HSBC Flags Downside Risks For Commodities

Yolowire 12-Sep-2024 10:28 AM

Analysts at British bank HSBC (NYSE:HSBC) have flagged downside risks for %Commodities as the global economy slows.

HSBC said that commodities ranging from metals to crops are at risk as global demand declines and geopolitical uncertainties rise.

In their report, the analysts forecast global commodities growth of 2.6% in both 2024 and 2025, down from 2.7% growth in 2023​

Global economic growth is slowing, notably in the U.S. and China, the world’s two biggest economies, and that is likely to weigh on commodities demand moving forward, said the bank.

At the same time, sluggish global manufacturing is a headwind for metal prices.

Although metals linked to the energy transition, such as copper and aluminium, continue to outperform, metals tied to traditional infrastructure, such as iron ore, face significant problems.

Geopolitical risks, including the Russia-Ukraine war and conflicts in the Middle East, are threatening shipping in the Red Sea, driving up costs and putting crop shipments at risk.

Those risks, combined with the effects of climate change, are negatively impacting agricultural production and leading to growing volatility in global commodities markets, said HSBC.

Grains such as wheat and corn have seen their prices fall in recent weeks due to unfavorable weather conditions, particularly in the U.S., notes the analyst report.

In the energy sector, HSBC forecasts that OPEC+ production cuts, along with record-high U.S. crude production, could lead to a market oversupply in 2025.

HSBC’s latest forecast comes as commodities prices are 44% above their pre-pandemic averages. ​However, the bank stresses that the good times are not likely to last.

In a bright spot, HSBC’s commodities report states that gold ‘s price is likely to remain strong over the coming year as macroeconomic and political uncertainties increase.

Gold is seen as a hedge against inflation and geopolitical uncertainty, and its price tends to rise during periods of volatility.

HSBC’s stock has risen 14% over the last 12 months to trade at $43.02 U.S. per share.