How will price inflation affect ESG in 2023?

What to expect in 2023, how to combat price inflation and reduce exposure to commodity price risk.

Socio-economic turbulence has characterised and driven global market activity over the last year, presenting a range of unprecedented challenges for businesses. Price inflation across commodities such as energy, plastics, metals, and agri-foods has necessitated a recalibration of traditional procurement practices.

As we move into 2023, business leaders will look to data, analytics, and insights to forecast the path which lies ahead for the commodities market. However, the current picture indicates that the new year will mark the beginning of a challenging period for the procurement sector, from Q4 and maybe through Q1.

Energy and Plastics

The topic of energy prices has been propelled into the mainstream media cycle in 2022 and supplanted itself in the global consciousness. In contrast to the steady rates seen over the last decade, some commodity prices have been impacted by macroeconomic events, including the Russia-Ukraine conflict that has sent some energy prices into an upward spiral. 

This spike has catalysed challenges for society and business leaders across many sectors. We expect this turbulence to exert a sustained impact on commodity prices into Q1 of 2023.

The forecast for the price of Crude Oil suggests that there will be a spike in Q4 of 2022. This will produce a knock-on effect for energy prices as we move into Q1 of the new year. However, given that a recession is likely, the macroeconomic downturn will see commodities prices take a hit across the board.

As global markets bear the burden of an impending recession, the price of Crude Oil will likely be pulled down towards the middle of 2023, thus aligning with a general trend of depleted prices in comparison to Q1 of 2023. As energy commodities are generally priced in line with one another, the forecast for Crude Oil can be seen to reflect all other energy commodities respectively.

Through bearing these predictions in mind and following the data pertaining to this situation closely, business leaders can mitigate the challenges of a volatile market by hedging energy in Q4 and preparing to hedge Q1 of 2023 in the instance of a peak in the price of energy commodities once January rolls around.

Meanwhile, the forecast for plastics somewhat aligns with that of energy commodities. Like oil, and other energy resources, plastic prices tend to parallel one another.

Since Q2 of 2022, plastic prices have been seen to decline. This course is set to change in Q4, as rates are set to rise. This means that as we move into the new year, it is likely that plastic prices will hit a peak rate around Q1 of 2023.

However, akin to the nature of our forecast for oil commodities, a downturn in the global macroeconomy is set to send the price of plastics downwards across the board as we near mid-2023.

In preparation for this eventuality, business leaders must brace themselves to take an adaptive approach to trade and procurement in light of sharp movements in the plastic markets, whilst being ever-poised to take action should the socio-economic instability we’ve seen this year actualise in 2023.

Metals

Despite being subject to the same market volatility as other commodities, there has been a dramatic decline in the price of metals which continues to remain volatile despite some return to pre-pandemic normalcy.

However, in Q4 of this year, it is expected that metal prices will take an upward course. Against the backdrop of an ordinary macroeconomic landscape, the fruition of this forecast could spell trouble for procurement professionals and manufacturers alike. However, global inflation has impacted consumer trends, and we are amidst a global economic landscape which is virtually unprecedented. Consumer demand has dropped as societies brace for higher domestic energy bills and food costs, as well as shortages and travel disruption.

When these factors are considered as a cohesive whole, it is clear that the procurement sector may perhaps elude impending disaster in this area, as consumer demand may well continue to decline into Q1, and possibly Q2 of 2023. Should business leaders remain stoic in seeking efficiencies in their supply chains, surplus stock which remains owing to a scarce consumer marketplace could tide over businesses if prices of metal commodities remain inflated. Once prices plateau, operations may resume at pre-peak levels.

Commodity prices have been on the rise in recent years, sparking concerns that inflation may be too high and hurting consumer spending. However, some economic experts believe the commodity price boom has just begun and will last several more years, with some predicting it will push commodity prices to all-time highs by 2026. Others are more cautious predicting that in the short term commodity prices may fall and experience continued volatility.

The procurement landscape, particularly that of the food and beverage industry, has faced a raft of difficulties in recent years. Various challenging factors including the war in Ukraine, volatility of global commodity prices and extreme weather, have swept the globe, catalysing unprecedented obstacles for many industries.

These are the most common questions asked regarding Mintec's Commodity Prices and Price Forecasts.

With a war in Ukraine, price inflation driven by energy and raw material price increases, Chief Procurement Officers (CPO) worldwide worked hard to maintain business operations, mitigate supplier challenges and navigate continued disruption and increased costs. As we look towards 2023, businesses continue to feel the effects and uncertainty of events, it is worth asking what challenges lie ahead for CPOs. 

It’s no secret that inflation has become one of the greatest economic worries of 2022, for both businesses and people alike. According to the Fed, European Commission and World Bank, this threat is not going anywhere soon and institutions such as the Bank of England have been put under immense pressure as companies plan for extended periods of inflation. Both the aftermath from the recent COVID pandemic alongside the current geopolitical instability as a result of the Russia-Ukraine war have contributed significantly to this issue. Additionally, the presence of large grain reserves being held hostage to the world by Russia have also put pressure on market prices of other goods.

The table below sets out the Mintec Benchmark Prices reviewed by IOSCO as part of the 2022 review. The review encompassed 14 prices that received the Type 2 IOSCO assurance and a further 7 prices that received Type 1 IOSCO assurance across plant proteins, nuts, oils, spices, softs, meat and dairy.

Every business decision should begin with robust data. But more data is seldom the only answer. Timely access to the right data can improve visualisation and provide insights that drive decision making. Defective data that is incomplete, inaccurate or out-of-date data is likely to result in incorrect analysis and deliver incorrect results leading to increased costs and greater risk to the business.