A tough year for commodities – and South Africa’s economy

Commodities have had a tough year in 2023, as many have performed poorly due to high interest rates, which have negatively impacted investors and South Africa’s economy.

Commodities are an attractive investment for many investors due to their tangible nature and utility in various industries like manufacturing, production, and nutrition.

Commodities are, therefore, also widely seen as investments that provide some level of protection against inflation.

However, most commodities have performed poorly in the year-to-date, with oil having been one of the only price-gainers.

One reason for this is the high interest rates seen globally this year. Historically, commodity prices have had a negative relationship with interest rate movements.

In a low interest rate environment, the cost of commodity storage is cheaper. Storage costs

are affected by interest rates either through increased mortgage bond payments or lower financing costs for companies that borrow money to store commodities.

Therefore, manufacturing companies stock up on raw materials in a low interest rate environment, which increases the demand for commodities and pushes up their price.

On the other hand, in a high interest rate environment, the inverse happens, and demand for commodities decreases, pushing down their price.

Investec chief economist Annabel Bishop

While this has affected commodity investors’ portfolios, it has also had an impact on the South African economy.

Investec chief economist Annabel Bishop said countries with commodity-based economies have been under strain as (non-oil) commodities prices have weakened in the past year.

She said non-commodity exporters have seen benefits from the rising demand for services, while manufacturing demand is weak in China, which is typically a main commodity importer.

The World Bank recently said, “Growth of global trade in goods slowed in the first half of 2023 in tandem with weakening global industrial production”. 

“In contrast, services trade strengthened in the aftermath of the easing of pandemic-induced mobility restrictions that supported tourism.”

Bishop said the delay in the global interest rate cut cycle, the switch from goods (commodities) trade to to services, and the embedded weakness in the Chinese economy limiting its recovery has stalked commodity prices.

This has led to weakening currencies in goods-based economies like South Africa’s.

Commodity price performance YTD

Daily Investor selected commodities in three categories – energy, metals and agriculture – and compared their performance in the year to date.

All three commodity categories had negative price returns in the year-to-date.

CommoditiesYTD price performance
Coal -62%
Brent crude oil11%
Natural gas -28%
Average -26%
Gold 0%
Lithium -68%
Average -21%
Corn -27%
Average -19%


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