Q1 2024 Commodity Market Outlook: High Uncertainty & Geopolitical Risks

This year’s commodity market outlook remains highly uncertain. As consumers and businesses continue to grapple with lingering cost pressures and high interest rates, subdued global economic activity is set to translate into softer commodity demand. At the same time, mounting geopolitical tensions and the Red Sea security crisis could disrupt commodity supply chains, raise shipping costs and intensify commodity price volatility, exacerbating lingering cost pressures for consumers and businesses.

Chart showing world bank

Faltering global demand and energy supply concerns paint a mixed picture

The trajectory of the energy market this year will be shaped by a range of diverse factors – while weaker global demand is set to cap energy price growth, the uncertainties surrounding global output, supply stability and geopolitical tensions are tilting risks to the upside.

The global real GDP is forecast to slow down to 2.7% in 2024, particularly across advanced economies

Source: Euromonitor International

Persistent headwinds in China, where the property crisis and deflationary pressures weigh on the economic outlook, are adding to the concerns over global energy consumption. As a result, growth in global demand for oil is set to half in 2024 compared to 2023, according to the International Energy Agency’s estimates from February 2024.

Meanwhile, low demand for heating due to a warm winter in the northern hemisphere, alongside faltering industrial demand in Europe and the rapid expansion of renewables, have helped to slash natural gas usage in both North America and Europe. This is compounded by the record-high gas output in the US and above-average storage levels of natural gas in the EU (standing at 65% as of mid-February), which have helped to drive down natural gas prices in both regions.

Yet, plunging gas prices have prompted Chesapeake Energy, the US’s major natural gas producer, to cut output by some 30% this year to address oversupply and stabilise prices. If more producers follow suit, a tighter US gas market could facilitate a turnaround in the US gas prices.

Chart showing energy concerns

Broad-based geopolitical tensions present significant risks to the energy market outlook. Although the Israel-Hamas war has not yet directly impacted oil and gas production, the war and the security crisis in the Red Sea pose a threat to energy supply and prices. For instance, QatarEnergy, one of the world’s largest exporters of liquified natural gas, has halted shipping via the Red Sea since January due to security concerns and rerouted some shipments around southern Africa. Similar diversions are expected to result in delays and raise costs of oil and gas deliveries to Europe.

Potential deepening or extension of OPEC+ supply cuts could also tighten global oil markets, adding upward pressure to prices. However, robust output across non-OPEC countries, such as the US, Brazil, Guyana and Canada, is expected to offset the reductions from OPEC+ producers.

Soft demand and sufficient supply of major food commodities to cap prices

Food commodity prices are expected to continue a downward trend over 2024, owing to moderate global demand and adequate supplies of major crops, particularly corn and soybean. Global corn production is projected to expand by 6.6% in the marketing year 2023-2024, year-on-year, according to the US Department of Agriculture, with the biggest gains expected in the US, Argentina and China. Growth in global soybean production will likely be driven by a projected twofold surge in output in Argentina, which could help to offset weaker-than-expected crops in Brazil, hurt by adverse weather.Chart showing food

Extreme weather remains a key risk to the agrifood market outlook. According to the US national weather service, there is a 79% probability that the current El Niño phenomenon will end by mid-2024. Yet, the damage inflicted on this season’s harvests will continue to dampen this year’s output. This is especially true for food commodities grown in the most affected areas, such as cocoa, sugar, coffee, rice and wheat.

For instance, sugar output in India, the world’s biggest producer, is projected to fall by 10% in the marketing year 2023-2024 ending September, according to the Indian Sugar Mills Association. This could result in extended curbs on India’s exports, lifting global prices. Meanwhile, cocoa prices hit a record high in February, as major cocoa producers Côte d’Ivoire and Ghana continue to grapple with heatwaves and drought caused by El Niño, compounded by the devastating spread of the swollen shoot virus disease.

Weaker industrial and construction growth to cap metal prices

Prices of key industrial metals are forecast to remain stable in Q1 2024.

Slower manufacturing growth in the largest economies and persistent problems in China’s real estate sector will continue to cap the price growth of metals

Source: Euromonitor International

According to national statistics, the total floor space in new starts of residential projects in China shrank by 22% in 2023, indicating a shrinking new projects pipeline and weak demand for metals in 2024-2025. Slower manufacturing growth in Western Europe is also forecast to contribute to weaker demand for metals in the first half of 2024.

Despite the general slowdown, copper prices are forecast to show more volatility in 2024. The copper market experiences overcapacity problems; however, rising investments into green energy projects and an expanding renewable energy sector in China could outpace the supply growth. This could lead to higher copper price volatility in the second half of 2024.

Chart shpwing Metals supply

Aluminium prices are also forecast to show more volatility in 2024. Higher accumulated stocks of aluminium and weaker global economic growth help to maintain price stability; however, faster interest rate cuts and a potentially constrained aluminium supply from China due to periodic energy supply problems could add to more price volatility. With these upside risks, buyers of aluminium will need to keep a close eye on market trends and prepare for potential supply volatility.

Learn more about developments in global commodities markets in our report, Global Trends in Commodities Market. And read our recent extract, Global Economic Forecasts: 2024 Outlook, to assess how the world’s economic outlook could affect the commodities market dynamics.

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