Webinar highlights: Looking ahead after a year of disruption

Following a year of disruption, our commodity specialists reflect on price fluctuations throughout 2022, and discuss the market outlook for 2023. 

There’s no doubt that 2022 was an eventful year for procurement, with inflation figures reaching a historic high of 9-10% year-on-year across Europe and the US.

One of the headline factors that contributed to this inflation was the Russia-Ukraine war, which disrupted supply chains globally. But, in Europe, the weather also played a key role, with the region experiencing its worst drought in 500 years, significantly affecting food production and transport.

This quickly had a knock-on effect on other regions, too. In response, major economies including the Eurozone, the US and India, tightened their monetary policies, increasing interest rates to keep inflation under control. Meanwhile, in China, the country’s zero-COVID policy affected economic growth but kept inflation at lower levels compared to other regions. 

Now, just two months into 2023, most countries are facing economic slowdown and a probable risk of recession, which is affecting the buying behaviour of procurement organisations and end consumers – and, ultimately, affecting commodity prices worldwide. 

In our recent webinar, we gathered specialists from across The Smart Cube to understand what these price fluctuations look like on a granular level, what’s been happening with individual commodity markets, and what we can expect to see in the rest of 2023. 

Here are the key takeaways.

Fluctuating prices across base and precious metals

Anuj Madaan, Senior Specialist at The Smart Cube, started the session by revealing that many base metal prices are expected to fall. 

He reported that the aluminium, zinc, and nickel markets are all experiencing significant growths in production – each of which is experiencing a production surplus and reduced supply deficits. As a result, all base metal prices are expected to fall in 2023, with aluminium falling by 9.8%, zinc by 11%, nickel by 2.4%, and copper by 0.3% 

But, despite these reductions, historically low inventories and anticipated depreciation of the US Dollar due to projected ease in interest rate hikes, will be the key upside risk factors for base metals price forecasts.

In the case of copper, the ongoing protests in Peru – one of the largest producers of copper in the world – and a rebound in China’s demand for base metals will likely limit prices from falling further.

But, despite these reductions, ongoing protests in Peru – one of the largest producers of copper in the world – and a rebound in China’s demand for base metals will likely limit prices from falling further.  

Gold prices are expected to rise due to an anticipated surge in demand for safe assets and a decline in the US dollar, amidst economic slowdown.

Platinum prices are also expected to increase as the platinum market is likely to be in deficit in 2023 as compared to 2022. Increased downstream automotive demand, catalytic converter production, and China’s 6b RDE standard emission regulation are all expected to bolster platinum’s industrial demand.

On the other hand, palladium prices are anticipated to decline in 2023, with a reduced market deficit in this year compared to 2022 and substitution with platinum.

Energy prices are falling from their peaks in 2022

Both crude oil and natural gas were two commodities significantly affected by the Russia-Ukraine war throughout 2022. 

Prices for crude oil and natural gas surged in the first half of 2022 due to supply concerns, with Russia cutting off its natural gas supply to Europe – which usually accounts for 40% of Europe’s total supply. 

Fortunately, these prices aren’t expected to remain at the same peaks. By July 2022, crude oil prices began to fall, and are now expected to see a reduction of 15.3% in 2023 due to a projected rise in production and weak economic growth. 

Similarly, natural gas prices also fell from their peak in August 2022, after Europe experienced a warmer winter than expected. These prices will also now continue to decline due to prevailing high inventories and projected low demand in 2023. 

Petrochemicals prices are expected to correct after spikes in 2022

Neha Agrawal, Associate Specialist at The Smart Cube, reassured us that after the global boom in chemical prices in 2022 we can expect to see prices correcting themselves in 2023.  

The peaks in petrochemical prices last year were a result of global economic disruptions, the major energy crisis, and a sharp uptake in raw material prices. Caustic soda, for example, reached a rise of 100% in the final quarter of 2022, due to persistent supply tightness, elevated electricity prices, and a fall in demand of its co-product chlorine.

However, as speculation of a recession surfaced in the second half of the year, all other petrochemical prices started to fall. 

Now, looking ahead to the rest of 2023, we’re expecting to see a year-on-year decline that’ll reach close to pre-pandemic price levels. This is majorly due to a drop in the price of the raw materials that make up petrochemicals – such as crude oil and natural gas – resulting in a lower cost of production amid a slowdown in the downstream demand growth.

Resin prices are falling due to shifting buying behaviours 

Shruti Pathak, Associate Specialist at The Smart Cube, gave us a closer look at what’s happening in the global resin market, focusing on HDPE, PP, and PET.

In 2022, we saw a growth in demand from downstream sectors, rises in associated labour costs, and major railcar shortages and plant outages across the US – leading to a sharp increase in all resin prices. 

But, as recessionary fears began to emerge and China enforced COVID-19-related lockdowns in the second half of 2022, many companies had a more cautious outlook and significantly changed their buying behaviours. In a lot of cases, companies shifted their behaviour of buying and warehousing every pound of resin to just purchasing or stocking the minimum volume. 

For 2023, we expect to see a sharp drop in prices as these buying behaviours continue, alongside raw material price reductions and a rise in supplies. Simultaneously, we expect to see minimal growth in consumption due to the weak macroeconomic outlook. However, easing COVID-19 lockdown restrictions in China and energy crisis in Europe in case the Russia-Ukraine war escalates may negatively impact plant operations.

Grains will be one of the few commodities experiencing price increases

Unlike most other commodities mentioned in the session, the prices of key grains such as wheat and corn are expected to remain at elevated levels throughout 2023.

Kumar Amit, Senior Specialist at The Smart Cube, shared that in 2022, the prices of these grains reached record highs due to short supplies and logistical challenges created by the Russia-Ukraine war. This was all while dealing with ongoing negative effects on supplies that began in mid-2020, due to long-term dry weather conditions in key grain-producing regions across Europe, the US, and Canada. 

Prices did start to see a downward trend halfway through the year, following record-high outputs of corn in Brazil and wheat in Australia and Russia. Prices were also affected by the cost of living crisis and a hike in interest rates from global central banks, as well as a drop in demand from poultry feed industry due to a sharp outbreak of avian influenza in the US and Europe.

However, our experts predict that we’ll continue to see high prices over the coming months as supplies of corn and wheat remain low across the world. 

Watch the full session to get the complete forecast for 2023

We’ve only covered a glimpse of what was shared in the session here. You can watch the full webinar on demand to get a closer look at the commodities we’ve covered in the blog, find out what’s happening in the vegetable oils and dairy markets, and see how high interest rates will affect commodity prices throughout 2023.