Alex Rankine Markets editor
Will 2024 mark a return to form for commodities? Raw materials were the best-performing asset class in 2021 and 2022, say Warren Patterson and Ewa Manthey of ING. Yet they suffered a sharp reversal in 2023, with the S&P GSCI index, which tracks 24 major raw materials, tumbling by 12%. Markets “underestimated the ability of trade flows to adjust to sanctions” on Russia, while central-bank monetary tightening and Chinese stagnation hampered global demand last year.
Weakness in some materials is likely to persist. The nickel market, for example, remains in a supply glut because of a huge jump in Indonesian production. But for most commodities, 2024 is shaping up to be a better year. Interest-rate cuts should boost demand, providing a tailwind for prices.
The bubble is still bursting
Not everyone is so bullish, however. We are witnessing the final stages of the implosion of the 2021-2022 commodity-price bubble, Philippe Chalmin of Paris Dauphine University tells Étienne Goetz in Les Echos; 2023 brought “one of the biggest falls in the history of raw materials” markets. Lithium had been heavily bid up on premature bets about electric-vehicle adoption, only to then crash by 80% . Wheat, palm oil, nickel and cobalt all suffered reverses of almost 50%.
After such a huge sell-off, green metals such as lithium and cobalt “can’t fall much further”, but with these markets in surplus there is limited scope for a rebound in the near term. The exception is copper, which has remained more resilient and looks “set to become the most strategic raw material in the years to come”.
Despite growing global chaos, “calm somehow prevails” in commodity markets, says The Economist. Many raw materials are well supplied, so investors are “relaxed” about the ability of markets to absorb disruption. Yet three shocks could yet “inflame” trading. Firstly, demand could
