Commodity market leaves behind tough quarter

By Burhan Sansarlioglu

ISTANBUL (AA) - The commodity market left behind the 1st quarter of the year when pricing became difficult and there was strong selling pressure.

The first quarter saw sharp fluctuations for the commodity market as concerns about global economic activity affected the market.

The number of COVID-19 cases globally increased uncontrollably after China lifted the pandemic measures, the risk perception increased in the commodity market, and the verbal guidance of the Fed officials, as well as recession concerns, were among the important factors that put pressure on the market.

A downward trend was observed in the commodity market with hawkish statements of the central banks.

The effects of the concerns that the world's leading central banks might implement their hawkish policies longer than expected were effective during the quarter.

Uncertainties regarding the Chinese economy also had a prominent effect on the commodity market.

Fed Chairman Jerome Powell said last month that the latest economic data was stronger than expected, suggesting that the final level of interest rates could be higher than anticipated.

Emphasizing that restoring price stability would likely require a more restrictive monetary policy stance for a while, Powell noted that the Fed is ready to increase the pace of rate hikes if the data showed that faster tightening was necessary.

Troubles in the global banking sector and uncertainties regarding monetary policies also led to product-based divergences.

The bankruptcy of Silicon Valley Bank (SVB) and Signature Bank in the US, and the announcement that the Saudi National Bank, the largest partner of the Swiss-based Credit Suisse, would not increase its capital also triggered uncertainties in the markets.

Switzerland's largest bank UBS bought its rival Credit Suisse urgently with government assistance.

- Metals

Gold came to the fore among precious metals, gaining 8%, and silver earned 0.7%, while platinum fell 7.2% and palladium 18.7%.

The expectations that the global economy will slow down in 2023 increased the demand for gold, which is seen as a safe haven.

IMF Director Kristalina Georgieva warned in January that the global economy is facing a tough year, while noting that one-third of the world economy is expected to enter recession due to the simultaneous slowdown of the US, EU, and China.

In the first quarter of the year, sharp movements were seen in base metals.

During this period, copper and aluminum gained 6.8% and 1.3%, respectively, while lead lost 8.9%, nickel 23.3%, and zinc 2.7%.

With China's loosening of strict pandemic restrictions, incentives for the housing sector raised the demand for copper in particular.

Supply concerns related to copper production in Canada, Singapore, and Chile also came to the fore.

The EU designated copper and nickel as strategic metals in the European Critical Raw Materials Act.

While this decision of the EU reflected positively on copper, decreases were recorded in nickel in the first quarter.

The US Geological Survey's research revealed that nickel production increased in 2022, but sharp fluctuations were seen in the nickel market due to the news about the commodity company Trafigura in Singapore.

Trafigura faced a loss of half a billion dollars due to fictitious nickel exports, while the company claimed that it was the victim of "systematic fraud."

The International Nickel Study Group revealed that there is an oversupply of the global nickel market.

The data showed that the gap in the global zinc market widened in 2022, while the proportion of total refined production declined.

The depreciation in energy prices also increased the demand for aluminum in the first quarter.

The news that France-based aluminum smelter Aluminum Dunkerque increased its production to full capacity as energy prices fell was perceived as a positive development regarding the economic activity in aluminum.

- Energy

Energy commodities fell sharply in the first quarter of the year, when Brent oil decreased by 5.3% and natural gas traded on the New York Mercantile Exchange decreased by 50.5%.

While the expectation of recession in the world economies and mixed signals about the economic and demand-oriented recovery in China, the world's largest oil importer, led to uncertainty, the increase in oil stocks in the US put pressure on Brent oil prices.

The news flow that the US would sell oil to the market from its strategic oil reserves was effective in the decline in Brent oil prices.

In the first quarter of the year, natural gas saw below $2 for the first time since May 2021.

Warmer weather conditions and saving efforts in the industry were effective in natural gas prices.

- Agriculture

Sugar prices rose by 9.6%, to the highest level since November 2016, cocoa 12.8%, to the highest level since August 2016, and coffee by %1.9 during the first quarter, while cotton prices dropped by 0.9%.

While expectations that sugar production may drop in the largest producer India reflected on sugar prices, related to weather conditions, cocoa prices rose with quality concerns in cocoa crops in Africa.

A shortage of fertilizers and pesticides has become a major problem for cocoa farmers, as the war in Ukraine limited Russia's worldwide exports of potash and other fertilizers.

Cotton prices declined as a result of increasing demand concerns, along with global recession expectations. The decline in cotton exports in the US also caused the depreciation of cotton.

In the first quarter of the year, wheat traded on the Chicago Mercantile Exchange fell by 12.6%, corn 2.7%, soybean 1.2%, and rice by 6.5%.

Wheat saw its lowest level since July 2021, as the increase in world wheat production forecasts and the renewal of the Grain Corridor Agreement emerged as important factors in the decrease.

The decline in oil prices in the first quarter of the year also suppressed corn prices.

* Writing by Gokhan Ergocun.