Uncover the Hidden Risks in Commodities: HSBC Analysts Issue Stark Warning
In a recent report, HSBC analysts have raised concerns about the downside risks facing commodities, despite their prices remaining at elevated levels over the past 18 months. While supply-side constraints have been the primary driver of commodity prices, slowing global demand and geopolitical uncertainties are posing new challenges.
Although global commodity prices are still significantly higher than their pre-pandemic averages, when adjusted for inflation, they are closer to historical norms. The supply-side "super-squeeze" has been a key factor in maintaining these elevated prices.
Global economic growth is slowing, with HSBC forecasting a decrease to 2.6% in both 2024 and 2025. This slowdown is expected to impact commodity demand, especially in the metals sector. China's ongoing property sector crisis is a major headwind for metals prices, particularly for industrial metals.
HSBC's Commodity Cycle Selector indicates that commodities entered a Bear phase in mid-July 2024, suggesting further downward pressure on prices. Geopolitical risks, supply-side disruptions, and climate change effects continue to create volatility in global commodity markets.
In the energy sector, OPEC+ production cuts and record-high US crude production could lead to a market surplus by 2025. However, geopolitical tensions are currently supporting oil prices. The global energy transition is driving demand for metals essential for renewable energy technologies, electric vehicles, and battery storage systems.
Weather remains a key driver in agricultural markets, with grains experiencing price falls due to favorable conditions, while "finer foods" like cocoa and coffee have seen price increases due to adverse weather and supply disruptions. Precious metals, particularly gold, have surged to record highs, fueled by safe haven purchases and economic uncertainty.
In summary, the commodity market faces challenges from slowing global demand, supply-side constraints, geopolitical risks, and climate change effects. Investors should be cautious and monitor these factors closely to navigate the volatile commodity market effectively.