Global commodity prices fell 7.7% over the previous month in February, worsening from January’s 1.5% dip and marking the sharpes...

Global Commodity Summary (March 2020)

Global commodity prices fell 7.7% over the previous month in February, worsening from January’s 1.5% dip and marking the sharpest contraction since December 2018. The escalating coronavirus fallout sent global commodity prices sliding in February, as energy prices plunged amid feeble oil demand, while severe disruptions to industrial activity in China depressed base metal prices. That said, mounting fears of a global recession due to the coronavirus outbreak boosted prices for precious metals as demand for safe-haven assets soared. Meanwhile, agricultural prices dipped for the first time in three months in February.

Energy prices slumped 10.1% month-on-month in February, after falling 3.0% in the opening month of the year and marking the sharpest contraction in eight months. Global oil prices plummeted throughout February as the fastspreading coronavirus pandemic severely disrupted business activity in China and caused increasing economic havoc in the EU and U.S. In response to a hastening economic downturn, oil demand plummeted sharply in the month, which, coupled with growing fears of a global recession in the months ahead and stillelevated oil production levels, sent oil prices tumbling. Similarly, natural gas prices fell markedly in February on soft demand amid warmer-than-usual weather. The oil price outlook deteriorated further in early March, after global oil prices crashed on news of a price war waged between OPEC and Russia. The dispute is set to flood global markets with cheap oil, with booming U.S. oil production further exacerbating global oversupply conditions. The demand-side outlook was similarly bleak amid mounting fears of a global recession due to the increasing fallout from the coronavirus pandemic.

Base metals fell 5.1% on a monthly basis in February, after inching up 0.3% in the first month of this year. February’s result marked the sharpest drop in prices since July 2018. Flagging industrial activity in China due to the worsening coronavirus outbreak led to marked downturns in its major metal-consuming industries in February, weighing severely on the prices of most base metals. Slumping prices for zinc, iron ore, nickel and copper led the overall downturn amid a darkening metal demand outlook, although disruptions to global supply chains led to a shortage of some base metals, thus softening the overall contraction. As the pandemic started to extend more rapidly outside of China at the end of February, mounting fears of a global recession depressed base metal prices further.

Precious metal prices increased 3.3% month-on-month in February, on the heels of January’s 6.5% jump and marking the third consecutive month of rising prices. Uncertainty over the full impact of COVID-19 and falling global interest rates sent investors flocking to safe-haven commodities in the first two months of this year. In February, the fast-spreading virus increasingly dented global economic activity while global central banks eased their monetary policy stances, in turn shoring up demand for bullion. Silver and platinum prices edged down in the period on lower industrial demand, although palladium prices surged for the sixth consecutive month in February amid sustained supply tightness.

Agricultural prices dipped 2.0% month-on-month in February, after rising 2.2% at the outset of the year and marking the first contraction since November. February’s dip was spearheaded by plummeting palm oil prices, which were hit hard by fears of a marked downturn in global demand for biofuels in the wake of a dive in crude oil prices. In a similar fashion, coronavirus-related demand weakness in China weighed on coffee prices, whereas soybean prices fell chiefly due to elevated supply in Brazil. However, prices for cocoa and sugar were a notable exception in February, softening the overall decline.

Report from Focus Economics

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