Commodity Markets Insights for 2024

The commodity markets were expected to soar high in 2023 just like in 2021 and 2022. But, sadly this was not the case. We saw the growth here to remain underwhelming than what was expected. Factors like demands for natural gas being stable for a surprisingly warm winter in Europe did not trade prices like expected. China, where the commodities market accounts for 50% of the global demand, went to a standstill due to its COVID shutdown. 

Even when its economy started opening up, the government’s rather tepid stimulus package did not do the market any good. US dollar also was raised during this time which made the trades more difficult. With such a tumultuous year, what does 2024 have in store for the commodity markets? Let us deep dive and know the intricacies of the matter.

Commodities Outlook for 2024

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Oil

Oil forecast is completely dependent upon OPEC+ cuts. It is expected that for the initial 6 months, the cuts will be effective in taking care of the necessary price hike, the cuts will be removed after that in the remaining 6 months causing the prices to rise.

As per a piece on abrdn.com, the oil markets will completely rely on the performance of developing markets and emerging economies. But looking at the geopolitical conditions it is a bumpy road ahead. Nigeria won’t perform to its optimum levels as the country is plagued with problems in its supply infrastructure. Libya is still in a Civil war. 

The US has reduced sanctions on Venenzuela but the country has not been able to meet the US’s terms making this a long-drawn affair. With the recent Israel and Palestine conflict the Oil market of the Middle East also has potential crisis possibilities. Another aspect to consider is Iran and US relations, If the relationship forays into better trajectories the tighter oil market could expect some relief.

Natural Gas

The demands of natural gas are in sync with the requirements of heating conditions in Europe. And from September to October 2023 Europe is seeing a mild winter situation. Climatic conditions like La Nina and El Nino are responsible for this. However, all is not gloomy for European Natural Gas, as the polar vortex might save the grace that is developing in the Arctic. 

A think.ing piece guides us to give insights on the market front, it states that the storage level of Natural Gas in the inventory is still high and it should last the winters. The demand should be accentuated by the end of 2024. However, the storage levels are not on par with the previous year's share. But still, it's satisfactory. There are risks of demand for LNG growing but no supply, supply will also catch up by the end of 2024.

As opposed to European Natural Gas it will be American Natural Gas that will see a resurgence. The export market is poised for growth, even while domestic production experiences a decline.

Metals

The basic Metals market is entwined with the Chinese market. As the property sector takes a huge blow in China with issues like Evergrande that plagued the metals market, there is a shortage of base LME (London Metal Exchange) metals. Overall the market is rather underwhelming which has signs of recovery but tight inventories will contain and tighten the strings on this market. With metals like Nickel the progression is good as it will add on to the required inventories cashing in on the required demand. Indonesia’s Nickel supply is to be thanked here.

The precious metals have a better trajectory. Gold and Silver have been rising in demand because of the US’s mild unsuspected recession. With high demand rates hovering because of interest rates, the Federal Bank in the US has been buying tons of gold price boosting 53%, 69% and 235% in its price. Silver is also expected to remain bullish this year.

Agriculture

In Agrarian markets, the situation is rather better but concerns loom there as well. Grain markets seem to be doing well despite the Ukraine and Russia conflict. Ukraine’s production reduction has not elevated food prices, there have been rather demand offsets by key players. Wheat is supposed to remain tight in its pricing this year.

Moving forward factors like La Nina and El Nino will play a strong role in the demand/supply matrix thus affecting the growth and price of agricultural products. The South American production of corn is still less making the price string tight, but that’s not the case for soybean where production has been to the optimum levels.

The soft commodities market however is in a better shape in terms of pricing, but largely volatile. London Cocoa has seen elevated levels of price increase and it is expected to remain at the same level. Many experts are still in fix about future trajectories as the prices are elevating with reducing inventories. Sugar is another soft commodity that is likely to perform well. El Nino has led to some weather uncertainties and hence riding the sugar prices high. As per a report on focus economics, there will be an 8% downfall in agricultural prices this year. 

Conclusion

The global commodity market is reeling under many pressures. With Chinese metals showing low inventory levels, natural gas’s demand is tepid because of low demand in Europe and reduced inventories post-winter, El Nino’s influence in the cropping cycle, and OPEC's decision to do price cuts in the latter half of 2024, it seems like the commodity market will remain mostly tight this year. With the Russia and Ukraine war keeping the geopolitical strings tight we will also see fluctuation in Wheat’s demands.