Limping Commodities Poised to Soar Anew, Says Goldman

After a big run-up, commodity prices ebbed in 2022’s second half. But watch for a recovery this year, according to Goldman Sachs’ top researcher in the space.

Commodity prices should jump 43% in 2023, said Jeff Currie, global head of commodities research at the firm. Demand from a reopened China and crimped supplies due to under-investment should combine to deliver higher prices, Currie commented in a Goldman-produced video presentation.

The S&P GSCI Index, which tracks commodities globally, clocked an 8% increase in 2022, following a 37% rise the year before. Currie noted that the index peaked in March 2022 (at the time a 68.6% year-over-year increase) and reached similar heights last June , but has been descending ever since. Thus far this year, it is down 2.2%. “Commodities were the best-performing asset class in 2022 but have recently taken a hit as recession fears loom,” he observed.

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The chief reason for the recent slump has been China’s pandemic lockdown, which shrank its demand for oil (which makes up just over half the index) and other raw materials. Now, however, things are turning around in the world’s second largest economy, Currie said.

China has reopened with a vengeance, and its orders for oil, metals and the like are mounting again. What’s more, he pointed out, the Beijing government has loosened its restrictions on real estate debt in a bid to bring back that suffering sector.

“A stronger China helps Germany and Europe through exports of capital goods and luxury items,” Currie said. “And a stronger China and a stronger Europe lead to a weaker U.S. dollar, which then acts as a tailwind for commodities.”

Other factors include the Russian invasion of Ukraine, which in early 2022 jacked up oil and gas prices—until those rises faded thanks to a warm winter in Europe, energy conservation and fresh supplies of natural gas from the U.S. and elsewhere. Crude oil prices have come down from $113 a barrel in May 2022 to $76 today.

Add to that the decline in capital spending for oil and other commodities, which serves to limit supply: From a worldwide high of more than $300 billion in 2014, the outlays have diminished by almost two-thirds, as of 2022.

Certainly, a recession later this year could pull back demand. For the long term, though, Currie is bullish on commodity prices. For one thing, what he calls the “new economy,” meaning tech-related, will require more materials ranging from lithium to copper. “The drivers are there,” he said.