Commodity markets overall had a volatile 2022, on the back of pent-up demand as COVID-19 lockdowns were lifted across the globe (except in China). The Russian invasion of Ukraine in February 2022 bolstered prices already on an upward trend, as market participants across the globe worried sanctions against commodity powerhouse Russia, would reduce supplies.
By the second quarter of the year, prices started to contract due to several factors including restrictive monetary policies implemented by developed nations to combat soaring inflation, a slowing Chinese economy in the throttlehold of a zeroCOVID policy which raised concerns over demand, and a stronger United States dollar, bolstered by their central bank’s hawkish interest rate hiking cycle, which made commodities expensive in local currencies. By the end of the year, most commodities had fallen from their March highs but still traded above long-term averages.
This year, central banks are largely expected to continue with their restrictive monetary policies for the first half to combat inflation, which is likely to result in a slowdown in the global economy over the first half which could curb demand for major commodities.
Optimistically, the Chinese economy started the year fully reopened which can boost the country’s economic growth and increase commodity demand by the second quarter of the year, particularly oil and industrial metals. Additionally, an end to the US dollar rally, which surged to a twenty-year high in 2022, could also be supportive of commodity prices.
We look at the fundamentals driving the demand and supply of major commodities, and the South African listed mining companies that can provide exposure to an asset class, Goldman Sachs, has taken a bullish stance on, predicting it to be the best-performing asset class in 2023.
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