Commodities Outlook by HSBCnnAnalysts at HSBC have pointed out increasing downside risks for commodities, even though prices have remained elevated for much of the past 18 months.nnWhile supply-side constraints are the primary drivers of commodity prices, slowing global demand and geopolitical uncertainties are emerging challenges.nn> "Although global commodity prices are well below the record-high peaks from mid-2022, they remain elevated," said HSBC analysts.nnAs of August 2024, prices were 44% above their pre-pandemic average in nominal terms. However, when adjusted for inflation, they align more closely with the 20-year historical average.nnThe resilience in prices is attributed to a supply-side "super-squeeze," identified as a significant driver since 2022. nnGlobal economic growth is projected to slow, potentially impacting commodity demand. HSBC forecasts growth at 2.6% for both 2024 and 2025, a slight drop from 2.7% in 2023.nnSluggish global manufacturing, compounded by the ongoing crisis in China’s property sector, poses challenges for metals prices.nnChina’s housing sector continues to pose significant risks for industrial metals consumption, with construction metrics remaining in contraction despite government stimulus measures.nnMetals associated with the energy transition, such as copper and aluminum, have shown better performance. In contrast, those reliant on traditional infrastructure, like iron ore, are facing notable demand challenges.nnHSBC’s proprietary Commodity Cycle Selector (COCCLES), which uses machine learning to track commodity price movements, indicates a Bear phase since mid-July 2024.nnThis model suggests that further downward pressure could occur across various commodities, including oil and copper. However, commodities like gold have benefited from recent price increases due to geopolitical concerns.nnWhile demand factors are impacting commodities, supply-side limitations continue to provide some level of support. Geopolitical risks, including the Russia-Ukraine conflict and disruptions in the Red Sea, along with high shipping costs, remain prominent.nnThese supply-side disruptions, along with climate change effects such as extreme weather impacting agricultural production, contribute to ongoing volatility in global commodity markets.nnIn the energy sector, HSBC’s oil and gas team predicts that OPEC+ production cuts and record-high U.S. crude production might lead to a surplus by 2025. For now, geopolitical tensions are keeping oil prices high.nnThe global energy transition is increasing demand for critical metals like copper, lithium, and hydrogen, essential for renewable technologies, electric vehicles, and battery storage systems.nnHowever, HSBC warns that supply chain issues and geopolitical challenges may impede the supply flow of these important materials.nnIn agricultural markets, weather plays a crucial role. Grain prices, such as wheat and maize, have dropped due to favorable weather in the United States.nnConversely, premium foods like cocoa, coffee, and olive oil have seen price surges due to adverse weather and supply disruptions in key production areas.nnHSBC suggests global food prices may remain volatile, influenced by climate change, geopolitical tensions affecting trade routes, and shifts in trade policy, particularly after India’s rice export restrictions.nnPrecious metals, especially gold, have recently hit record highs above $2,500 per ounce. n> "The rally has been fueled by strong safe haven and hedge fund purchases, driven by expectations of Fed rate cuts and increased economic and geopolitical uncertainty,” the analysts noted.nnGold’s status as a hedge against inflation and economic instability remains strong, with potential further gains dependent on the global macroeconomic and political landscape.