Javier Blas’s View to 2023: The Commodities Boom Continues

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What to Expect in 2023:The global economy is hard-pressed to satisfy its own commodity needs. Despite the past year of sky-high prices, the natural resources industry isn’t rushing to invest in more capacity to alleviate supply shortages. Without an investment boom, the only way to rebalance the market in the new year is through lowering demand. 

Indeed, an economic slowdown is already on its way. The US Federal Reserve, the Bank of England and the European Central Bank are all firmly pushing the brakes via higher interest rates. The British economy is already in recession, and Europe is edging toward a cliff. The US is oscillating between a soft and a hard landing. But even if macroeconomic forces ease some commodity cost pressures, microeconomic factors, such as low inventories and limited spare capacity, will keep prices higher than during past recessions in 2023. 

From its peak in June, the Bloomberg Commodity Spot Index has fallen about 20%. But the basket, which tracks the price of more than two dozen raw materials, is higher than it was during its peaks in 2008 and in 2011. Oil has fallen from a peak of more than $125 a barrel in early 2022 to about $80 a barrel by the end of the year — but the price remains well above the bottom set in December 2008 of little more than $35 a barrel. The same applies to other commodities, from copper to coal and from wheat to tin. The commodities boom is taking a pause, not ending. 

The resilience speaks volumes about the power of those microeconomic factors and the need to spend more on production. Wall Street, however, is unlikely to green light a spending spree unless prices remain higher for longer. Having shouldered heavy losses in the previous 10 years, shareholders want dividends and share buybacks, no new projects. Hardcore ESG investors are completely against backing new fossil fuel projects and big mines. 

For now, the macro bears are in charge. But as soon as the economy hits its bottom, perhaps as soon as late in the second quarter, and shows some sign of a new life, the micro bulls will see their revenge. The commodity boom will only end when capital expenditure in new projects picks up significantly. But that won’t happen in 2023. From the year behind us: Many Winters Are Coming. Start Saving Energy Now: For months, European leaders underestimated the size of the energy crisis they face. It was clear in early summer the continent faced a difficult time. And it did. 

Listening to Electricity Traders Is Really Scary: The inside story of how the people who trade electricity in the UK see the energy crisis — their worries, hopes and fears. 

Sorry, But for You, Oil Trades at $250 a Barrel: While everyone was looking at Brent and WTI prices, the real action was in the diesel and jet-fuel markets, where prices went, to put it simply, crazy. 

London Paid a Record Price to Dodge a Blackout: The lights stayed on in Europe, but the cost at times was eye-watering. Unknown to many but a few in the industry, catastrophe was at times avoided by a very thin margin. 

Look at All the Money Cargill Made Last Year: Although the political focus was on Big Oil, the commodity traders were among the biggest winners of the 2022 crisis in markets from natural gas to wheat. 

Toilet Paper Crisis Shows Inflation Is Still a Mess: The highest inflation in 40 years seen through the lens of a everyday product: toilet paper. Demand is inelastic, supply was curtailed. Prices jumped. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is coauthor of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”

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