HSBC forecasts elevated commodity prices in 2024,decline in 2025

Onome Amuge

HSBC, a major international bank, has forecast that commodity prices will remain elevated by an average of 2 per cent in 2024, driven by tight supplies, rising demand in China, and the transition to cleaner energy sources. 

The forecast suggests that, despite the current volatility, commodities will remain a relatively strong investment option in the medium term. However, the bank expects prices to fall by 4 per cent in 2025, as the global economy transitions away from fossil fuels and towards cleaner energy sources.

HSBC analysts believe that two key factors will support commodity prices in 2023. First, a recovery in economic growth in China, the world’s second largest economy, will drive up demand for commodities. Second, global supplies of commodities such as oil and gas are still tight, which will keep prices elevated. In addition, geopolitical risks and expectations of monetary policy loosening in the second half of 2024 are expected to add to the upside for commodity prices. On the downside, HSBC cited the risks of a continued slowdown in global economic growth and the potential for further supply chain disruptions.

While commodity prices have been volatile in recent months, HSBC’s forecast highlights some key trends in the market. Cocoa and iron ore prices have risen sharply due to tight supplies, while natural gas and coal prices have fallen as a result of increased production and weak demand. Agricultural products such as wheat and corn are expected to perform well in 2024 due to persistent supply constraints and the impact of dry weather on production. 

HSBC projected Brent to average $82.5 per barrel and U.S. Henry Hub natural gas prices to average $3.75 per million British thermal units. It noted that geopolitical turmoil and concerns about oil production have driven crude futures down by more than 10 per cent, while natural gas prices have also been under pressure from record U.S. production and mild weather conditions. 

In addition, HSBC predicts that gold prices will average $1,825 per ounce in 2024, as the Federal Reserve is expected to begin cutting interest rates in June 2024.

Meanwhile, gold investors are expecting record high prices in 2024, driven by several key factors. A possible pivot towards more accommodative monetary policy by the U.S. Federal Reserve is expected to boost demand for the precious metal, as lower interest rates make gold more attractive to investors. In addition, geopolitical risks such as the ongoing conflict in Ukraine and rising tensions in the Middle East are likely to support prices. Also, central banks are expected to continue to buy gold as a way to diversify their reserves and hedge against inflationary pressures.