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Overview Global commodity prices regain further lost ground in June Global commodity prices jumped 15.4% over the previous month in June, on...

Commodities Consensus Forecast (July 2020)





Overview
Global commodity prices regain further lost ground in June Global commodity prices jumped 15.4% over the previous month in June, on the heels of May’s 16.4% upturn and marking the second largest increase since our records began in January 2007. Sustained improvement in demand conditions propelled global commodity prices at the end of Q2 amid the lifting of lockdowns in Europe and the U.S. and as private-sector activity in most of the world’s major economies began to bounce back from record lows in May–June. Recovering energy prices once again lead the upturn, followed by a marked increase in base metal prices. Furthermore, agricultural and precious metal prices edged up in June.


Energy

Brent Crude Oil
Brent crude oil prices continued to regain lost ground over the past month, as the lifting of lockdowns globally somewhat reinvigorated consumption while global production cuts increasingly transmitted into oil markets. On 10 July, oil prices traded at USD 43.4 per barrel, which was 3.8% higher than on the same day last month. That said, the benchmark price for global crude oil was 34.4% lower than on the same day last year and was down 34.6% on a year-to-date basis. Sustained upward pressure amid an ongoing rebalancing of supply and demand sent Brent prices rising to an over fourmonth high at the outset of Q3. The lifting of lockdowns and signs of rebounding private-sector activity in Europe and the U.S. boded well for oil consumption in recent weeks, in turn supporting crude prices. As a result, Saudi Arabia raised pricing for August oil shipments, fueling optimism of stronger demand ahead. Meanwhile, supply remained constrained and all eyes are on OPEC+ as production cuts are set to expire on 31 July. That said, price gains were limited by rising crude inventories and as coronavirus cases flared up in several parts of the world in mid-July. The oil price outlook remains muted in July. On the one hand, demand is expected to recover further through yearend as the global economy rebounds from the Covid-19- related contraction while, further boding well for oil prices, supply is likely to remain constrained. On the other hand, the recent burst of Covid-19 cases globally including in the U.S. has fueled fears of a prolonged health crisis, thus clouding the outlook. In addition, geopolitical risks amid elections in the U.S., supply volatility in Libya and a likely relaxation of OPEC+ output cuts loom in the background. FocusEconomics panelists project prices to average USD 42.3 per barrel in Q4 2020 and USD 52.9 per barrel in Q4 2021. 


WTI Crude Oil
West Texas Intermediate (WTI) continued trending upwards over the past month, supported by constrained production and gradually improving demand conditions as the lifting of lockdowns globally propped up a rebound in consumption. WTI crude oil prices traded at USD 40.6 per barrel on 10 July, which was 2.6% higher than on the same day last month. However, the price was 32.7% lower than on the same day last year and was down 33.7% on a year-to-date basis. WTI prices climbed to an over four-month high at the outset of Q3, against the backdrop of a somewhat healthier global demand backdrop. The easing of lockdown measures globally, a stronger Chinese economy and recovering private-sector activity in Europe and the U.S. somewhat reinvigorated oil consumption in recent weeks, in turn supporting crude prices. That said, rising crude inventories in the U.S. in the second week of July restrained the oil price upturn, largely offsetting upward pressures stemming from OPEC+ production cuts which are due to expire at the end of the month. Rapidly rising coronavirus infections globally and in the U.S. further weighed on prices in recent days. The oil price outlook remains largely muted at the outset of Q3. Although demand should recover further in H2 as the global economy shrugs off the Covid-19-related downturn, the recent global surge in Covid-19 cases including in the U.S. clouds the outlook amid fears of prolonged lockdowns. On the supply side, the picture is similarly unclear largely owing to uncertainty over sustainability of OPEC+ cuts. In addition, geopolitical risks amid elections in the U.S., supply volatility in Libya and the U.S., and the fragile global economy are further risks to the outlook. FocusEconomics panelists project prices to average USD 39.1 per barrel in Q4 2020 and USD 49.2 per barrel in Q4 2021.


Thermal Coal
The price for Australian thermal coal fell in recent weeks amid a gloomy outlook owing to import restrictions in China as well as an uncertain outlook for the global economy. On 10 July, the commodity traded at USD 52.4 per metric ton, which was down 1.2% from the same day last month. Furthermore, the price was 22.7% lower on a year-to-date basis and was down 30.6% from the same day last year. Prices for thermal coal fell as import restrictions tightened and despite a gradual improvement in manufacturing operating conditions in China—which suggests the Chinese economy is recovering slowly which bodes well for demand. Certain ports in China began to conduct spot checks of thermal coal imports, as import quotas for the year have been exceeded. Moreover, there has been in a shift in China away from imported coal towards domestically produced thermal coal to cover summer requirements. This follows earlier measures to limit imports after inbound shipments jumped in the first quarter. Looking ahead, prices for Australian thermal coal are expected to increase on the back of a gradual recovery in the global economy. That said, the outlook remains uncertain and forecasts regarding prices differ notably across the panel. In addition, Chinese demand should wane further due to authorities’ focus on domestic production and an attempt to substitute Australian imports amid tense diplomatic relations. This, coupled with the global push towards cleaner sources of energy, will likely cap price gains. 

Coking Coal
Prices for Australian coking coal climbed in recent weeks, likely due to a pick-up in steel production amid the gradual reopening of the global economy. On 10 July, Australian coking coal traded at USD 116 per metric ton, which was 5.3% higher than on the same day of the previous month. However, the price was down 15.3% on a year-to-date basis and was 38.1% lower than on the same day last year. Operating conditions in China’s manufacturing sector continued to improve, which should have supported demand and, in turn, prices. This comes despite import restrictions on Australian goods in China and the Chinese government’s focus on domestic output. Prices have also been supported by a tightening of supply amid production curbs and likely seasonal supply disruptions due to the southern hemisphere’s winter.



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