Which Are The Commodities Of The Future? (2024)

Key View

• In this article, we use the prism of demand patterns and ourconsumption forecasts to identify areas of growth, stagnation and decline across different commodities over a 20-year horizon.
• A significant numberof commoditieswillenjoystrong demandgrowthin the comingtwo decadesandcan be dubbed as 'CommoditiesOf TheFuture'.Thoseincludea good share of minerals andmetalscommodities(copper, nickel, aluminium, lithium, cobalt, tin, rareearths, metal scrapsandgreensteel) andof agricultural commodities(includingpoultry, dairy, fishandcrustaceans, soybean, corn,cocoa, fruits andvegetablesandnewagribusinessareassuchas marijuana). Out of theenergysector, onlylowcarbonhydrogen, a relatively'new' commodity, is making thecut. Although not a traditionalcommodityper se, we havealsodecided to includecarboncreditsin theCommoditiesOf The Futurecategory.
• We anticipate a stable-to-upbeatdemandoutlook fornaturalgas, staplegrainswheat andrice andsome softs suchas palmoil, coffee andcotton.
• Whiledemandwillkeep up in thecomingyears, we holda stable-to-downbeatdemandoutlookbeyond2030 foroil, ferrousminerals andmetals, sugarandbeef.
• Althoughconsumptionof coalandnitrogenfertiliser will hold up very well in the near term, we believethatdemandwill embark on a significant decline in thenextfive-to-10 years.

The commodities world is undergoing deep and fast changes amidthe fast acceleration of sustainability/decarbonisation and digitisation effortsas wellas a notable evolution in growth strategy from some of the leading players in the industry. As a result, demand patterns for various commodities will change over the coming decadescomparedwith historical trends, driven by structural macroeconomic and industry shifts. Key demand drivers for commodities in the coming years include:

• Pace and nature of economic growth (investmentled-consumption led; services versus manufacturing), globally and particularly in China, and whether new growth markets will come to replace China as the driver of commodity demand. Our core view is that IndiawillnotreplaceChinaas a metalsdemandgrowthenginefornowgiven the natureof its economyandpaceof growth, but this couldevolve in thelonger term.
• Pace of thegreentransition, towards lowergreenhouse gas(GHG) emissions and other sustainable practices including demand for alternative proteins.
• Pace of thedigital transition, which will impact the intensityin theuse of energy as productivity rises, as well as direct demand for metals used in themanufacturing of digital products such as tin and copper. The pace of digitalisation of agriculture will also drive demand for fertilisers and other inputs.

In this article, we use the prism of demand patterns and ourconsumption forecasts to identify areas of growth, stagnation and decline across different commodities over a 20-year horizon.

CommoditiesOf TheFuture: in ourview, asignificant numberof commoditieswillenjoystrong demandgrowth on a 20-yearhorizonandcan be dubbed as 'CommoditiesOf TheFuture'.Some ‘conventional’ commodities will receive an added boost as they take a central stage in thegreen anddigitaltransitions, including copper, nickel, tin, aluminiumand rare earth. Lithium and cobalt are now firmly established as commoditiesthatwill see demand boom on a multi-decade horizon amidthe battery revolution, although we highlight risksto cobalt below. Meanwhile, ‘new frontiers’ commodities will emerge includinglow carbon hydrogen andcarbon credits.

We identify oil, iron ore, conventional steel, zinc, sugar andbeef as commodities that will broadly stagnate demand-wise in the next 20 years.

CommoditiesOn TheDecline:Although demand will hold up very well in the near term, we believethatconsumptionofthermal coal, co*king coal and nitrogen fertiliser will embark on a significant decline in the longer term.

'Old Commodities' In Revival, 'New Commodities' Booming

Demand Outlook For Commodities On A 20 Year-Horizon

Source: Fitch Solutions

Commodities Of The Future: Mostly Linked To Green And Digital Transitions

In ourview,a significant numberof commoditieswillenjoystrong demandgrowth on a 20-yearhorizonandcan be dubbed as 'CommoditiesOf TheFuture'.Thoseincludea good share of minerals andmetalscommodities(copper, nickel, aluminium, lithium, cobalt, tin, rareearths, metal scrapsandgreensteel) andof agricultural commodities(includingpoultry, dairy, fishandcrustaceans, soybean, corn,cocoa, fruits andvegetablesandnewagribusinessareassuchas marijuana). Out of theenergysector, onlylowcarbonhydrogen, a relatively'new' commodity, is making thecut. Although not a traditionalcommodityper se, we havealsodecided to includecarboncreditsin theCommoditiesOf The Futurecategory.

Battery And Strategic Metals And Minerals:As thegreenanddigitaltransitions acceleratein the coming years, theywill support demand for a number of commodities, including in the case of metals copper (greentransition), nickel/lithium/cobalt (greentransition - batteries), tin (digitalisationandconsumer demand) andaluminium(greetransition). While the mining and refining sectors for ‘traditional’ base metals such as copper, nickel, tinandaluminiumare well established, we notethatthe lithium and cobalt mining sectors will develop quickly in the coming years and these markets will mature. Extensive research and development to improve the efficiency, cost and sustainability of batteries will lead to fast-moving developments in the types of battery chemistries, leaving some materials at risk of a fall in demand. Cobalt is a case in point here as many players along the battery supply chain are aiming to reduce or entirely phase out cobalt from batteries giventhe elevated sustainability/ESG riskassociated with the commodity.

For some of these metals, this will also come with supply vulnerabilities either due to a concentration in production in geopolitical hotspots or to sustainability issues. This is the case of cobalt and rare earthfor example.

Metal scraps also have a bright demand outlook in the coming years as recycling and the use of steel electric arc furnaces (EAFs),which require scrap,rise significantly over the10-year horizon.

Strong Consumption Ahead For A Variety Of Commodities

Select Commodities Global Consumption - Annual Average % Growth, 2021-2030 (Energy & Metals) & 2021-2025 (Agriculture)

Source: Fitch Solutions

Low Carbon Hydrogen (Blue And Green Hydrogen): A ‘New’ Energy Commodity Key To The Green Transition

While fossilfuel-based hydrogen (grey hydrogen) as a fuel is not new, bluehydrogen (natural gas-based) and greenhydrogen(renewables-based) are entering commercialisation and are only just becoming established in energy commodity markets. In fact, the ‘hydrogen as a commodity’ story has just started to unfold, with a notable rise in interest seen since 2020, and the sector will evolve at a fast pace in the coming years amidan ever-expanding project pipeline. Low carbon hydrogen has numerous potential industrial applications to decarbonise multiple sectors including power, or asfuel for manufacturing, transportation, and more.

We expectgreenhydrogen production willrapidly accelerate andgain increasing market share at the expense of traditionalgreyhydrogen, rising from less than 1% of current global market supply to a forecast10% by 2030. This rapid acceleration has been brought forwardby declining renewable costs, wide geographical scope, short development times and its zero-carbon footprint. In contrast, we expect thatbluehydrogen production growth will remain highly focused in several key markets and will be slower to gain market share owing to long development times, resource dependency and high levels of capital investment.

Overall, we expect thatall types of low carbon hydrogen willmostlikely grow in the coming years as the energy sector accelerates its transition towards lower emissions. Hydrogen product demand will be most concentrated in large, highly developed markets, and our newGreen Hydrogen Suitability Indexindicatesthe US, China, Western Europe and Canada as prime markets globally for the development of green hydrogen.

As demand and production capacity for this energy grows robustly in the coming years, the market will mature and require transparent pricing benchmarks, market liquidity and efficient risk management tools for suppliers and consumers in order for adoption to really pick up. However, we note that the low-carbon hydrogen industry will face a number of key growth challenges, infrastructure development, logistical supply chain establishment, cost competitiveness and scalability.

In the Commodities sector, besides powering operations and reducing emissions, green hydrogen presents opportunities as a new revenue stream for energy, mining and metal players. Many major oil and gascompanies, particularly European firms such asEquinor,Shell,Total,Repsol,ENIandBP,will drive support for low-carbon hydrogen, in particularbluehydrogen. Some mining and metal players have recently announced their goal to be major producers and suppliers in the market, including steelmakerPoscoandFortescue Metals, the fourth largest iron ore producer.

Related Research

• Fitch Solutions Global Low Carbon Hydrogen Production Outlook, February 15 2021
• Global Hydrogen Outlook Special Report, February 22 2021
• Green Hydrogen: Uses And Opportunities Within The Mining Sector, March 10 2021
• Green Hydrogen For Metals: Large Opportunities For Green Steel; Upside Risks To Platinum Demand, March 10 2021

Non-Hydropower Renewables To Become Only Power Capacity Growth Segment In NAWE

North America & Western Europe - Total Net Change In Capacity By Source, MW

f = forecast. Source: Fitch Solutions

The Rise Of The Conscious, Healthier And Affluent Consumer Will Boost Dairy, Poultry, Aquaculture And Alternative Proteins, Along With Fresh Products:A number of agricultural commodities will benefit from strong demand growth in the coming years. A more conscious, healthier and affluent consumer will boost consumption of poultry meat (at the expense of red meats such as beef), fish and seafood (in particular aquaculture), dairy and alternative proteins, opening up a new period of fast innovation in the space of low carbon food.

Industrial agricultural commodities including corn and soybean will also see consumption grow robustly amidthe acceleration in feed demand as livestock production expand, consolidates and modernises itself, requiring more ‘commercial’ feed. Biofuels will also remain a policy of choice in the coming three-to-fiveyears to support the agribusiness sector, despite concerns over food security.

Related Research

• Alternative Protein: Evolution Ahead In Plant-Based Ingredients, Implications For Agribusiness, January 29 2021
• Biofuel Mandate Increases To Resume In 2022, April 6 2021

Emissions Regulation To Stiffen Post 2025, Impact Array Of Commodities

China - GHG Emissions Regulation Timeline

Note: Red dots are announced commitments and blue dots are Fitch Solutions estimates. Source: China 14th Five-Year Plan draft, various news sources, Fitch Solutions

Carbon CreditsTo Boom In The LongTerm– Although carbon credits are not a commodity in the traditional sense, we believe emission trading schemes (ETSs) have some similarities with commodities markets. In fact, they arguably stand at the crossroad of a currency and a commodity. Carbon credit will be in any case a booming market in our view, as carbon trading mechanisms will multiply amidst accelerated decarbonization strategies by both states and corporates. Mandatory carbon markets will remain split at first from a geographical perspective, with most markets being country-bound for now, with the exception of the EU ETS, which will likely remain the largest and most advanced one in operation for the time being.

With the revised EU ETS Directive, phase 4 of the scheme will apply over 2021-2030. This will mean a declineat a fasterratethan in recentyears in the number of allowances available(limitingsupply of EUAs), as wellas a tightening on industry leakage with increased sector coverage. This has already had a largeimpact on the power sectorand will continue to be a core driver of the energy transition in the region. We therefore expectthe EU ETS market is actually likely to see a sharp increase in EUA trading volumes andprices as existing and new industry compete in a shrinking pool. China is introducing its own ETS in 2021 and its remit will grow significantly in the coming years. Meanwhile, we also note there exist a number of voluntary carbon offsets trading markets. In the next 10 years, we expect to see a growing interest in ETSs, which will require increasingly sophisticated financial trading mechanisms and services.

Stable-To-Upbeat Demand Outlook For Natural Gas And Staple Agriculture

A number of commodities will see consumption expandbut at a modest rate on a 20-year horizon, in our view,includingnatural gas, staple grains(wheat and rice),palm oil, coffeeand cotton.

Palm Oil: Long-Term Demand Determined By Consumer Growth And Biodiesel In South East Asia.We forecast palm oil consumption to slow down significantly over thefive-to-10-year horizon. Demand will be increasingly dependent on emerging markets(EMs) and will be a function of economic growth and consumer spending, as more affluent consumers in EMs increase their consumption of vegetable oils. In developed markets(DMs), palm oiluse for food is likely to trend lower, but we do not anticipatea collapse, despite sustainabilityrelated controversies. Alternatives (soy oil) come with their own sustainability challenges. Meanwhile, palm oil use for the biodiesel sector will remain on a growing trend in Indonesia and Malaysia, but it will not expand elsewhere. In fact, palm oil-based biodiesel use in the EU will decrease at a fast pace out to 2030 amidthe RED II policy.

Coffee's DemandOutlook DependentEntirely On UptickIn EMs.Global coffee consumption willincreasein thelong term, butwe notegrowthwillbe moderate, andweakerthanin theyears leading up the Covid-19 pandemic. Given highconsumptionpercapitain DMs, theoutlook is highlydependenton therise in demandin EMs, whererising incomes, population growth, changing habits, investment by foreign firms and attempts by top producers to reduce export reliancewillboostconsumptionin thecoming years.Consumption growth will also be present in mostDMs, driven by product innovation, especially in ready-to-drink products and speciality coffee. However, growth will plateaubeyond2025.

Stable-To-Downbeat Demand Outlook For Oil, Ferrous Metals, Sugar And Beef

Global oil demand will continue to expand across our 10-year forecast period, although growth will fall well below historical averages in a clear sign of oil’s impending peak.Fuel efficiency standards, the adoption of EVs and stagnant population growthwill see contraction in demand become more commonplace acrossDMs over the next decade. Those declines will not outpace the additional demand for oil fromEMswhereglobal consumption growth will be led by China and India as EMs take over as the key markets for fuel demand growth. However, oil consumption is growingat a slower rate and that decline in yearly growth puts it on track to begin contracting by the late 2030s.

Global efforts at energy efficiency and decarbonisation will receive a boost post pandemic as efforts to build back better will include significant increasesininvestment in the energy transition. This will lead to a reduction in fossil fuel use in the longer term. Near-term changes due to permanent changesto working from home and less commuting will also see fuel use decline in economies reliant on services, although manufacturing-heavy economies will see less impact. Gasoline use hasmostlikely already peaked in multipleDMsand price parity of EVs with internal combustion engines should this trend accelerate by mid-decade. Diesel consumption decline will take longer as few viable alternatives existfor constructionandlong-distancetransportation. The rise of a hydrogen economy may see new options evolve by the end of the decade in transportation and shipping, which could further displace oil demand.

One key area of growth for oil consumption, which is expected to counter losses in transportation, is thegrowthof thepetrochemical industry, in particular plastics. Growth in the demand for plastics is expected to remain fairly strong across the forecast period and is expected to be one area for consistent growth in oil demand. However, growing environmental awareness and activism could see recycling ratesincrease fromthe present low levels along withtheemergenceof non-oil alternativesbotheroding one of the few bastions of long-term oil consumption growth.

Oil Demand Wanes On Fuel Efficiency And Alternative Energy

Refined Fuel Forecast To 2020 With Long-term Average (1990-2019), '000 b/d

Source: EIA, Fitch Solutions

Iron Ore, Steel And Zinc Demand: Chinese Demand To Peak In 2028, Leading To Weak Long-Term Consumption Trends.We expect steel and iron ore demand (and therefore zinc demand, which is most commonly used to galvanise steel) to slow over the years and to record the most subdued growth among metals, mainly due to two reasons. First, China will record more lacklustre growth, and second, a rise in efficiency in the steel sector will reduce consumption.

Similar to the past several years, China will remain the main driver of growth for iron ore and steel in the decades to come.Its demand for iron and steel has remained relatively strong in recent years, as the authorities increased support to the infrastructure sector in 2018-2019 amidthe US-China trade war and stepped it up further in 2020 in response to Covid-19. Meanwhile, the rebalancing to a consumption-led economy did limitprogress. We expect Chinese steel demand to slow down but remain in growth territory in the coming three-to-fiveyears as there is still a healthy infrastructure project pipeline and the authorities plan on accelerating urbanisation. We see it embarking on a slow downtrend out to 2030 as authorities refocus on rebalancing the economy as part of the14th Five-Year Plan(2021-2025)and the economy becomes lesssteel intensive. While steel consumption will accelerate in other markets (see chart below), we still see global demand to start plateauing towards 2030.

However, we note that demand for high quality and green steel will be much stronger amidthe likely multiplication of decarbonisation policies on a 10-to-20-year horizon. Digitalisation and modernisation initiatives in the infrastructure sector (for example, China’s ‘New Infrastructure’ plan),along with decarbonisation of the manufacturing sector, will require high-quality, lighter and lower carbon steel. Demand for steel scrap will also be strong out to 2030 as theless-pollutingEAF'scapacity will rise significantly.

Future Metal Demand Will Be Less Dependent On China

Global & China - Copper & Steel Absolute Growth In Consumption (kt)

f = forecast. Source: Fitch Solutions

Beef Consumption Has Bright Years Ahead, But It Will Embark On A Declining Trajectory Post 2025:Global consumption of poultry, pork and beef will grow at an accelerated rate from 2021 to 2025 relative to the previous10-year trend, as meat consumption benefits from the recovery from the ongoing Africanswinefever outbreak in Asia and the Covid-19 pandemic.

Beef consumption per capita trended lower in the years prior to Covid-19, and we see itrecovering over 2021-2022 before plateauing out to 2025.Out to 2030, global beef consumption will embark on a decline due to higher prices as well as increasingly pressing environmental and health consumer considerations and policies. We do not expect a massive shift in the structure of the calorie intake in the next 10 years on a global basis (forexample,proteins versusgrains), instead the fall in beef consumption will happen at the benefit of poultry, fish/seafood and alternative proteins.

Global Peak In Coal Consumption To Happen In 2028

Year When Countries Will Reach Peak Coal Consumption In Absolute Term

Nore: Based on Fitch Solutions' absolute total coal consumption by country. The numbers in parenthesis indicate the share of the country in global coal consumption in 2019. f = forecast. Source: Fitch Solutions

Commodities On The Decline: Green Transition Will Lead To Decrease In Demand For Coal And Nitrogen

Coal Still Has A Bright Near-Term Outlook In Asia, But Demand Will Decline In The Long Term:Although global coal consumption will hold up very well in the near termboosted by robust coal-based electricity generation and new projects being developed in Asia, we believethat demand for thermal coal and co*king coal will embark on a significant decline in the long term. In the near term, strong economic growth, concerns around energy security, a slow start to decarbonisation strategies over 2021-2023 and abundant coal resources will keepemerging Asia's (along with Turkey and Russia)coal demand on a firm upward trend.

The long-term demand outlook for coal and in particular for thermal coalis consistently being undermined by medium-term commitments to decarbonisation across bothDMs and EMs. Most recently, US PresidentJoeBiden recommitted the country to the articles and clauses of the Paris Agreement on climate change in January 2021. This follows pledges to reach carbon neutrality by 2050 by South Korea and Japan during 2020, plus a commitment byChina in September 2020 to achieve peak carbon emissions before 2030. co*king coaldemandwillfare better, butdecarbonisationefforts in thesteelindustryis also likely to undermine growth. We forecast global coal demandwillreachits peak in 2028.

Coal To Shift East Then Decline

Select Countries - Coal Consumption (avg % chg y-o-y)

f = Fitch Solutions forecast. Source: Local statistics, EIA, Fitch Solutions

Precision Agriculture To Cause Nitrogen Fertiliser Demand To Wane, While Potash And Phosphate Demand Fare Better:Demand for all fertiliser such as nitrogen, potash and phosphate will continue to expand in the coming years, driven by agricultural growth, government subsidies and increasing farming revenues in EMs. However, demand for nitrogen fertiliser will start to decline in the longer term amidthe rise of 'Smart Farming', 'Precision Agriculture', the fight against land degradation, and limited potential to expand acreage globally, which will all limit the need for fertiliser use. We see demand for potash and phosphate fertiliser faring better than nitrogen due to the imbalance in application of fertiliser in favour of nitrogen in recent years (in India for example). Farmers are likely to balance back fertiliser application in the future.

Coal Loosing Appeal Across Major Markets

Select Countries - Electricity Generation By Source (% total)

Source: Fitch Solutions