Commodity prices set to soar again in 2023

According to a report by analysts at US investment bank Goldman Sachs, under-investment in the commodities sector is set to cause prices to soar again in 2023. Shortages are also expected, and are likely to exacerbate price pressures.

Expected yield of 43% in 2023

Despite the recent downturn in commodity prices, commodities should continue to be the best-performing asset class in 2022, as they were in 2021. At the end of November, the Bloomberg Commodity Spot Index was up 11.6%, and the S&P GS Commodity Index, which had climbed to a record 42% in 2021, is expected to return 23% for 2022 as a whole.

In detail, not all commodities achieved the same results. Precious metals posted a negative performance, and China's zero Covid policy weighed on industrial metals. After rising by 60% this summer, oil lost ground and the price per barrel fell back below the $80 mark.

However, 2022 remains an exceptional year for commodities, with returns set to be even higher in 2023, as detailed in a report by Goldman Sachs analysts. It is expected to reach 43% next year, once again putting commodities at the top of the list of best-performing asset classes.

According to analysts' forecasts, the slowdown in activity in the USA and China is likely to weigh on commodity yields in the 1st quarter of 2023. Thereafter, however, prices are set to soar once again due to expected shortages.

Under-investment to blame for rising commodity prices

According to Goldman Sachs analysts, the rise in commodity prices is mainly due to under-investment in both mining and oil, while prices for most commodities have almost doubled by 2022. These prices have not been sufficient to attract investors, and to provide sufficient supply to avoid shortages.

For several years now, oil companies have been investing less in finding and exploiting new deposits. This is due to low prices at the start of the health crisis and the oil counter-shock of 2014.

The same is true of the mining sector, where demand for metals - particularly copper - is set to rise considerably as a result of the energy transition and the development of low-carbon technologies. However, it can take up to 15 years from investment in a metal mine to the start of production, which is bound to lead to shortages in the long term.

According to Goldman Sachs analysts, oil prices are set to rise from $80 to $105 per barrel by the end of 2023. On the Asian market, liquefied natural gas, currently priced at $33 per million British thermal units (MBtu), is set to rise to $53.10. As for a tonne of copper, currently selling for $8400, it should rise to $10,050 by the end of next year.

A "super-cycle" starting in 2020

Some analysts, such as Ed Morse of Citi Bank, don't quite share the view of those at Goldman Sachs. In his view, the threat of a global recession hangs over commodities, and could lead to a drop in demand, pulling prices down.

In the long term, however, rising commodity prices are the most likely scenario according to market observers. Analysts at Goldman Sachs had predicted a "super-cycle" by the end of the first containment period in 2020, i.e. a general rise in commodity prices lasting around 10 years.

However, these super-cycles are not linear. As the report explains, "Once high prices have rebalanced the market in the short term, they are no longer needed and prices collapse, as we saw at the end of the year. But this doesn't mean that the super-cycle is over, as long-term supply problems take years to resolve ".