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In the past year, numerous commodity markets faced major disruptions due to factors like the Russia-Ukraine war, rising US and European interest rates and volatile economies. The Smart Cube’s ‘Commodity in Focus’ series analyzes commodity markets to understand these influences and offer forecasts.
In our recent webinar, experts examined disruptions in metals, oil, gas and resin markets, providing insights into potential developments for 2024. The full session is available to view on demand for detailed predictions and explanations of market factors. Today let’s review some key takeaways from our panel.
You can watch the full session on demand for detailed predictions and explanations of market factors.
Inflation’s impact on the metals market
High inflation is expected to gradually decrease in 2024 but remains above the target range for central banks in the U.S. and Eurozone. Sustained inflation and high interest rates have a direct impact on the metals market. When interest rates are high, the cost of storing metal inventories increases. This leads to lower inventory levels as businesses offload stock to mitigate storage costs.
Base metal prices — including copper, zinc, and nickel — are expected to decrease throughout 2024. However, aluminum may be the exception, as the market is expected to experience a deficit of around 0.7 million tons.
Regarding the precious metals market, gold and platinum prices are anticipated to rise due to increased consumption and deficits, while palladium prices are likely to decrease due to reduced demand from the automotive sector.
Simultaneous disruption across two major trade links has also affected the supply and price dynamics for key commodities.
Panama Canal drought
Freights typically navigating the Panama Canal account for around 5% of global trade. However, in 2023, an unprecedented rainfall deficit caused the worst drought the canal has seen since the 1950s.
Authorities were forced to restrict daily ship transits, dropping from an average of 36 to 22 in October of 2023. As a result, many shipping companies redirected their routes, opting for longer, more dependable journeys.
Disruption in the Red Sea
Further exacerbating shipping challenges, one of the world’s most valuable waterways — the Suez Canal, which normally hosts around 15% of global trade and 34% of global container traffic transits — experienced substantial disruption.
As Houthi rebel attacks jeopardized the safety of container ships in the Red Sea, many carriers had to reroute their vessels, extending journey times between Asia and Europe by as much as 30%.
These events fuelled high freight rates from November of 2023 onward, as more ships were needed to complete the same trips, straining supply chains.
As operations begin to recover, we can expect freight rates to remain elevated in the first half of 2024 and gradually fall in the second half. However, commodity markets will continue to feel the effects, with commodities such as oil and refined products, liquefied natural gas (LNG), metals and agricultural products all experiencing greater risk.
Oil and refined products
With approximately 12% of the global seaborne oil trade passing through the Red Sea, the attacks severely increased the risk profile of oil and refined products.
Oil availability has yet to experience a significant drop — but there’s a growing risk if the situation spreads. For instance, disruption could also affect oil trade passing through the Strait of Hormuz, which accounts for 20% of global oil consumption.
Liquefied natural gas
The Red Sea plays a crucial role in LNG shipping, accounting for 8% of its global trade. If the situation in the Red Sea continues, LNG flows may experience additional disruptions and longer shipping times.
Metals
While prices in 2024 are predicted to experience a decline, ongoing shipping challenges could temper this. Europe relies heavily on aluminum imports, and these disruptions come at a time when Western European production is at its lowest this century. Any further disruptions could push up the prices.
Similarly, China and other Asian countries are important minor metal exporters to Western countries, and many European and US buyers are having to deal with delayed shipments of metals and metalloids, such as manganese, magnesium and silicon — key components in the production of batteries and semiconductors.
Agricultural commodities
Agricultural commodities, including coffee, are also being diverted due to conflict in the Red Sea, with agricultural shipments through the Suez Canal falling by around 40% in the first half of January of 2024.
The drought in the Panama Canal has also affected commodities such as grain with stricter transit limits and higher fees, necessitating grain exporters to take longer alternative routes, often with additional freight restrictions.
How China’s economic growth may affect oil and resin prices
The Chinese economy started 2024 on a strong footing, with several key indicators beating market expectations during the first two months of the year. These encouraging signs for the world’s second-largest economy are matched with a rising industrial output, which grew 7% Y-o-Y in early 2024.
How China’s economy shapes up in 2024 will play a dominant role in driving demand and prices for oil and resins. China is the second largest oil consumer globally and also the largest oil importer, accounting for 20-25% of global oil imports. Similarly, China is a major consumer of plastics and therefore resins, with large-scale production of plastic goods and a rapid increase in downstream processing capacity driving demand.
This blog only provides a snapshot of impacted commodity markets covered in our webinar. Watch the webinar recording here.
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