What’s ahead for global commodities?

War in Europe and China’s expected COVID reopening could have an outsize impact on energy and other markets, says our head of global commodities research.

2023 Year Ahead Outlook

Francisco Blanch, Head of Global Commodities and Derivatives Research

December 22, 2022

Key takeaways

  • Severe constraints on supplies of oil and natural gas may keep prices high and complicate central bank efforts to fight inflation while also ending interest rate hikes.
  • Because production can increase without major capital expenditures, farmers are likely to plant more in 2023, easing prices of agricultural commodities.
  • As China reopens, more than a billion people will start traveling and spending, increasing demand for energy and other commodities.

In 2022, global commodities markets were pushed and pulled by conflicting forces. War in Europe constrained supplies and boosted prices of energy and agricultural commodities. At the same time, continuing COVID lockdowns in China and flagging global economic growth, high inflation and rising interest rates reduced demand for other commodities.


The year ahead may present additional disruptions, says Francisco Blanch, Head of Global Commodities and Derivatives Research for BofA Global Research. Here, he discusses the outlook for a range of commodities and how China’s reopening could affect the global economy.


This interview took place on:  December 2, 2022


Commodities surged in 2022, led by energy and agriculture. What’s your market outlook for these areas in 2023?


Disruptions from Russia have severely affected the European market for coal, oil and natural gas. We expect energy supplies to be extremely tight in 2023, and prices for oil and natural gas should stay high—at about $100 a barrel for Brent crude. In Europe, natural gas could cost anywhere from €100 to €200 per megawatt hour. That’s likely to be five to eight times the cost of natural gas in the United States, where supplies benefit from huge North American production.


Much of the disruption in agriculture also originated from the Russian invasion of Ukraine. With fewer contributions from both countries, demand exceeded supply and prices rose. But the supply side for agriculture is highly fragmented, and when prices are high, it’s relatively easy for farmers to produce more. Farmers in Brazil and elsewhere are doing that now, which makes it likely prices will come down in 2023.

Industrial commodities and precious metals lagged in 2022. What’s the outlook for these areas in 2023?


We expect growth in industrial commodities markets to be led by a resurgence in China, where demand contracted in 2022 for most industrial metals. But supply is likely to be constrained, with Chile and Peru substantially underperforming in terms of mine production. We think copper has potential for long-term upside. With reopening, China is going to be spending money on its power grid and electric vehicles, which use a lot of copper. In the rest of the world, we also expect spending on the energy transition to speed up next year, further boosting demand for copper. We also like aluminum; its prices are likely to stay high because of the cost of energy to produce it.


Last year was challenging for precious metals, which were hurt by the very strong U.S. dollar and high interest rates. But the dollar was already starting to weaken in late 2022, and our economists expect the Federal Reserve to pause rate hikes in the first quarter, which could put more pressure on the dollar. We’re bullish on gold in 2023, with a target price of $2,000 per ounce. 

The scarcity of energy supplies is going to make it hard for central banks to both tame inflation and stop raising interest rates.”

How will energy scarcity impact global GDP in 2023, and to what extent is Europe more vulnerable than the United States?


Energy supply and GDP are bound at the hip. Scarcity means lower global GDP in 2023. Our global economist is calling for growth of 2.3%. Because Europe is more exposed to a loss of Russian natural gas, it’s likely to suffer more than the U.S.


The U.S. Inflation Reduction Act, which will propel investment in wind, solar and other renewable energy technologies, may free up more U.S. natural gas, coal and oil for export. The U.S. has fantastic wind and solar resources across the middle of the country. Now those areas aren’t just about corn and wheat; they’re also about developing renewable energy.


What is the outlook for commodities if the U.S. and global economies slip into recession in 2023, as many expect?


For developed economies, we project zero demand growth in oil for next year—in part because those economies are going to have GDP growth of around zero, and the U.S. and Europe are projected to slip into recession. But the bigger issue for commodities is what happens to the Chinese and other Asian economies. That’s where demand may grow, and with supplies constrained, prices are likely to rise.


How will high energy prices affect efforts by the Federal Reserve and central banks globally to curb inflation?


Commodities and energy prices generally drive inflation. The scarcity of energy supplies is going to make it hard for central banks to both tame inflation and stop raising interest rates. If you suddenly relax monetary policy, not just pausing but starting to cut rates, you’ll create more demand for something we simply don’t have. 

What impact will China’s reopening have on global commodities markets in 2023?


In 2023, there’s going to be a lack of external demand for Chinese products. The government is going to have to stimulate the domestic economy, which is hard if people are locked up at home. Our view is that China’s reopening will drive oil prices higher.


Many people are saying that China’s reopening will help supply chains, easing inflationary pressures, and that may well be true. But it’s also going to mean the same kind of demand frenzy we’ve seen when the West reopened. At the end of the day, we’re all human beings—we want to see our friends, have fun and enjoy our lives.


The Chinese reopening is going to drive up demand for transportation fuels, including jet fuel, gasoline and diesel. You essentially have 1.4 billion people who haven’t traveled abroad for three years. Because you have people wanting to spend more money in a supply-constrained environment, China’s reopening will be unequivocally inflationary—across the board, but especially in metals and energy.