by Tobias Stöhr, Sales Executive at Spectrum Markets
When a global disaster like the coronavirus pandemic strikes, commodities are bound to be negatively impacted. From energy and industrial metals to agricultural products, the prices of more or less all basic goods registered significant losses when global markets crashed in unison in the first quarter of 2020. Lockdowns and widespread uncertainty led to shrinking demand – or an anticipation of shrinking demand – in nearly all aspects of life, with the oil price being the most prominent victim.
Fast forward to spring 2021: While Covid-19 is still very much defining and restricting the lives of billions of people, most commodity prices have not only recouped their losses but surpassed their pre-pandemic levels. This cannot only be explained by the cheap money that governments and central banks flooded the markets with in order to support the economy; cheap money does not automatically create demand, at least not at a time when so many people still cannot travel, go shopping or participate in cultural events.
While the reasons for these commodity price increases are complex, a number of factors can be identified in relation to certain types of commodity, for example:
- Base metals like copper have become more expensive as the mines experienced production shortfalls due to employees affected by Covid-19, demand from China for construction and manufacturing increased, and rising oil prices impacted production and transportation costs.
- Grains like wheat registered price increases due to globally disappointing yields, low water levels in European rivers that pushed the cargo costs up, and a strong demand for wheat from China.
- Energy like oil initially recovered strongly after the dramatic decline in the first quarter of 2020. However, while the “black gold’s” quick rise impacted the prices of other commodities, at the time of writing oil prices generally still just move around pre-pandemic levels.
Most experts’ outlook on the commodity markets pretty much reflect their outlook on the economy as a whole: it’s all about the vaccination programmes that have kicked off in developed countries. If Covid-19 can eventually be brought under control, a strong economic rebound is expected.
In time this could lead to a more balanced supply and demand dynamic returning to commodities markets. However, for the time being this market segment is likely to remain volatile, and there will be risks but also opportunities for those traders able to move quickly as new developments emerge.