Top 5 Most Important Commodities to Watch in 2022

Jan 17, 2022 03:55 PM ET
Top 5 Most Important Commodities to Watch in 2022

2021 has been a year when most economies were staging recoveries from the COVID-19 pandemic. This brought with it a growth in demand for various commodities such as oil, coal, and natural gas. However, the recent outbreak of the Omicron variant may present a challenge to the economic developments thus far. There have also been some notable shortages throughout the year, which have affected commodity prices. An acute semiconductor shortage has driven down vehicle production, which has reduced demand for the industry’s raw materials such as rubber. An acute natural gas shortage has also driven up oil demand as people turn to oil as a substitute. With this backdrop, let’s see what the year 2022 promises in terms of commodity prices. 

1. Oil

Oil prices have been on a steady rise, owing to the increased global demand in the face of recovery from the pandemic, shortages caused by weather conditions, and bottlenecks on supply imposed by OPEC+. Further, the natural gas shortage has increased demand for oil, which has further driven oil prices higher. Analysts expect crude prices to average $74 per barrel in 2022 and later decline to $65 per barrel in 2023 as global oil suppliers recover.

The increasing demand for oil was mainly driven by the lifting of lockdown measures around the world, which opened up the economy. The highest demand was felt in China and Europe. Further, US production was curtailed by Hurricane Ida, while OPEC+ reduced their production due to maintenance and supply outages in several member countries. 

In 2022, demand for oil is only expected to rise, especially in the winter, as people substitute natural gas for oil for heating purposes. However, an increased spread of Omicron may put downward pressure on the rising oil prices. 

2. Energy commodities

Natural gas and coal prices increased sharply in 2021. As global economies recover from the effects of the pandemic, the demand for natural gas and coal has steadily risen, both for electricity production and industrial use. Further, drought has reduced hydroelectric power generation in several countries, including the US, which has increased the demand for these fossil fuels. Flooding has also reduced coal production in China and Indonesia.

China imposed a ban on coal imports from Australia, which disrupted its international trade. This also caused China’s imports of natural gas to increase significantly. However, the Chinese government revamped their coal production, which saw prices drop slightly in November.

In 2022, prices of these fossil fuels are expected to remain high as weather conditions continue to cause global shortages. If winter turns out to be colder than usual, it will exert upward pressure on coal and natural gas prices. 

3. Food commodities

Food supply has increased in 2021 as weather conditions in North and South America have favored the production of maize and soybeans. Elsewhere in Asia, conditions for rice production have been favorable, which has increased its supply. On the flip side, the wheat supply has reduced due to reduced output from the US and Europe.

The US Department of Agriculture predicts the growth of the global supply of grains such as wheat, maize, and rice by 1.7% in 2022, while that of edible oils from palm and soya beans is projected to grow by 3%. However, a rise in fertilizer prices threatens to raise food prices in 2022. The high fertilizer prices have been caused by high energy prices.

4. Agricultural raw materials

Cotton prices reached a 10-year high in October 2021, and the demand for cotton is expected to grow further till July 2022. Supply-wise, global production is expected to rise by 6.4%, following increasing supply from Brazil and the US. Consequently, its price is projected to rise by 5% in 2022.

Natural rubber prices declined in November as demand fell due to reduced vehicle production. This can be attributed to the semiconductor shortage that is currently plaguing the globe, as two-thirds of all rubber supply is used in tire production. Supply-wise, global output rose by 5.8% between January and October. 

The lowering demand coupled with increasing supply is likely to reduce rubber prices even further, by approximately 10% in 2022, according to World Bank projections. Any upward pressure on these prices depends on how quickly the semiconductor shortage will be resolved. 

5. Precious metals

Gold prices fell in the latter half of the year after outflows in gold-backed ETFs from US investors, and the tapering of asset purchases was enacted by the Fed. However, the growing concern over the spread of Omicron could push gold prices higher come 2022 due to safe-haven demand. However, the Fed’s increase of interest rates scheduled for 2022 is likely to reduce the appeal of gold as a safe haven

Silver, on the other hand, has seen reduced prices due to waning industrial demand. Both China and Japan’s PMI came out lower than expected. This dealt a blow to silver prices as these countries are the major users of silver-containing products such as electronics and photographic equipment. Any rise in these prices depends on economic recovery from the COVID pandemic, which is being threatened by the spread of Omicron. 

Elsewhere, the slowed vehicle production has reduced the demand for platinum and palladium, both of which are used as catalytic converters for reducing engine emissions. This has caused their prices to decline steadily since May, a trend that is likely to continue to 2022 if the semiconductor shortage persists. Supply-wise, South African mines have offset the shortage caused by outages in two Russian mines. 

Conclusion

Analysts expect 2022 to be marked by a rise in oil prices as the natural gas shortage persists and oil reserves remain at record lows. Coal and natural gas prices are also expected to remain high as long as weather conditions continue to hinder their mining activities. Food prices are expected to stabilize in 2022, but the fertilizer shortage may cause unprecedented price spikes. Cotton prices are expected to rise, as is the price of natural rubber. Precious metals are expected to decline in price as reduced industrial demand plagues the likes of silver, palladium, and platinum.


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