What To Expect In 2023:
The global economy is hard-pressed to satisfy its own commodity needs. Despite the past year of sky-high prices, the natural resources industry isn’t rushing to invest in more capacity to alleviate supply shortages. Without an investment boom, the only way to rebalance the market in the new year is through lowering demand.

Indeed, an economic slowdown is already on its way. The US Federal Reserve, the Bank of England and the European Central Bank are all firmly pushing the brakes via higher interest rates. The British economy is already in recession, and Europe is edging toward a cliff. The US is oscillating between a soft and a hard landing. But even if macroeconomic forces ease some commodity cost pressures, microeconomic factors, such as low inventories and limited spare capacity, will keep prices higher than during past recessions in 2023.

From its peak in June, the Bloomberg Commodity Spot Index has fallen about 20%. But the basket, which tracks the price of more than two dozen raw materials, is higher than it was during its peaks in 2008 and in 2011. Oil has fallen from a peak of more than $125 a barrel in early 2022 to about $80 a barrel by the end of the year — but the price remains well above the bottom set in December 2008 of little more than $35 a barrel. The same applies to other commodities, from copper to coal and from wheat to tin. The commodities boom is taking a pause, not ending.

The resilience speaks volumes about the power of those microeconomic factors and the need to spend more on production. Wall Street, however, is unlikely to green light a spending spree unless prices remain higher for longer. Having shouldered heavy losses in the previous 10 years, shareholders want dividends and share buybacks, not new projects. Hardcore ESG investors are completely against backing new fossil fuel projects and big mines.

For now, the macro bears are in charge. But as soon as the economy hits its bottom, perhaps as soon as late in the second quarter, and shows some sign of a new life, the micro bulls will see their revenge. The commodity boom will only end when capital expenditure in new projects picks up significantly. But that won’t happen in 2023. 

Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is coauthor of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”