Commodities Markets Brace For La Niña
The evolving climate emergency is now having clear and palpable effects of markets—and it is interesting to see these now being tracked as a service to business, investors and governments.
One of the biggest influences on the global climate is the Pacific Ocean’s El Niño current and weather pattern, which is generally followed by La Niña oscillation. A clear explanation of the two is provided by the US National Oceanic and Atmospheric Administration, or NOAA. If El Niño runs hot, La Niña tend to run cooler—but both can have significant impacts on our markets and economies.
My thanks to David Giampaolo of Pi Capital for forwarding a new S&P Global report reviewing the likely effects on commodities markets on the ongoing shift from warmer to cooler patterns. The associated shift in global weather patterns and temperature extremes, we are told, “is set to result in a fresh wave of disruption and volatility across key global commodity markets.”
The recent El Niño event lasted from the second half of 2023 through to the beginning of 2024 and was one of the five strongest on record, with NOAA’s Climate Prediction Center estimating that there is currently a 70% likelihood of La Niña developing during Q3 2024 and persisting into Q1 2025. They spotlight potential impacts on three key markets: agriculture, metals and energy.
Agriculture
On the upside, S&P concludes that: “Brazil will likely see increased soybean and corn yields due to higher rainfall in the northern growing areas, analysts say, strengthening its export position and potentially lowering global prices for these commodities. However, excessive rainfall may also cause flooding, damaging crops and disrupting logistics. In Indonesia and Malaysia, increased rice and palm oil production will also strengthen their respective export positions and potentially lower global prices.”
On the downside, “southern US regions will likely face drier conditions, negatively impacting winter wheat, cotton, and sorghum yields. In contrast, the US Midwest may benefit from favorable conditions for corn and soybean production, mitigating some domestic supply concerns. In terms of livestock markets, enhanced pasture growth in Australia and New Zealand could improve beef and dairy production, boosting exports. However, heavy rainfall may lead to waterlogging and disease outbreaks, potentially affecting overall livestock health.”
Metals
On the downside, La Niña's impact on global metals markets, S&P suggests, “will be focused primarily on the extraction and transportation of raw materials, with mining and transport operations in Southeast Asia, Africa and Australia susceptible to disruption arising from heavy rainfall and flooding. In Australia, heavier-than-average rainfall and the greater frequency—and intensity—of cyclones associated with La Niña could hinder the extraction and export of key mineral commodities, such as iron ore and coking coal.”
This pattern was most recently demonstrated “during a prolonged ‘triple dip’ La Niña that persisted from September 2020 to February 2023, when heavy rainfall and extensive flooding across New South Wales and Queensland temporarily halted mining operations and disrupted key railway routes and port operations.”
Meanwhile, “La Niña's extreme weather also heightens the risk of flooding and landslides in Indonesia, where the mining of coal, copper, nickel and bauxite already faces regular disruption owing to heavy seasonal rainfall. Markets for key battery metal copper also face heightened risk of disruption more broadly, owing to the increased incidence of dry weather and water shortages in Chile. ”
Energy
S&P notes that “La Niña's impact on the global energy sector has previously been evident in terms of both supply and demand, with extreme weather events serving to disrupt extracting and refining operations, while cooler temperatures increase demand for electricity and heating in certain areas. Supply-side effects will likely be focused primarily within the Atlantic basin, where the elevated frequency and intensity of hurricanes associated with the weather event pose a major risk to US Gulf Coast energy infrastructure.”
On the energy demand side, “La Niña often results in colder-than-average winter temperatures in North America and North Asia, contributing to short-term spikes in demand for thermal coal and natural gas.”
In one of my earlier books I compared the El Niño-La Niña oscillation to the convulsions some fevered children experience, including me when young, as the body tries to shake off excess heat. The implication is that is current global heating trends continue and build, the oscillation will become more pronounced—and more economically disruptive.
And if you want to know more about the evolution of my thinking, my 21st book is a memoir called Tickling Sharks: How We Sold Business on Sustainability (Fast Company Press, June 2024). Our video trailer can be found here. Available in good book stores and on Amazon, in hardback, paperback, Kindle and audio formats—the last being the first audio version of one of my books that I have voiced myself. Let me know what you think!
