Commodities

outlook 2023
Climate change, conflict
and China’s reopening
The world leader in global business intelligence
EIU offers deep insight and analysis of the economic and political developments in the increasingly complex global environment;
identifying opportunities, trends, and risks on a global and national scale.

Formed in 1946, with more than 70 years of experience, it is ideally positioned to be a commentator, interpreter and forecaster
on the phenomenon of globalisation as it gathers pace, enabling businesses, financial firms, educational institutions and
governments to plan effectively for uncertain futures.

Actionable insight to win in the world’s markets

The world’s leading organisations rely on our subscription services for data, analysis and forecasts that keep them informed
about emerging issues around the world. We specialise in:
• Country analysis—access detailed country-specific economic and political forecasts, as well as assessments of the business
environments in different markets with EIU Viewpoint.
• Risk analysis—our risk services identify actual and potential threats around the world to help our clients understand the
implications for their organisations. Available products: Financial Risk and Operational Risk.
• Industry analysis—five-year forecasts, analysis of key themes and news analysis for six key industries in 60 major
economies. These forecasts are based on the latest data and in-depth analysis of industry trends, available via EIU Viewpoint.
• Speaker Bureau—book the experts behind the award-winning economic and political forecasts. Our team is available for
presentations and panel moderation as well as boardroom briefings covering their specialisms. Explore Speaker Bureau for
more speaker information.

Contact us
LONDON NEW YORK HONG KONG

Economist Intelligence Economist Intelligence Economist Intelligence

The Adelphi 750 Third Ave, 5th Floor, 1301 Cityplaza Four 12 Taikoo Wan Road Taikoo
1-11 John Adam Street, London, WC2N 6HT New York NY 10017, United States Shing, Hong Kong
United Kingdom Tel: +1 212 541 0500 Tel: + 852 2585 3888
Tel: +44 (0)20 7576 8000 e-mail: americas@eiu.com e-mail: asia@eiu.com
e-mail: london@eiu.com

GURGAON DUBAI

Economist Intelligence Economist Intelligence

Skootr Spaces, Unit No. 1 12th Floor, Tower B, PO Box No - 450056, Office No - 1301A Aurora
Building No. 9 DLF Cyber City, Phase - III Gurgaon - Tower Dubai Media City Dubai,
122002 Haryana, United Arab Emirates
India Tel: +971 4 4463 147
Tel: +91 124 6409486 e-mail: mea@eiu.com
e-mail: asia@eiu.com

For more information on our solutions and how they can help your organisation, please visit www.eiu.com.
COMMODITIES OUTLOOK 2023
CLIMATE CHANGE, CONFLICT AND CHINA’S REOPENING

Commodities outlook 2023

EIU expects most commodity prices, especially softs, to recede in 2023 in the face of slowing
demand globally, but an only limited increase in supply means that prices will remain high
in level terms. Prices of energy commodities, most base metals and several agricultural
commodities surged in 2021, and then again after the onset of the war in Ukraine in February
2022. Although commodities prices will not fuel global inflation in 2023 as they did in 2021-22,
upside risks to our baseline price forecasts are increasing and largely centre on China, climate
change and continued conflict in Ukraine.

War in Ukraine will still affect agricultural commodities markets in 2023

Global supply-chain disruptions stemming from the covid-19 pandemic will subside in 2023. Along
with increasing production volumes of agricultural commodities, this will cause a drop of 9% in our
food, feedstuffs and beverages index this year. Prices of grains have eased significantly from their
recent highs, but their direction in the coming months will continue to be influenced by events in the
Black Sea region, in particular by any further extensions of an agreement that allows Ukrainian wheat
exports to transit via Black Sea shipping corridors despite the Russian blockade of Ukrainian ports.
Black Sea developments will also have an impact on oilseeds and vegetable oil prices, which are set to
reach a trough at the end of 2023. The war will also have an indirect impact on coffee, cocoa and tea
prices through high fertiliser prices and resulting shortages.

Prices for soft commodities to trend downwards but remain high in 2023

EIU weighted price indexes (Q1 2019=100) Q4 2023 v Q4 2019 (% change)

Grains Oilseeds* Beverages Grains Oilseeds* Beverages
250 0 20 40 60 80

200

150

100

50
2019 20 21 22 23
Source: EIU. *Includes vegetable oils

Base metal prices will edge upwards in 2023

Policy-led decisions to boost construction and manufacturing in China—as well as rising demand
for Asian production generally, as much of European capacity is shuttered amid the energy crunch
there—will keep a floor under base metal prices in 2023, with most ending the year higher than they
ended 2022. However, prices will not match the heights achieved in 2022, when raw material supply
constraints created during the staggered economic recovery in 2021 were exacerbated by the war.
Base metal prices surged in the first half of 2022 as the market scrambled to replace lost supplies of

1 © The Economist Intelligence Unit Limited 2023

COMMODITIES OUTLOOK 2023
CLIMATE CHANGE, CONFLICT AND CHINA’S REOPENING

aluminium and nickel from Russia. Slowing global economic growth has already cut demand for base
metals; we believe that average prices in 2023 will drop by 11% compared with the average for 2022.

After recent sell-offs, prices for hard commodities edge upwards in 2023

EIU weighted price indexes (Q1 2019=100) Q4 2023 v Q4 2019 (% change)

Fibres Base metals Natural rubber Fibres Base metals Natural rubber
180 0 10 20 30 40
160

140

120

100

80
2019 20 21 22 23
Source: EIU.

After a dip in December 2022, oil prices will average more than US$85/barrel in
2023
Energy prices have fallen sharply from mid-year highs in the second half of 2022, with average prices
for all hydrocarbons (except liquefied natural gas, or LNG) set to register double-digit declines in
2023. However, prices will remain elevated at close to current levels. We expect oil prices to average
more than US$85/b in 2023 as OPEC production (including Russia) falls by about 3m barrels/day from
its recent peak in late 2022. OPEC unity and commitment to lower production quotas in the face of
pressure from Western countries should be watched in 2023.

Oil prices will remain elevated in 2023

(US$/barrel)
Brent OPEC basket West Texas Intermediate Dubai Urals
120

100

80

60

40

20

0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2019 20 21 22 23
Sources: World Bank; EIU.

2 © The Economist Intelligence Unit Limited 2023

COMMODITIES OUTLOOK 2023
CLIMATE CHANGE, CONFLICT AND CHINA’S REOPENING

We also do not expect a significant easing of European and US natural gas prices from current levels
before 2024. Russian gas supplies to the EU will remain cut off, which will have lasting consequences
for the European market, despite
Actual ongoing efforts to switch to Actual
alternative supplies and imports of LNG.
Forecast Forecast
This will keep prices elevated in 2023. Increased global demand for LNG will boost US natural gas prices
and sustain higher LNG contract prices, which will fall only moderately in 2023.

Natural gas prices come off historical highs but set to remain elevated
(US$/mmbtu)
Actual Forecast

US (Henry Hub) Europe (Title Transfer Facility) Liquified natural gas (LNG, Japan basis)
10 80 24

8
60 18
6
40 12
4
20 6
2

0 0 0
2019 20 21 22 23 2019 20 21 22 23 2019 20 21 22 23
Sources: World Bank; EIU.

China’s covid U-turn is a wild card

China will continue lifting its zero-covid policies this year, after starting to ease them in December.
China’s policy environment now moves from being a major downside risk to our demand and global
price forecasts to an upside risk—much will depend on how quickly the country’s economy reopens in
2023 and the severity of covid outbreaks in the first half of the year. Fiscal stimulus, although already
incorporated into our baseline forecasts, represents a potential upside for steel and base metals,
depending on how much China’s property slump continues to curb construction activity.
Cotton is likely to be a prime beneficiary of China’s reopening. Uncertainty surrounding China’s
economic outlook had been set to weigh on cotton consumption in the 2022/23 and 2023/24 seasons.
An easing of China’s zero-covid policy will lead to the opening up of its ports and logistics networks,
which will boost consumption and textile production.
Energy is another likely winner. Coal was by far the best-performing commodity in 2021-22, with
consumption hitting an all-time high as Europe fired up old coal-fired power plants in the face of
rocketing gas prices. Most of China’s industrial production runs on coal power. After the easing of zero-
covid measures, CNOOC, one of China’s largest national oil companies, raised its growth forecast for
gas imports in 2023 to 7%. This has the potential to fuel gas and LNG prices significantly.

Climate remains the big wild card in 2023

Climate played a major role in commodities in 2022 and will do so again in 2023. Scorching heatwaves
in the northern hemisphere hit production of wheat in the US and Europe in 2022, and climate change
means that catastrophic weather events are becoming more frequent. These include La Niña, which is
stretching into an unprecedented third consecutive year and will be detrimental to maize and soybean
production in the first half of 2023, in addition to other crops like sugar and coffee.

3 © The Economist Intelligence Unit Limited 2023

COMMODITIES OUTLOOK 2023
CLIMATE CHANGE, CONFLICT AND CHINA’S REOPENING

La Niña shrinks coffee yields in Asian and South American producers

Asia North
America
Cool, wet
weather Pacific Ocean
Colombia
Vietnam Increased Cool, wet
trade winds weather
Equator
Indonesia South
America

Australia
Brazil
Pacific Ocean
Dry, warm
weather
Sources: NOAA, EIU.

Wheat, which was heavily affected by war-related supply disruptions in 2022, faces significant
climate risks. In the US large swathes of the southern plains remain under drought conditions, and
crops are in unusually poor condition heading into winter dormancy. Extremely dry, occasionally
frosty weather in Argentina is causing damage across major producing provinces there, but Russia
and Australia are on course for a second consecutive year of bumper crops, which, for the moment, is
alleviating concerns about production in the western hemisphere.
Weather will loom large in energy markets as well. Europe’s heatwave drove up demand last
summer, causing gas and electricity prices to spike, especially as winds dropped to levels insufficient
to generate enough power to meet Europe’s electricity needs while drought affected hydropower
generation in many countries. These dry conditions, together with rising water temperatures, also hit
nuclear power generation. In addition, the severity of Europe’s current energy crunch depends largely
on how cold temperatures fall over the winter, not just in 2022/23 but in 2023/24 as well; the colder
the winter, the more countries will have to draw down stockpiles built up over 2022. Below-normal
temperatures will not only raise the spectre of energy rationing, but also put upward pressure on prices
over the summer as Europe scrambles to refill reserves—this time without Russian supplies.

4 © The Economist Intelligence Unit Limited 2023

EIU Viewpoint: Country Analysis
Preparing you for what’s ahead

Understand a country’s political, policy and economic outlook with our award-winning forecasts,
analysis and data. Our experts assess the global dynamics that impact organisations, so you can plan
and operate effectively.

What’s included?
• Global and regional outlook spanning politics, economics and market-moving topics
• Daily insights on the developments that impact the future outlook
• Executive summaries of country forecasts over the medium-term outlook
• Medium-term country forecasts on ~200 countries’ political and economic landscape
• Long-term country forecasts on the structural trends shaping ~80 major economies
• Industry analysis on the outlook for 26 sectors in ~70 markets
• Commodity forecasts on supply, demand and prices of 25 critical goods
• Macroeconomic data on forecasts, as well as historic trends
• Industry data on demand and supply of key goods, now and in the future
• Proprietary ratings on the business environment
• Thematic analysis of the cross-cutting issues that our experts expect to shape the global outlook
How Country Analysis helps you to stay ahead
Expansive coverage - global, regional and country-level analysis for nearly 200 markets, delivered by
our analysts. Every month, 20,000 data series are updated, enabling you to adapt and plan ahead.

Challenging consensus - stay ahead of your competitors. For more than 70 years our forecasting
teams have made bold calls, accurately.

A nuanced approach - intuitively designed to address politics, policy and the economy, our
methodology includes detailed insights in addition to data.

Robust, accurate information - apply insights with confidence. Our forecasts and analysis are non-
biased and rigorously researched.

To arrange a demonstration of EIU’s Country Analysis service or to discuss the content and features
included, please visit eiu.com/n/solutions/viewpoint/country-analysis/

5 © The Economist Intelligence Unit Limited 2023

Copyright

© 2023 The Economist Intelligence Unit Limited. All

rights reserved. Neither this publication nor any part
of it may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise,
without the prior permission of The Economist
Intelligence Unit Limited.

While every effort has been taken to verify the

accuracy of this information, The Economist
Intelligence Unit Ltd. cannot accept any
responsibility or liability for reliance by any person
on this report or any of the information, opinions
or conclusions set out in this report.