The war in Ukraine and the ensuing economic and financial sanctions proved to be a major supply shock in global commodity markets. However, the year 2023 will probably be the year in which international prices stabilize.
The prices of most raw materials should stabilize, or even decrease for the most “substitutable” among them or those most exposed to industrial demand. This is confirmed by the recent policy brief, published by the Policy center for the new south (PCNS), which deals with the various global macroeconomic trends for the year 2023.
Indeed, Yves Jégourel, the author of the note “2022 balance sheet and 2023 outlook: towards a stabilization of prices”, considers that “if we except natural gas, and under the very probable hypothesis of a persistence of conflict in Ukraine, world markets should not place the year 2023 under the best auspices”. That said, to explain his observation on the stabilization of commodity prices, Jégourel notes that the slowdown in the Fed’s rate hike is certainly a favorable element, “but it is reasonable to think that it is now fully integrated into operators’ expectations, and therefore in the prices of commodities”, he says.
The World Bank thus anticipates global economic growth of 1.7% in 2023, 0.5% for advanced economies and 4.3% for developing or emerging ones (statistics that have been largely revised downwards since the first forecasts ).
This situation might continue, as this organization foresees a very gradual recovery and particularly deleterious effects for the least developed countries. It is also assured, within the framework of the Policy brief, that an end to the war in Ukraine might, conversely, create a powerful influx of air, but this scenario appears almost impossible if one refers to the change of tactics and command of the Russian armed forces, decided by Moscow in January 2023.
Tensions in the LNG market
Although Europe has started the winter under favorable conditions (mild temperatures and full stocks), major difficulties remain, and the LNG (liquefied natural gas) market will logically reflect this. According to the International Energy Agency (IEA), the possible combination of unfavorable factors (total blockage of Russian gas pipelines and increased demand for LNG by China) might lead the European Union to run out of gas of 27 billion cubic meters in 2023, which would require additional measures to moderate its consumption. Yves Jégourel affirms in this sense that, if necessary, “LNG prices might soar once more and have, as in 2022, systematic effects both on the scale of the other basic products and those of the importing countries, in development in particular. High volatility should therefore be anticipated.
In 2022, the rise in gas prices has largely been transferred to those of fertilizers and in particular that of urea, using natural gas as the main input. Thus, according to aggregate figures from the World Bank, the price of this fertilizer reached a record level in April 2022, at 925 USD/t. By way of comparison, they had settled at 785 USD/t in August 2008. A clear decline was nevertheless observed at the end of the year, in the wake of that of gas. Urea thus saw its price increase by 45% between 2021 and 2022, but contract by nearly 40% between January and December 2022.
The effects of the war in Ukraine
The war in Ukraine and the ensuing economic and financial sanctions represent a major supply shock in global commodity markets. “Revealing European unpreparedness and a lack of shared strategic vision, the energy crisis is not over, and it can only, without an unfavorable configuration, increase the instability of commodity prices”, according to the policy brief.
Although settled at high levels, grain prices generally contracted during the second half of 2022, on the back of favorable (or even record) harvests in a number of producing countries. The effects of global warming nevertheless seem more significant each year, and it will be hoped that they will not be felt in 2023.
Jégourel ensures that “the war in Ukraine and the rise in gas prices it has caused have and will have thwarted effects on the energy transition, amplifying the urgency of making greater use of low-carbon energies while “re-legitimising”, in some countries, the redeployment of coal, which was undoubtedly one of the big “winners” of 2022. This demonstrates, if need be, that international climate conferences must more than ever be coupled with large-scale negotiations on commodities , like those that founded multilateralism following the Second World War. Energy and food security should be the subject of this, for the benefit, in particular, of the countries most vulnerable to the effects of climate change, this if we exclude specific initiatives aimed at responding, such as the Black Sea cereals initiative, to acute crisis situations.
Sanae Raqui / ECO Inspirations