January-June 2023 was a period in which sharp fluctuations were experienced for the commodity market and especially the negative trend became prominent.
While the number of cases that increased uncontrollably after China lifted the Covid-19 measures, increased the risk perception in the commodity market, the verbal guidance of the Fed officials and recession concerns were among the important factors that put pressure on the commodity market in the first half of the year.
With the “hawk” statements of central banks, a downward trend was observed in the commodity market. The effects of the concerns that the world’s leading central banks could implement their “hawk” policies longer than expected were felt in the first half of the year.
With the debt limit crisis in the USA, uncertainties regarding the world’s leading central banks and recession concerns, the selling pressure in the commodity market could not be prevented in the first half.
The ongoing strong economic activity in the USA, increasing the demand for the dollar and the predictions that the US Federal Reserve (Fed) may continue to raise interest rates were among the important factors that negatively affected the commodity market.
“Reveals risk perception and concerns about global economic activity”
Analysts said that the sharp declines in the commodity market revealed the risk perception and concerns about global economic activity.
Continuing concerns about the Chinese economy negatively affected commodity demand, while the inflation and recession dilemma caused fluctuations in the commodity market.
The Fed left the policy rate at 5.00-5.25 percent. The Fed suspended the rate hikes that had been going on for 10 meetings.
In his speech after the meeting, Fed Chairman Jerome Powell stated that almost all Fed officials think that some additional rate hikes this year would be appropriate to bring inflation down to 2 percent over time.
In his presentation to the US Congress, Powell stated that the Federal Open Market Committee (FOMC) was generally of the opinion that it would be appropriate to increase interest rates again, and perhaps twice, this year.
The European Central Bank (ECB) recently increased its three main policy rates by 25 basis points. The ECB, which raised interest rates for the 8th time in a row as part of the fight against high inflation, signaled that it would continue to increase interest rates in the coming period.
Gold rises despite sharp declines in precious metals
Despite the sharp declines in precious metals in the first half of the year, a positive trend was observed in gold. During this period, gold gained 5.3 percent, silver 4.8 percent, palladium 31.4 percent and platinum 15.5 percent.
The statements that the global economy will slow down in 2023 increased the demand for gold, which is a “safe haven”. Global recession risk and concerns and uncertainties about the course of monetary policies also supported gold prices. While the news that the People’s Bank of China continued to increase its gold reserves had a positive impact on gold prices, investors turned to safe-haven gold after the bankruptcy of SVB and Signature Bank.
Decreases in construction production in the Euro Zone had a negative impact on silver demand.
Palladium was among the commodity instruments most affected by the recession concerns. While the concerns about the global excess supply caused the palladium price to decline, the continuing concerns about the global automotive industry triggered the demand concerns for palladium. Analysts stated that the increasing demand for electric vehicles also negatively affected the palladium market.
In the first half of the year, there were strong sales in base metals. In this period, copper decreased by 1.3 percent, lead by 9.4 percent, aluminum by 18.5 percent, nickel by 33.4 percent and zinc by 22.3 percent in the over-the-counter market.
The slowdown in economic activity highlighted demand concerns for base metals. The decline in the manufacturing industry in China and the decline in automobile demand in the country also affected base metals. Increasing recession concerns, especially in Asia, were effective in the decline in base metals.
Continuing its downward trend, copper declined as concerns about economic activity in China increased and the supply side remained strong.
Analysts stated that the slowdown trend in China, which has been going on for a while, has come to light with the latest data, and this situation has suppressed the prices of metals such as copper and iron used in the manufacturing industry.
Analysts said that there is an intense supply of nickel from Indonesia.
Losses in Brent oil exceeded 10 percent
Strong sales were seen in energy commodities in the first half.
In the January-June period, Brent oil lost 10.8 percent and natural gas traded on the New York Mercantile Exchange fell 38 percent.
The expectation of a recession in the world economies led to uncertainty with mixed signals regarding the recovery in the economy and demand in China, the world’s largest oil importer.
The news flow that the US would sell oil to the market from its strategic oil reserves was effective in the decline in Brent oil prices.
Weak economic data from China showed the effect of the decline in oil prices. The decline in new loans to businesses in China and the negative impact of economic concerns in the US on the demand outlook also triggered the declines in Brent oil.
Natural gas saw below $2 for the first time since May 2021 in the first quarter of the year. The decline in natural gas prices was driven by weather conditions that kept natural gas consumption relatively low, thus refilling gas tanks in many countries and importing more liquefied natural gas (LNG). Savings in natural gas, especially in the industry that produces less due to cost, affected the decrease in prices, while the energy crisis remained in the background for the time being, triggering the decrease in prices. Natural gas prices also decreased with the predictions that the air temperatures would rise.
Despite the decline in agricultural commodities, the performance of sugar and cocoa drew attention
Looking at agricultural commodities, wheat traded on the Chicago Mercantile Exchange fell 17.8 percent, corn 27.1 percent, soybeans 11.9 percent and rice 3.4 percent.
In the first half of the year, wheat tested $5,7325 since December 2020, while soybeans tested $12,0550, the lowest since November 2021.
In the Intercontinental Exchange (ICE), cotton fell 5.2 percent and coffee 5%, sugar rose 10.2 percent and cocoa 29 percent.
Coffee tested the lowest level since May 2021 at $1,4205, while sugar hit the highest since October 2011 at $0.2683.
In the first half of the year, decreases were seen in wheat, maize and rice as the extension of the Black Sea Grain Corridor Agreement eased concerns about supply.
The increase in corn plantings and the decline in oil prices in the USA also suppressed corn prices.
Cotton prices declined as a result of the increase in demand concerns along with global recession concerns. The decline in cotton exports in the USA also caused the depreciation of cotton.
Coffee prices fell with the expectation that the weather conditions will improve in Brazil and that this will increase production.
Analysts stated that the predictions for a decrease in sugar production in India caused an increase in prices and said that they were concerned that global supply problems could be triggered by the decrease in sugar harvest in the country. Sugar prices rose on the back of limited exports from India and sluggish supply expectations from other countries, including Pakistan and Thailand. Reminding that India is the world’s largest sugar producer and Brazil the world’s largest sugar exporter, analysts emphasized that the developments in both countries had an impact on prices. Concerns over sugar beet production in France also triggered supply concerns for sugar.
While addressing concerns about the El Nino weather event, analysts said that El Nino could negatively impact sugar production, bringing heavy rains to Brazil and droughts to India.
Concerns about cocoa yield in Ivory Coast caused cocoa prices to rise. Cocoa prices were supported by concerns about the quality of some West African cocoa crops. Concerns that the monsoon weather event may harm production also cause cocoa prices to rise. The news that Nigeria’s cocoa exports have decreased also highlighted the supply concerns in cocoa.