Originally published by Spendedge: Commodity Price Volatility: Steering Challenges and Holding Opportunities
Commodity Price Trends in Q2 2024
In Q2 2024, commodity prices have seen a noticeable decline compared to the previous year. This overall decrease is largely due to lower global demand, which has reduced energy costs, and expectations of abundant crop yields that have softened increases in agro-commodity prices. However, geopolitical tensions, such as the ongoing conflicts between Israel and Hamas and between Israel and Iran, have introduced volatility into the oil market and driven up gold prices. Additionally, supply uncertainties have caused a significant rise in copper prices. For the rest of 2024, commodity prices are expected to be lower than in 2023, though geopolitical issues and adverse weather conditions related to El Niño and La Niña will continue to affect these prices.
Agro-Commodities: Price Trends and Influences
Decline in Agro-Commodities Prices:
Since May 2024, prices for major crops like corn, wheat, and soybeans have decreased from their record highs in April. Wheat and maize prices have fallen by around 30% year-to-date, primarily due to strong production in the US, Argentina, and China.
In contrast, cocoa prices have surged to a record US$10.97 per kilogram in Q2 2024. This increase stems from reduced cocoa bean production caused by climate change and El Niño, which have led to erratic rainfall and high temperatures in key producing regions of West and Central Africa. These environmental factors have diminished cocoa yields and pushed up prices. Additional constraints include aging cocoa trees and land being repurposed for gold mining in Ghana.
Weather Impact and Market Dynamics:
Recent floods in Brazil’s Rio Grande do Sul have disrupted the harvesting of corn and soybeans, highlighting the significant impact of weather on commodity prices. A predicted shift from El Niño to La Niña is expected to alleviate some pressure on commodities such as cocoa, sugar, and rice. The US National Weather Service forecasts a 69% chance of La Niña developing between July and September 2024. Increased plantings in Brazil and the US are anticipated to lower soybean prices. In response to rainfall affecting cocoa plantations in Côte d'Ivoire, the Ghanaian government has suspended cocoa export contract bids and increased farm gate prices by 50%.
Metal Prices: Trends and Outlook
Metal Price Surge Amid Economic and Geopolitical Shifts:
In Q2 2024, prices for key industrial metals like copper, aluminum, and tin have risen. This increase is supported by a robust US economy and signs of recovery in China. Reduced smelter capacity in China, particularly for aluminum, has also contributed to higher prices. Gold prices have climbed due to increased central bank purchases and ongoing geopolitical uncertainties, with global central banks adding 229 tons of gold by the end of 2023. The demand for gold as a safe-haven asset has risen amid global economic concerns.
Copper and Tin: Supply and Demand Dynamics:
Copper prices are expected to rise in 2024 due to supply instability and growing speculative demand. Production cuts and supply issues, particularly affecting major copper mines in Zambia, are contributing to anticipated shortages. Competition among major economies for copper, essential for green energy and AI development, is driving these trends. Tin supplies remain constrained due to export restrictions from Myanmar and limited production in Indonesia.
Impact of China’s Real Estate Sector:
China’s ongoing real estate downturn continues to impact demand for construction metals such as steel and iron ore. Despite strong economic performance in the US, high interest rates are dampening economic growth and metal demand outside of China.
Energy Market Overview
Balancing Geopolitical Risks and Demand Fluctuations:
The 2024 energy market outlook is influenced by several factors. Geopolitical tensions and supply uncertainties are likely to push energy prices higher, while softer global demand, driven by high interest rates, may limit price increases. In April 2024, crude oil prices peaked at US$87.67 per barrel but fell more than 5% in May to US$76.15 due to concerns about sluggish economic growth and potential delays in monetary easing. The rise in electric vehicle sales is expected to reduce oil consumption, adding downward pressure on prices.
OPEC+ and Natural Gas Prices:
OPEC+ has extended its oil production cuts until the end of 2025 and adjusted its strategy in response to moderate demand and increasing US production. Natural gas prices have decreased significantly due to reduced industrial activity and favorable weather conditions.
2024 Energy Market Outlook:
Natural gas prices are expected to remain stable throughout 2024, supported by abundant production and high inventory levels. However, potential increases in consumption in the power and industrial sectors due to lower prices, along with reduced US exports and higher demand from China and other Asian economies, could pose an upward risk. Geopolitical tensions in the Middle East, particularly conflicts involving Israel and Iran, could disrupt oil and gas supplies and add volatility to the market. Developments in the US, the largest oil consumer, will significantly impact crude prices. If oil prices fall below the May low of US$76.15, they may decline further to the US$72.90 to US$73.20 range. Monitoring inventory levels, production adjustments, and geopolitical developments will be crucial for predicting future energy market trends.
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