4 factors to watch

4 Factors to Watch in Commodities in 2023

Published by ChAI
Jan 5 2023

2022 was an unprecedented year in commodities, with prices across many markets surging to record highs on the back of supply risks. The cycle of uncertainty in commodities is far from over, so as we enter a new year, we look at four key factors that will influence commodity prices in 2023.


A key driver behind commodity prices easing off in Q4 of 2022 was the worsening global macroeconomic situation, and this will continue into this year. Indeed, the International Monetary Fund recently announced it expects one third of the world to enter a recession next year. While Q4’s economic data is yet to be published, the Office of Budget Responsibility has already declared that the UK is in a recession and expects it to last throughout 2023. Most economists believe Europe is not far behind in this matter, while the United States may also follow the same path. Negative economic growth across major economies across the world will reduce demand for commodities as both public and private spending is cooled in response to the economic environment.

At the same time, the fiscal measures already enacted by the Federal Reserve in its attempt to prevent a recession in the US, namely the rapid raising of interest rates, has strengthened the dollar against other currencies in the last 6 months. As most commodities are priced in dollars, this has already made it more expensive for nations holding other currencies to import materials, further contributing to downward price pressure. Which economies fall into recession, what measures they implement to resolve the situation and how long that resolution takes, will all play major roles in commodity prices in 2023.


Since Russia’s invasion of Ukraine in late February 2022, news regarding commodity markets has been unable to avoid mentioning the impact of the conflict. The two nations are key global producers of an array of commodities including energies, metals and grains. The future of these markets, such as crude oil, will continue to be dictated by the ongoing geopolitical reaction to Russia’s aggression, such as the imposition of a G7 price cap on Russian crude oil in December. One particular aspect of the conflict that could influence global food prices next year is whether Ukraine is able to continue exporting its grain shipments via the Black Sea under the agreement brokered by Turkey.

Beyond the conflict in eastern Europe, there are other notable regions where geopolitical tension appears to be rising to potentially dangerous levels. Taiwan recently announced that the period of mandatory military service for young men would increase back to one year from 2024, having been gradually reduced over the past decade. Given the strategic importance of the US as an ally to Taiwan, an escalation from China’s rhetoric of reclaiming the island to genuine action could result in enormous disruptions to global trade. Elsewhere, tensions on the border between Serbia and Kosovo have also been increasing, with the possibility of two simultaneous wars in Europe in 2023 not impossible.

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China’s Covid Exit

In mainland China, the developing story that will dominate Q1 2023 is the country’s abandonment of its much-criticised Zero Covid policy and to what extent the nation will regain its pre-pandemic economic power. Traditionally the largest global importer of materials ranging from crude oil to soybeans, the pace and scale of China’s economic recovery will have far reaching consequences for commodity prices. One particular aspect that will have a crucial bearing on the future of industrial metals prices is the approach the Chinese government takes towards its property sector. A major stimulus package was announced to aid this recovery in Q3 of 2022, but it will likely take further billions of state investment to revive an industry which has predominantly been financed by debt until this point. The magnitude of recovery for industrial production linked to property and construction will also impact global energy markets. China is traditionally the largest importer of crude oil, but renewed industry will also aid the continued price rise of coal, which is already trading at five times higher than in January 2019.


Finally, the climate will play an important role in commodities in 2023, as it did in 2022. Last year witnessed historic heatwaves across Europe in summer, followed by equally historic mild winter, both of which contributed to the fluctuations in natural gas prices for the continent. These kinds of weather patterns and their effect on demand will continue to influence energy prices this year, particularly in H2 2023 when Europe will again need to rebuild its gas supplies for next winter but without relying on imports from Russia.

Perhaps more significant is the potential impact of adverse weather phenomena in crop growing regions around the world. Despite extreme flooding caused by La Nina, Australia looks set to produce a bumper wheat crop this year with barley and canola yields also looking promising. However, many growing regions have suffered due to the climate in the past year. The US Midwest experienced drought throughout the summer, and more recently has been impacted by the freezing weather that engulfed a significant proportion of the country. Elsewhere, major producers Argentina and India both suffered severe heatwaves and droughts, which led to export bans for several commodities to protect domestic food security in India. As extreme weather patterns become increasingly regular due to climate change, it is likely that the supply risks for agricultural commodities will continue to grow in 2023.

Recession, conflict, China’s Covid exit and climate change will all influence commodity prices in 2023 to some extent, however the challenge for companies affected by price volatility is quantifying the risk and potential impact of these issues. Those that can quickly identify and respond to the market movements caused by these factors will have a competitive advantage throughout this year.

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