Do not get outrageous by the headline, for clarity purposes the commodities mentioned here are metals and crude oil to some extent. In the last twenty-four months of endless stimulus, there had been an abnormal level of demand that got created and it was not met by an equal rise in supply.
Yes, the supply chains are still broken and congestion is getting worse. But the
the main factor driving the demand to chaotic levels is reversing at a speed that has already hampered the sentiment at the consumer and business level.
This has resulted in decreasing new orders and in some parts of the world build-up of inventories either at the raw material end or finished goods. The readjustment of such a reversal will create a hard landing for the global economy and even though geopolitical tensions keep a premium on the commodities there would be demand for fundamental correction.
This will be accompanied by China showing no sign of relaxing its fight against covid. Even other consumer countries are seeing a drop or stagnation in industrial activity resulting in a build of inventories on the large commodities exchanges.
The problem with such a scenario becomes that any volatile moves on either side would create a massive squeeze for the commodity traders. Recently, nickel prices on LME saw a massive squeeze that trapped a high net worth client being funded by JP Morgan.
Such instances will become more frequent and brutal as the volatility sustains in a higher range for a longer period. But whether such an event will bring down all the markets along, that is an important question to answer.