe, or rapidly fluctuating economies, these factors can have a significant impact on prices, supply, and demand.
Our Commodity in Focus series takes a closer look at individual commodity markets to uncover the links between these factors and offer predictions for the year ahead.
In the latest edition, our Vice President and Commodity Solution Lead Hemant Bansal and a panel of The Smart Cube’s commodity specialists talked about the disruption they’ve seen in the metals, oil, gas, and resin markets – and provided insights into what the future may hold.
You can still watch the full session on demand, where you’ll find detailed scenario predictions and comprehensive explanations of the factors impacting these commodity markets.
In the meantime, here are some of the key highlights.
Fluctuating inflation levels are having a direct effect on the metals market
Senior Specialist Anuj Madaan opened the session by reflecting on the high levels of inflation experienced in the US and Eurozone throughout 2022 and 2023.
These elevated inflation levels were influenced by a combination of energy price shocks, supply chain disruptions, tight labour market conditions, and rising commodity prices – all contributing to an increase in consumer prices over the past two years.
We’re now in a position where these inflation levels are expected to decrease gradually throughout 2024, but Anuj highlighted that inflation will remain above the target range for central banks in the US and Eurozone.
Crucially, he explained that sustained inflation, and consequently high interest rates, have a direct impact on the metals market. When interest rates are high, the cost of storing metal inventories increases, leading to lower inventory levels, as businesses offload to avoid high storage costs.
Based on these insights, all base metal prices – including copper, zinc, and nickel – are expected to decrease throughout 2024. The one exception is aluminium. This is because the aluminium market is expected to experience a deficit of around 0.7 million tonnes, accounting for one percent of global aluminium production.
Meanwhile, the precious metals market shows a different picture. Gold and platinum are both expected to increase in price, due to a predicted two percent increase in gold consumption and a platinum deficit of 418,00 tonnes. On the other hand, palladium prices will likely continue to sink due to a significant slowdown in demand from the downstream automotive sector.
Disruptions across major trade links are impacting the shipping of key commodities
Inflation and interest rates aren’t the only factors affecting commodity markets. Nishita Sharma, Forecasting Manager at The Smart Cube, explained how straining global supply chains and simultaneous disruption across two major trade links created significant negative impacts for oil, gas, metals, and agricultural commodities.
- Major droughts in the Panama Canal
Normally, freights navigating the Panama Canal account for around 5% of global trade. But in 2023, an unprecedented rainfall deficit caused the worst droughts the canal has seen since the 1950s, due to the impact of the El Niño weather pattern. This reduced water levels in the Gatun Lake, the canal’s main water supply.
In response, authorities had to start restricting the daily number of ship transits, dropping from an average of 36 to 22 in October 2023. And many shipping companies redirected their routes, opting for longer but more reliable journeys.
- Disruption from attacks in The Red Sea
To add to this challenge, one of the world’s most valuable waterways – the Suez Canal – also experienced a major threat at a similar time. The Suez is usually the fastest route between Europe and Asia, and normally hosts around 15% of global trade and 34% of global container traffic transits.
But in October 2023, Houthi rebels in Yemen began attacking container ships in the Red Sea in response to the Israel-Hamas war – increasing the threat to the world’s largest shipping carriers. This forced many carriers to reroute their vessels, extending their journey times between Asia and Europe by as much as 30%.
Both these events led to a significant spike in freight rates from November 2023 onwards, as more ships were needed to do the same trips, creating greater stress on the global supply chain.
As operations start to recover in both waterways, we can expect freight rates to remain elevated in the first half of 2024 and gradually fall in the second half. But there’s still a lasting impact on many commodity markets.
How each commodity market is affected by the shipping disruptions
With restricted trade routes and elevated freight rates, commodities such as oil and refined products, liquefied natural gas (LNG), metals, and agricultural products are all experiencing greater risk.
- Oil and refined products
With approximately 12% of global seaborne oil trade passing through the Red Sea, making it a major trade route for the commodity, the attacks have increased the risk of disruption to oil supply. Also, since the Russia-Ukraine war, the European Union has banned imports of Russian oil, which forced Russia to ship to alternative destinations such as India and China.
While these factors undoubtedly had a significant impact on global oil supply chains, there hasn’t been a significant drop in oil availability recently – but there’s a bigger risk if the situation spreads. For instance, disruption could affect oil flows going through the Strait of Hormuz, which accounts for 20% of global oil consumption.
- LNG
The Red Sea also plays a critical role in LNG shipping, accounting for 8% of its global trade. And as US LNG export capacity grows, more of the commodity is being redirected through the Red Sea, particularly towards Asia.
If the situation in the Red Sea continues, LNG flows may experience more disruptions and longer shipping times.
- Metals
While Anuj predicted we’ll see a drop in prices through 2024, these shipping challenges could pose an upside risk to prices. For example, Europe relies heavily on aluminium imports, and these disruptions come at a time when Western European production is at its lowest this century. Any further disruptions could easily push up the prices.
Similarly, China and other Asian countries are critical minor metal exporters to Western countries. This means many European and US buyers are having to deal with delayed shipments of metals and metalloids, such as manganese, magnesium, and silicon – all of which are vital to the production of batteries and semiconductors.
- Agricultural commodities
Green cargoes are also being diverted due to the conflict in the Red Sea, with agricultural shipments through the Suez Canal falling by around 40% in the first half of January 2024. For example, there has been a delay in coffee shipments to Europe from Vietnam, as well as from key suppliers such as Indonesia and India.
The drought in the Panama Canal has had a similar effect on commodities such as grain, with tighter transit limits and higher fees pushing grain exporters to take longer routes that involve greater freight restrictions.
Get a closer look into the commodity markets with the full session
We’ve only covered a snapshot of impacted commodity markets here. In the full session, Commodity Specialist, Anirban Basak, joined us to explore how China’s economic growth is affecting oil and resin prices. Nishita and Anuj also shared more detailed breakdowns of each commodity and offered some valuable insights for the year ahead.
We’ve captured the full session here – catch up to ensure you’re prepared for the rest of 2024 and beyond.