Recovery in global activity key in commodities’ price performance

“The post-COVID-19 global recovery should help to sustain commodity performance in the near-term, a boon for investors looking to hide from inflation or diversify portfolios."


Commodity prices have seen a sharp gain since the turn of the year and most have risen above pre-pandemic levels. Platinum Group Metals (PGMs) have headlined the price boom as metals like rhodium, beyond imagination rose to above $20,000 an ounce.

Gold’s price, the most popular metal, and is considered “a safe haven” – a status established for over 2000 years, has recorded ups and downs whilst Bitcoin broke price charts to historic levels.

2021 from the onset, represented a global drive towards economic recovery after the COVID-19 induced collapse, and that has seen global trade picking up as world nations accelerate vaccine roll-out.

According to World Bank’s April 2021 Commodity Markets Outlook, nearly all commodity prices rose in 2021Q1, continuing the marked rebound since mid-2020.

“Almost all commodity prices now exceed their pre-pandemic levels, and those of some commodities, notably metals, are well above their previous levels—copper prices were nearly 50 percent higher in March 2021 relative to the end of 2019.

“The recovery has been driven by the improving global economic outlook, aided by significant monetary and fiscal stimulus in advanced economies, and steady, although uneven, vaccination rates,” reads part of the report.

Crude oil prices saw sharp recovery

According to the report, energy prices rose by one-third in 2021Q1 (q/q), with similar gains across the three main fuels. Crude oil prices have seen the fastest recovery from a price collapse on record and reached a high of nearly $70/bbl in mid-March before dropping back to $63/bbl in the first half of April. The recovery has occurred despite oil demand remaining around 5 percent below its 2019 level and has been driven to a large extent by higher-than-expected agreed production cuts among OPEC and its partners. Prices have also been boosted by the improving economic outlook, as well as the passing of the U.S. stimulus bill.

Coal prices

Coal prices rose 30 percent on the quarter and have almost doubled since August, largely as a result of supply disruptions. Natural gas prices also rose by one-third in 2021Q1 (q/q), primarily in response to cold weather in large markets, including the United States, Europe, Asia, and especially Japan.

Meanwhile, the World Bank’s non-energy commodity price index has risen for 11 consecutive months since its trough in April 2020. Base metals and ore prices rose 16 percent, with strengthening demand across advanced and emerging markets and developing economies. Metal prices have also been supported by anticipation that the energy transition away from fossil fuels will result in sizeable increases in demand for metals. Copper prices have also been boosted by supply disruptions in Peru and Chile, while iron ore prices have been supported by supply disruptions in Australia.

Agric commodity prices also rallied

Most agricultural commodity prices, particularly for food commodities, saw substantial increases as well. Increases were partly driven by strong demand for soybeans and maize from China (linked to the recovery from the African Swine Fever and stockpiling), as well as supply shortfalls in South America (linked to La Niña) and the United States. While global food markets remain well-supplied, some countries have experienced rising food prices.

Other analysts see growth in the near term, but cautions it might be premature to bet on a sustained performance.

According to Jack Manley, Global Market Strategist at JP Morgan as quoted by Forex Street, the post-covid global recovery should help to sustain commodity performance in the near-term, a boon for investors looking to hide from inflation or diversify portfolios.

What has been said

“With the global economy on the mend and a large cyclical upswing anticipated over the coming years, it makes sense that the potential of a super-cycle should be raised. However, a number of trends seem to suggest that this thesis may not hold water.”

“On the energy front, further upward price pressure seems dubious. Both the US and OPEC have an enormous amount of spare capacity, allowing production to increase in the face of rising prices; moreover, coordinated global efforts to address climate change will result in lower demand for fossil fuels in the decades ahead.”

“The sharp increase in both lumber and copper prices is due to a housing boom. The question, therefore, must be about the durability of this surge. Given global policymakers’ awareness of rising home prices – particularly in China – and the slow rollout of any new infrastructure investment in the US, the red-hot global housing market will likely cool in the years ahead.”

“Food and precious metals round out the commodities group. A reacceleration in economic growth should temporarily boost demand for food, but poor demographics point to a slowdown in longer-term population growth; and while gold and other precious metals would typically be beneficiaries of easy global monetary policy and inflationary concerns, the rise of cryptocurrencies has taken some appetite away from this sector.”

“The post-COVID-19 global recovery should help to sustain commodity performance in the near-term, a boon for investors looking to hide from inflation or diversify portfolios. However, it seems premature to call this anything more than a strong recovery.”

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