The global commodity market is currently experiencing a “super squeeze,” driven by supply disruptions and a lack of investment. This squeeze is expected to worsen as geopolitical and climate risks continue to impact supply chains and commodities. HSBC’s chief economist, Paul Bloxham, explains that higher prices are being driven more by supply constraints rather than robust demand growth.
Geopolitical risks, such as the ongoing Israel-Hamas conflict and the Ukraine war, have hampered global trade and caused shipping disruptions. Additionally, climate change has disrupted supply chains, particularly in the agricultural sector. These factors contribute to the strain on commodity prices.
Another significant factor is the lack of investment in energy transition metals, like copper and nickel, despite the increasing demand for these materials in the pursuit of a net-zero carbon future. The Energy Transitions Commission reports that there may be a shortage of metals like graphite, cobalt, copper, nickel, and lithium in the next decade if investments are not increased.
The insufficient investment in new capacities means that supply will be constrained, leading to elevated commodity prices. Bloxham suggests that it would take a “bigger and deeper downturn globally” to alleviate the squeeze and lower commodity prices. However, extreme weather events and geopolitical tensions continue to impact the agricultural and energy commodity baskets.
Metals, particularly clean energy metals and iron ore, are expected to see the most upside. Falling inventory and a lack of investment in expanding capacity have contributed to the sudden price increase in iron ore. China’s continued steel production, despite its property crisis, has fueled the demand for iron ore and coking coal.
While risks remain, some analysts argue that commodity markets are still adequately supplied for the most part. Slumping global demand due to a sluggish economy has alleviated concerns about potential supply shortages. However, the super squeeze persists, and the market remains uncertain as geopolitical and climate risks persist.
FAQs on the Global Commodity Market “Super Squeeze”
Q: What is driving the current “super squeeze” in the global commodity market?
A: The “super squeeze” is primarily caused by supply disruptions and a lack of investment in the commodity market.
Q: How do geopolitical and climate risks impact the supply chains and commodities?
A: Geopolitical risks, such as conflicts and wars, hamper global trade and cause shipping disruptions. Climate change also disrupts supply chains, particularly in the agricultural sector.
Q: Why are higher commodity prices being driven by supply constraints rather than demand growth?
A: HSBC’s chief economist, Paul Bloxham, suggests that the current higher prices are more a result of supply constraints rather than robust demand growth.
Q: What are the risks of insufficient investment in energy transition metals?
A: Insufficient investment in metals like graphite, cobalt, copper, nickel, and lithium, which are necessary for the transition to a net-zero carbon future, may lead to shortages in the next decade.
Q: How does the lack of new investment capacities impact commodity supply?
A: The lack of investment in new capacities leads to supply constraints, which contribute to elevated commodity prices.
Q: What sectors of the commodity market are expected to see the most upside?
A: Metals, especially clean energy metals like copper and nickel, as well as iron ore, are expected to experience significant price increases.
Q: What factors have contributed to the sudden increase in iron ore prices?
A: Falling inventory and a lack of investment in expanding capacity have contributed to the sudden price increase in iron ore. China’s continued steel production has also fueled the demand for iron ore and coking coal.
Q: Are commodity markets adequately supplied despite the “super squeeze”?
A: While some analysts argue that commodity markets are still adequately supplied, concerns about potential supply shortages persist due to the ongoing “super squeeze.”
For more information on the global commodity market, you may visit the following link: HSBC – Global Banking and Markets