Ukraine war, climate, China reopening to keep prices up


THE war in Ukraine, China’s reopening and climate change will continue making commodities expensive this year, according to London-based think tank the Economist Intelligence Unit (EIU)


The EIU said that while its weighted price indexes are expected to trade downward this year, prices such as those of food, feedstuffs, and beverages will remain elevated because of the war in Ukraine.

The reopening of China will make base metal prices edge upward this year; while climate change is deemed as a “wild card” that could impair production of certain agricultural products.

“Although commodities prices will not fuel global inflation in 2023 as they did in 2021-22, upside risks to our baseline price forecasts are increasing and largely center on China, climate change and continued conflict in Ukraine,” the EIU said in its latest Commodities Outlook.

Central to the impact of the Ukraine war on global trade is the Black Sea region, where Ukraine wheat imports transit despite the Russian blockade, the EIU said.

Developments in the Black Sea will also impact the trade and prices of oilseeds and vegetable oil prices as well as on coffee, cocoa and tea prices through high fertilizer prices and possible shortages.

In terms of the impact of China’s reopening, EIU said base metal prices will be elevated but will not be as high as in 2022. The average prices of base metals is expected to drop by 11 percent in 2023 compared to 2022.

The reopening of China will, however, have a positive impact on cotton as well as energy in the domestic market. The reopening, however, will lead to more expensive gas and liquefied natural gas (LNG) prices.

Oil prices

Meanwhile, the EIU said oil prices are expected to average more than $85 per barrel this year. This is also because of OPEC’s production which will decline by 3 million barrels per day from the peak in 2022.

Energy prices will also be elevated since Russian gas supplies will remain cut off for the European Union. This will have “lasting consequences” on the European market.

“OPEC unity and commitment to lower production quotas in the face of pressure from Western countries should be watched in 2023,” EIU said. “Increased global demand for LNG will boost US natural gas prices and sustain higher LNG contract prices, which will fall only moderately in 2023.”

Climate change, meanwhile, will again play a major role in commodities this year. Heatwaves in the northern hemisphere and other extreme weather events will affect agriculture production.

A La Niña, EIU said, would affect maize and soybean production in the first half of 2023, in addition to other crops like sugar and coffee.

Weather conditions will also have a significant impact on energy consumption. Heatwaves would cause gas and electricity prices to spike while drought affected hydropower generation in many countries.

EIU said the combination of dry conditions and rising water temperatures will also hit nuclear power generation.

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