Commodities mostly declined in the first quarter of 2023, with the energy sector leading the way lower, markets experienced risk aversion shocks in March by sudden stressors from the U.S. banking system. The S&P GSCI index was down over 7% and the Bloomberg commodity index dropped 6.5% in the first quarter with global central bank rate hikes, weakness in China among changing demand pictures. Energy fell the most, with the S&P GSCI Energy index down 12% quarter to date. Prices for natural gas have lost more than half of their value falling to their lowest level in more than two years.

Certain components of the commodities complex are climbing a wall of worry with idiosyncratic factors driving leading to the divergence in returns we see. We ended the quarter however with a bullish hammer week formed on copper prices, suggesting demand just above $4.00. We also saw a bullish hammer month formed on WTI crude, which suggests demand above support clusters around $64.

Quarter Ending March 31, 2023

Commodities

Quarterly Commodity Highlights

Energy

Energy components fell the most in the first quarter, with the S&P GSCI Energy index down 12% quarter to date. The damage came from natural-gas prices and coal.

Benchmark HH futures on the New York Mercantile Exchange lost 53% in the first three months of the year and touched their lowest finish in about two-and-a-half years earlier in the month. Unnatural warm European weather and changing demand rationalization hit coal and natural gas. Excess Chinese liquefied-natural-gas cargoes and earlier zero Covid policies in China pressured the coal and natural gas markets.

Newcastle coal futures on ICE Futures Europe declined by 56%, after prices more than doubled last year. U.S. and global benchmark crude futures trade more than 7% lower for the quarter.

Metals

Like in many agricultural markets some industrial metals are among the quarter’s decliners. London Metal Exchange cash nickel prices were down nearly 24% for the quarter, wrecked by scandal and ‘s impact. miscalculations of Russia. Russia’s nickel trading was not sanctioned and continuing to reach consumers in China and elsewhere.

Speculators had bet big but too early on Nickel and other metals like lithium playing key parts in the clean-energy transition. A common sight in commodity markets is prices getting ahead of themselves, we saw it here in metals though just not as much as coal and natural gas.

Copper futures saw similar falls but bounced back and climbed more than 7% for the quarter. Gold and silver got bids from safe haven flows and the US dollar pulling back. Spot gold briefly popped over $2,000 an ounce in March, has gained more than 9% in the first quarter.

Iron ore also saw a strong rebound, with the thawing of China and Australian relations, a 13% rise in futures prices for 62% iron-ore fines delivered to China. Steel prices climbed with futures prices for U.S. Midwest domestic hot-rolled coiled steel up 49%.

Agriculture

Agriculture commodities were at both ends, much to do with supply conditions such as with orange juice and cocoa at the top. Many of the grains had pulled back from over speculation from Russia’s invasion of Ukraine. Prices came back dramatically in grains in particular.

For a Complete Macro and Micro Market Overview Visit TC Traders Market Weekly:

Five Factors in a Constructive Strategy for Investing in Commodities

Investing in commodities is something that needs to be done within a constructive strategy to understands risks and opportunity. There are many factors to consider individually depending on one’s access, location and financial position. Five factors to consider are monitoring the market, monitoring supply and demand dynamics, diversification, long-term focus and dollar cost averaging.

Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2023.

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