Global Commodity Shock Enters Next Phase With Recession Test

Commodities will get intense scrutiny for the rest of 2022 after a first-half dominated by the supply turmoil and inflationary shocks unleashed by Russia’s attack on Ukraine. Here, we look at what the rest of the year holds for raw materials from crude oil and natural gas to grains, gold, and iron ore.

The second half will be about how consumers, businesses and governments cope with the shockwaves to commodity flows. Either the global economy can withstand the sky-high prices needed to maintain tight supplies -- especially for energy -- or soaring prices will be cured by recessions.

In natural gas, Russia’s supply cuts open a troubled new era for Europe. In oil, OPEC’s next move is crucial, and in food, there are some signs of price cooling. The fate of China’s beleaguered property sector will be crucial for metals, while central bank moves to crush inflation pose a broad headwind.

A Hard Winter

“Even if we don’t feel it yet, we are in a gas crisis,” said Germany’s Economy Minister. Russia’s squeeze on flows to Europe risks a historic global shortage - and higher prices still -- with peak demand looming this winter. Consumer nations are preparing to run economies without the fuel, and competition for liquefied natural gas between Europe and Asia will intensify -- all the more so if a key US export plant stays shut.

Expensive gas will increase power bills for households and businesses, and a full-blown crisis would shut industries from chemicals to fertilizers, fanning the flames of global inflation. Germany is preparing to trigger the next stage of its emergency plan, and gas rationing across Europe is a real prospect. In Japan, one of the world’s top LNG importers, the government is trying to curb consumption and is considering unprecedented moves to procure more fuel.