What does 2022 have in store for commodity market?

Highlights

  • Commodity prices have skyrocketed throughout 2021 owing to an incessant demand.
  • Ferrous metals, natural gas and oil could see lower than average prices, while lithium prices may trend upwards.
  • As economic activity slows down and fears regarding the new strain develop, demand for commodities might be affected negatively in 2022.

After a surprisingly phenomenal run in 2021, commodities have entered another year, albeit with a slowdown. Commodity prices have skyrocketed throughout the previous year owing to an incessant demand as the result of recovering industrial sector. However, the same may not be true for the new year, as experts predict that commodity space may be headed for a tough ride in 2022.

However, not all commodities had a smooth ride in 2021. Notably, gold had a hard time in 2021 as compared to 2020 as the metal saw a drop in price during the year. This occurred, in part, due to the booming popularity of cryptocurrency, which saw a sharp uptick in takers. However, the overall sentiment seems to have dented as the market keeps a watchful eye on the Omicron variant.

 ALSO READ: The possible effects of Omicron in 2022

Will ferrous metals and fuels lose momentum?

Certain experts predict that ferrous metals, natural gas, and oil crops could see lower than average prices. However, metals used in the production of electric vehicles, particularly lithium, are speculated to observe a spectacular ride in 2022. Additionally, experts are seeming hopeful for gold as well, which may have a better trajectory than 2021. However, the result would depend on how far and wide the effects of Omicron will be.

ALSO READ: Who will claim the title of world's biggest LNG exporter in 2022?

The demand for liquified-natural-gas is strong in Europe and Asia. Thus, it is highly likely that natural gas could witness an uptick in prices during the year. Adding to the list of fuels is crude oil, which is set to increase in supply in 2022 as OPEC+ has confirmed plans to produce additional 40,000 barrels a day from February 2022. Ideally, increased supply should cause prices to simmer down in the coming year, however, experts remain divided. It is speculated that rising supply would be met with a subsequent rise in demand as well, which could exert downward pressure on oil prices.

Lithium is set to be at the forefront of the commodity space.

Meanwhile, base metals are caught in between a tug of war between supply constraints and increasing demand. Prices for metals such as zinc and steel might stay stable during the year. However, depleting supply in Europe could trigger a sharp uptick in energy prices.

RELATED READ: Crude oil drops on rising coronavirus cases

Factors driving the commodity space

2022 is expected to be a year marked with high demand for commodities, keeping prices buoyant. However, breaking last year’s pattern, economic growth may not rise rapidly this year, making rising demand a concerning factor.

Increased supply of gold may be met with rising demand

As economic activity slows down and fears regarding the new strain develop, demand for commodities might be affected negatively. Another factor of uncertainty is added by the potential rise in interest rates in the coming year amid inflationary pressures. This could pose challenges for gold and other precious metals as a rise in inflation could trigger a major sell-off in gold.

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