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The commodities landscape in 2024

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As the new year turns, the commodities complex finds itself in a state of measured anticipation. ING’s Commodities Outlook 2024 paints a picture of cautious optimism, a nuanced perspective shaped by supportive fundamentals, lingering geopolitical risks, and the tantalising prospect of Federal Reserve easing. Yet, amid this optimism, the shadow of global uncertainties looms large, leading to a guarded outlook for commodities in the coming year.

“Commodities were the best performing asset class in 2021 and 2022, and coming into this year, it was a potential contender to be the top performer again, particularly with fears around gas supply over the 2022/23 European winter, and heightened geopolitical tensions,” said report authors Warren Patterson, ING head of commodities strategy, and Ewa Manthey, ING commodities strategist. “However this has not been the case.”

The European winter, usually a harbinger of gas supply concerns, turned unexpectedly mild, leaving the gas market in an unusual state of comfort. The resilience of trade flows to sanctions and bans linked to Russia’s incursion into Ukraine took markets by surprise, as China’s economic reopening faced stumbling blocks, especially in the beleaguered property sector. Central bank tightening and a strengthening US dollar added formidable headwinds to the commodities market.

Moderately supportive

Entering 2024, the ING report takes a moderately supportive stance on various commodities.

The expectation of a U-turn in the Federal Reserve’s tightening policy, coupled with a weakening USD, is anticipated to provide a tailwind to commodities. “However, there are clear demand risks given expectations for softer global growth next year,” warned the report.

The oil outlook, as ever, hinges on OPEC+ policy. “The group and in particular Saudi Arabia have demonstrated their desire to support prices this year and we do not expect this to change through 2024,” said the report. ING therefore anticipates a balanced oil market in the first half of 2024 before transitioning into a deficit in the latter half. Yet, the precarious situation in the Middle East and the potential tightening of US sanctions against Iran pose considerable risks. “This would leave the oil market much tighter than expected.”

The report adopts a neutral stance for European natural gas, taking stock of a comfortable storage position at the commencement of the 2023/24 heating season. The risk of a strong demand response and limited LNG supply in the short term is acknowledged, but the ING outlook contends that Europe will become less vulnerable by the end of 2024, thanks to new LNG export capacity coming online.

The landscape for US natural gas, on the other hand, appears more promising. ING anticipates a “relatively more constructive view” for US natural gas prices in 2024, driven by the surge in LNG export capacity, especially from the US.

Flat metals demand

Metals, ever sensitive to China’s economic trajectory, find their 2024 fate entwined with the uncertainties in the Chinese property sector. The ING report suggests a weak outlook for the property sector, indicating a lacklustre recovery in metals demand. However, “constructive longer-term fundamentals for several metals and historically tight inventories suggest that there is still some upside for most metals in 2024, despite largely balanced markets,” said ING. Nickel emerges as the outlier among base metals, facing “bearish fundamentals” for 2024 due to a projected surplus driven by robust Indonesian output growth.

The impact of El Nino on weather patterns has only amplified this trend. Grain markets, despite facing pressure in 2023, are expected to navigate through 2024 with corn prices under strain due to rising stocks, while soybean prices may experience a decline on the back of robust South American output. Conversely, ING is relatively more supportive towards the wheat market, with “global stocks set to continue to tighten this season”.

The volatile journey of soft commodities, also influenced by El Nino and broader weather events, saw London cocoa reaching record levels. While the cocoa market is likely to remain volatile in 2024, ING questions the justification for the degree of strength witnessed, given current stock levels. Sugar, on the other hand, emerged as a strong performer in 2023. “We see prices remaining elevated at least until the start of the next Centre-South Brazil harvest, which is set to be another big crop,” said the report.

Overall, the ING Commodities Outlook 2024 delivers a cautiously optimistic outlook for commodities in 2024, defined by the intricate dance of supportive fundamentals, geopolitical uncertainties, and potential shifts in central bank policies.
Source: Baltic Exchange

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