As we see more and more statistics surrounding climate change, the warming of the oceans, and the devastating effects it could have on the planet, a greater emphasis is being placed upon green and renewable energy.
Currently, our planet invests almost twice as much in clean and renewable energy than it does with fossil fuels. In fact, 2024 looks set to see global energy investments exceed $3 Trillion for the very first time. 2 Trillion of this is set to be designated for investments in clean energy.
This is significant as, with interest rates now much higher than they were pre-Covid, the days of cheap borrowing are over. For now, at least. As higher financing costs are now in place, there are some investments that have been held back.
The impacts on project economics, however, have partially been offset by falling prices and the easing of supply chains. With solar panel costs coming down and the cost of minerals and metals required for batteries and energy transitions also falling, what can we expect for the commodities market and green market energy transitions in 2024?
What is the Commodities Market?
Before we can look at the potential outlook for commodities for the remainder of 2024 we’re first going to take a quick look at what a commodities market is.
Basically, a commodities market is a specialist market where investors can buy and sell a variety of goods taken from the planet. This can be anything from precious metals such as gold and silver to wheat, grains, cattle, fruits, vegetables, and more besides.
Because commodities can then be used to create other products (wheat can be used to make bread or beer for example) which can then be sold and purchased by consumers and other businesses, you can see why there is such a demand for commodities.
Because commodities are so broad, they can be split into two sub-categories:
- Hard commodities
- Soft commodities
Hard commodities generally consist of natural resources that must be extracted or mine. Examples of hard commodities include things such as oil, gold, silver, and other minerals. Soft commodities include things such as livestock or agricultural products such as cattle, corn, wheat, sugar, tea, and coffee.
Commodity markets are amongst the oldest markets in the world. They have existed since mankind’s earliest days. The fact that they still play such pivotal roles in modern society shows you just how important they are.
What is Green Marketing?
Green marketing basically refers to the process of creating and marketing products based upon their real or perceived levels of environmental sustainability.
As an example, green marketing could be in reference to promoting a product designed to reduce the emissions from a specific product, or a company’s manufacturing processes.
Another example could be the use of post-consumer recycled materials that have been used for a product’s packaging.
Companies may also promote themselves as being ‘green’ and environmentally conscious by carbon offsetting, I.E contributing towards the planting of trees or other environmentally friendly initiatives designed to be eco-friendly and improve the environment.
Many green energy markets will focus on things such as renewable and sustainable energy production, I.E wind turbines, solar panels, hydropower, electric vehicles, geothermal power, and more besides.
The Commodities Market and Energy Transition Trends and Predictions
So, we know that a huge emphasis is being placed on green energy and environmentally manufacturing processes and products, but what does this mean for the commodities markets and energy transition trends in general?
Commodity Prices Predicted to Experience a Modest Downturn
In 2024, it is predicted that energy prices should decline by 3%. This is down to a reduction in the prices of natural gas and coal, which are helping to offset the increase in price of oil.
In 2025, this downward trend looks set to continue, as experts predict a further fall of 4%. While any downturn is generally not viewed as great, investors can take solace in the fact that commodity prices still look set to remain higher than they were pre-pandemic.
2024 also looks set to see agricultural prices ease, while the cost of metal will likely remain steady in this year, before increasing slightly in 2025.
All of the above, however, is dependent on a number of factors, including inflation and interest rates, conflicts in Europe, and conflicts in the Middle East. Should things escalate, we can expect a much greater downturn, particularly as it will have a greater impact on energy prices.
Natural Gas Prices Plummeting
As we make our way through Q2 2024, we can look back at Q1 and what that meant for commodities, particularly natural gas.
Statistics recently unveiled revealed that natural gas prices fell sharply in the first quarter of the year, dropping almost 40% lower than in Q1 2023.
In Europe, the European benchmark declined by 35% in the same quarter. This was driven by high inventories and quickly reversed gains seen in Q4 2023.
In the US, natural gas prices also fell sharply, dropping by 22% in the same quarter. These falls were attested to lower demand as a result of milder weather conditions, along with robust domestic production.
For 2024, economists and analysts predict that natural gas prices will remain subdued, due to ongoing corrections in trade patterns, along with abundant global storage levels.
Coffee and Cocoa Help Drive up Agricultural Prices
Despite Q1 seeing food commodity prices fall off by 4% due to a surplus of stock and robust exports from Black Sea regions, beverage prices surged and will likely continue to rise before tapering off in 2025. Experts predict the beverage price index will surge as high as 22% for 2024 before levelling out for the following year.
Because of El Nino weather conditions, as well as poor weather in general, robusta coffee and cocoa prices reached record highs at the end of Q1 2024. We’re now at the mid-way point in April, and that trend is so far continuing.
On the flipside, because of adequate supply levels and moderating El Nino, food prices will likely see slight declines for the remainder of 2024, with similar patterns expected in 2025.
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