The outlook for 2023 for commodities, in general, is a fairly uncertain one heading into 2023. The world is still recovering from disruptions caused by the pandemic, although these are now easing. However, there are other risk factors building, such as slowing economic growth with the risk of recessions high in several major economies. Structural shifts that began pre-COVID could now also be resumed, although this will depend heavily on the supply of several key commodities that were disrupted by the Russian war in Ukraine.
Below is a brief table highlighting the main drivers of commodities through the next year, while the rest of the report will go into more detail regarding several commodity classes and their individual outlooks for 2023.
| Bullish | Bearish |
| China reopening | Heightened risk of recessions or economic slowdown |
| Shift to easing of monetary policies | Easing of supply-chain pressures |
| Bearish outlook for US dollar | Shift away from certain fossil fuels |
| Tight supply conditions | |
| Geopolitical unrest |
The oil market
Potential price drivers of oil in 2023:
- Slowing global growth
- Rebound in demand from China
- OPEC+ supply rationing
The oil markets had an extremely volatile 2022. Prices for crude surged in the early stages of the year owing to rebounding economic growth and the disruptions caused by the Russian war in Ukraine. Brent, for example, reached dizzying highs of more than $130 per barrel towards the end of the first quarter amid expectations that Russian crude flows would be disrupted owing to the war and the world’s reaction to it.
Since then, conditions have eased to some degree, with Russian crude still managing to flow, albeit at heavily discounted prices to other major global benchmarks, and with destinations changing as Europe’s sanctions have kicked in. However, several crude-producing nations across the globe have encountered their own idiosyncratic issueslast year, which have hampered supply. Conflict in Africa has been a major cause of undersupply, with output in the likes of Nigeria continuing to fall. A lack of Iranian exports was also present throughout the year as a new nuclear deal failed to materialise, which would have allowed the Arab nation to flood the market with its inventories and ease some of the global supply constraints.
The demand outlook then started to weaken towards the latter stages of the year, as global central bank policy tightening squeezed economies in order to try and bring down inflation, which was largely caused by the surge in fuel prices. However, as prices tumbled, OPEC+ stepped in to balance the market and announced that output would be cut at the end of 2022 and into the start of 2023 in order to sustain the high prices that its members enjoy.
This undersupply of oil could persist into the early stages of 2023. Several major institutions have forecast a deficit averaging around 1.5mn barrels per day for the year, with demand expected to grow by around 2mn barrels per day. We see the risks to this demand growth as to the downside, even if most of it is expected to come from China. A recession in the US and throughout Europe will see demand for crude slump, and the growth in China will not be enough to offset this.
Supply risks remain pertinent as well, however, it appears that Russia has managed to circumvent the measures Europe and other major nations have placed on it. China and India continue to import Russian crude even as flows towards Europe have almost come to a complete halt. Russia is now the largest supplier of oil to both China and India and given the price discounts on offer, it is difficult to see these two nations turning their back on Russian crude to appease the West’s sanctions.
Our view: The global oil market is expected to tighten through 2023, which would be supportive of prices from current levels. Our view, however, is that the demand outlook is considerably weaker for major consumers such as the US and Europe than what many currently predict. Therefore, we see the market entering into a smaller structural deficit than most analysts predict, which will limit the topside pressure on prices. Oil could average around $85 per barrel through the early stages of 2023 as a result, but prices will then decline from around the second half of the year onwards as the US enters a recession. Support could then come around the $70 per barrel mark as the US will use this to refill its strategic reserves. Once this short-term support is removed, prices could revert back towards their longer-term mean between $60 and $65 per barrel late in 2023. A final point to note is that the volatility seen through 2022 will likely persist through the early stages of 2023, with trading volumes low and Europe’s sanctions on Russian shipments still be navigated with difficulty.
The metals market
Potential price drivers of metals in 2023:
- Rebound in Chinese demand
- Slowing interest rate hikes
- Weaker USD
- Weaker global demand due to slowing economic growth
Precious metals:
Looking back at 2022, gold’s performance was weighed on by record-high interest rates that have lessened the appeal of non-yielding bullion. However, we have seen gold rebound over the last few weeks as central banks are starting to pivot in terms of interest hikes in 2023. The markets are expecting central banks to become less aggressive in their hikes which should result in gold prices continuing to rise in 2023. Another major factor that should keep gold prices supported is investors rotating back towards gold due to its safe-haven appeal, given that geopolitical tensions are likely to persist through the early stages of 2023.
Meanwhile, the World Platinum Investment Council (WPIC) is expecting a deficit of the metal used in vehicle production, industry and jewellery in 2023 after a hefty surplus this year. The WIPC believes use by automakers would rise and investors would flip from net sellers to net buyers, pushing demand in 2023 up 19% to 7.77 million ounces, the most since 2020. Another key factor that is expected to result in a supply shortage is the intensifying power outages and deteriorating maintenance at mines in South Africa. South Africa is a top producer of platinum and a reduction in output from the country is expected to create a deficit of 303k ounces next year.
Our view: Precious metal prices will likely rebound this year as central banks start to become more dovish and interest rate hiking cycle starts to ease. Supply issues will also remain prevalent and will be the key side of the equation to watch. Gold, specifically, will find further support amid safe-haven demand. PGMs, meanwhile, could see a strong 2023 if the structural deficits materialise as we expect.
Base metals:
The market has been buzzing about China slowly starting to ease some of its Covid-19 restrictions. As restrictions continue to ease and the world’s largest economy returns to its full function, we will see the demand for base metals rebound. At the moment, base metals are being driven mostly by any developments in China. Recently announced support measures for the Chinese property market have been introduced and have aided in the rebound of iron ore futures. Copper is also prone to swings in sentiment towards China, but tight supplies should provide a floor for the metal into 2023, especially given the outlook for the mining sectors in Chile and Peru, both of which could see weaker output next year owing to political uncertainty and weakening growth outlooks.
However, fears of a global economic slowdown and weaker demand are present and will need to be navigated. The question is going to become whether the removal of China’s Covid-19 restrictions and the rebound in demand will be enough to outweigh the potential slowdown in demand from other countries.
Our view: A number of economic stimulus measures in China’s property sector will likely result in a rally in certain base metals such as iron ore continuing. Tight copper supplies from major mines in Chile and Peru will support prices, however, a global economic slowdown is expected to result in weaker demand which could counter tight supplies. All will then depend on how aggressively central banks shift back to easing monetary policy later in 2023 to undo the economic damage by 2022’s tightening. Our view for base metals is thus marginally bullish from current levels, with risks skewed to the downside depending on how deep the recessions become in major economies such as the US and Europe.
The grains markets
Potential price drivers of grains in 2023:
- Adverse weather
- Smaller crops harvested than expected
- Intensifying geopolitical tensions
Soybean prices are going to be highly dependent on the South American crop next year. The world is expecting Brazil to produce a record crop, however, any signs of less than a record crop or weather scares will be supportive to soybean prices in the coming months.
The US is the world’s largest corn exporter however recently, many corn importers have been importing smaller amounts or rotating away from US corn due to higher global corn prices and a stronger USD. China has increased the amount of corn that it imports from Brazil dramatically in the last year and this is likely going to be a global shift that we see in 2023.
For wheat, there are concerns about production due to a smaller crop in Argentina, and the quality of the Australian crop is in question due to recent heavy rains. However, Russia has raised forecasts for its 2022/23 July-June wheat exports to 43.98 million tonnes from 43.7 million tonnes due to current active shipments. Russia’s forecasts, however, are questionable and an intensification of the war effort could lead to lower volumes. Risks, therefore, are skewed towards higher wheat prices through 2023, although we should see any peaks come in below the blowouts seen in 2022.
Our view: There is a risk that the war between Russia and Ukraine will intensify. However, for the time being, Russia remains committed to the UN grain deal, which has provided some relief to tight supplies and helped to ease grain prices. Grain prices are heavily affected by the USD, therefore going forward if the USD continues to unwind its overvalued position as the Fed starts to ease its pace of interest rate hikes, we will see grain prices continue to rise. Expectations of a global economic slowdown, which will result in weaker demand, is also likely to be a major factor. Our view is that the risks for grains are still skewed to the topside, as supply issues and a weaker USD could outweigh slowing global growth, especially considering that food demand is less affected in times of economic weakness than demand for other commodities.