2024 Global Economic Outlook

Commodities: Top ideas and evolving opportunities

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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.

This is an excerpt from our 2024 Investment Outlook, in which specialists from across our investment platform share insights on the economic and market forces that we expect to influence portfolios in 2024. This is a chapter in the Global Economic Outlook section.

We maintain high conviction that commodities offer a compelling structural investment opportunity, owing to low inventories, attractive roll yields, mid-single-digit collateral returns, and rising production costs. The next commodity cycle should be unlike the last one. Amid a regime of higher interest rates and moderate inflation, we believe future commodities corrections may be related to a weakening macro environment and should be viewed as buying opportunities — especially when prices approach incentive costs of production. When macro concerns recede, prices have the potential to snap back to demand-destruction levels, given the absence of the typical cushion from inventories and spare capacity.

Here, we briefly share our top short-term (less than one year), medium-term (within one to four years), and long-term (more than four years) ideas.

Short-term: Oil

As we look out to 2024, the petroleum complex continues to leave the door open for both compelling bear and bull cases. Bears center their concerns on soft demand caused by macro weakness. Bulls focus on supply-side initiatives intended to maintain a market that went into deficit midway through 2023. There were multiple reasons for this shift, including production cuts by OPEC+ nations, ongoing discipline from US shale producers, and a cessation in US government releases from the Strategic Petroleum Reserve. We now see a higher probability for upside asymmetry in oil prices. The market may be underestimating the impact on oil balances of OPEC+ actions, and demand indicators are generally showing resilience. We believe largest current the oil market deficits in several quarters should support prices and the roll yield throughout 2024. 

Medium-term: Copper

The threat of a recession and the tepid but improving Chinese economy are still pressuring near-term industrial metals sentiment. Not only do we believe this pressure may be short lived, but overall, our expectations are not as dire. Our economic leads indeed point to a bottoming of industrial activity in China and other large countries, and our medium- to long-term outlook for metals differs from prevailing sentiment. As governments and the private sector place greater emphasis on combatting climate change and driving decarbonization — both highly metals-intensive efforts — we anticipate increasing demand. 

Within base metals, copper continues to be our highest-conviction structural position. Our research shows supply deficits widening to more than 6,800 kilotons by 2030 (Figure 1). Incentive costs have already inflected sharply higher because of rising capital costs, geological and geographical constraints to future supply, and reluctance among metals and mining company management teams to commit capital to new projects. We expect this pricing trend to continue (Figure 2). Combined, these dynamics may yield a very attractive medium- to longer-term valuation for copper. The commodity looks severely undervalued, particularly if the supply/demand balance continues to tighten over the next few years.

Figure 1
Attractive yields present investors with a positive total return skew
Figure 2
Attractive yields present investors with a positive total return skew

Long-term: Carbon

Looking farther out, we believe carbon allowances will become an increasingly important mechanism for internalizing the exogenous cost of harder-to-abate carbon, leading to higher prices. Carbon markets have become an integral part of the commodity opportunity set, as well as an important driver of valuations, given the degree to which the price of carbon can affect the overall cost of production for many commodities.

In the US, following California’s passage of a pair of new laws mandating carbon-emissions disclosure by large companies doing business in the state, we expect carbon prices to rise, potentially doubling in value by 2030. The California Air Resources Board is evaluating several changes that would front-load cuts in the state’s annual emissions cap, widening near-term deficits to account for more aggressive cuts later on. These actions would force emitters to invest in expensive abatement technologies to meet their targets, supporting carbon prices in the process. Because California is looking to reduce Scopes 1, 2, and 3 emissions, the price of carbon will be increasingly integrated into the cost of most goods and services.1 As a result, carbon will likely become a more significant inflation driver in regions covered by carbon markets. 

Commodities roundup

CommodityCommentsShort termMedium term
OilThe oil market’s multi-quarter deficit could force prices toward demand-rationing levels in 2024. High levels of producer discipline across OPEC+ and publicly traded companies expose a very tight supply picture for the remainder of the decade.
Natural gasGas balances have stabilized after a period of oversupply, thanks to strong power-generation demand growth. The US gas market will likely remain in balance through 2024, followed by a period of tightness due to strong liquefied natural gas export growth.
Base metalsA slight improvement in Chinese manufacturing should support metals balances and prices in 2024. The energy transition is providing a strong structural catalyst to global metals demand, as we saw from China’s efforts over the past two decades.
Gold and silverHigh interest rates are limiting investment demand, while central banks continue to increase their exposure to gold. Stagflation is a real long-term risk as inflation expectations anchor at higher levels and growth slows. This is supportive for gold and silver prices.
Platinum group metalsPlatinum enters a multiyear deficit thanks to demand for substitutes away from palladium, and as the two largest platinum producers, South Africa and Russia, face production risks. Underinvestment in new supplies has created a gaping hole of platinum availability over the next decade, although demand may be eroded by electric vehicle market penetration.
GrainsGrain inventories have been rebuilt on the margin but remain on the tighter side and depend on a good South American crop. Climate change is prominently featuring in this sector, with Brazil, Argentina, and the US having taken turns producing disappointing crops.
Live stockThe cattle market is approaching the end of its destocking cycle. Supplies remain tight over the next six months, but demand is beginning to wane with retail prices at record levels, which should introduce downside pressure.

As of 31 October 2023 | This outlook represents the Commodities Team’s assessment of its opportunity set. The relative attractiveness of each commodity grouping is based on fundamentals, valuation, roll yield and sentiment and expressed in terms of green (attractive), yellow (neutral) and red (negative). The views expressed are those of the Commodities Team at the date of publication and are subject to change. Other teams may hold different views and make different investment decisions | Information presented contains forward looking statements. Actual results and occurrences may vary, perhaps significantly, from any forward-looking statements made.

1 Scope 1 emissions refer to direct emissions from a company’s operations. Scope 2 refers to indirect emissions from a company’s purchased power sources. Scope 3 refers to all other indirect emissions that occur along a company’s supply chain. 


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