OVERVIEW | Global commodity prices dip in September Global commodity prices fell 2.5% over the previous month in September, contrasting Augu...

FocusEconomics - Commodities - October 2020

OVERVIEW | Global commodity prices dip in September Global commodity prices fell 2.5% over the previous month in September, contrasting August’s 3.9% increase and marking the first decline since April. September’s downturn was chiefly driven by a broad-based decline in prices for energy and precious metals. The recovery in oil prices was stopped in its tracks at the end of Q3 amid muted global demand, while prices for gold, silver and platinum dived for the first time in five months as safe-haven demand shifted to the strengthening U.S. dollar. That said, robust Chinese demand continued to fuel price growth for base metals, while agricultural prices rose at the strongest pace in over a year in September, thus softening the overall downturn. FocusEconomics panelists expect global commodity prices to contract 16.1% year-on-year in Q4 2020 (previous edition: -16.4% year-on-year). Plunging energy prices are set to spearhead the downturn, due to a sharp decline in prices for oil and its derivatives. That said, soaring prices for precious metals should soften the overall drop. Meanwhile, base metal prices are seen finishing this year at close to the previous year’s levels. Global commodity prices are projected to recover next year, mostly led by a rebound in energy prices.

ENERGY | Energy prices dive in September on weak demand Energy prices plunged 5.8% in September, swinging from August’s 4.1% month-on-month increase and marking the first slump in prices since the height of the global lockdowns in April. The recovery in energy prices stalled at the end of Q3, derailed by a weaker-than-expected recovery in demand amid soaring numbers of new Covid-19 cases across the world and a gradual rise in global supply levels. In a similar fashion, prices for oil derivatives slid on a worsening consumption outlook following the end of summer driving season in the northern hemisphere. Natural gas prices also slipped amid lingering oversupply conditions. That said, prices for thermal coal and coking coal edged up in the month. The energy price outlook remained grim in September, with the global surge in Covid-19 cases continuing to weigh on short-term demand prospects. As such, FocusEconomics panelists forecast a 26.2% year-on-year dive in Q4 2020 (previous edition: -25.4% yoy). Energy prices are expected to regain some lost ground next year, however, as the global economic recovery gathers steam. That said, uncertainty over the course of the pandemic, geopolitical risks stemming from the U.S. elections, trade wars and tensions in the Middle East, and volatile global oil supply levels all cloud the outlook. Our panelists see energy prices growing 16.1% in annual terms in Q4 2021.

BASE METALS | Base metal price growth remains upbeat in August Prices for base metals rose 4.7% on a monthly basis in August, softening slightly from July’s 6.6% jump, yet still marking the fourth consecutive month of growth. Base metal prices continued to rise in September, albeit at the slowest pace in four months, as strong industrial demand in top consumer China was partly offset by moderating economic momentum in most other major economies. A sustained economic recovery in China, growing optimism over the country’s future infrastructure projects and a stronger yuan bolstered demand for base metals, especially steel, at the end of Q3. Uncertainty over an additional U.S. fiscal stimulus package, geopolitical risks and a reintroduction of lockdown restrictions in some countries capped the overall upturn, however. The outlook for base metal prices improved further at the end of Q3, chiefly thanks to a healthy demand outlook in top metals consumer China amid the government’s fiscal spending program, which includes plans for massive infrastructure projects. As a result, FocusEconomics panelists project prices rise 1.7% annually in Q4 2020. Turning to next year, prices are seen edging up further as the global economy shrugs off the constraining effects of Covid-19, although frail economic conditions, a possible flareup of trade tensions and volatile supply conditions all cloud the outlook. Our panelists project prices to edge up 0.8% in Q4 2021.

PRECIOUS METALS | Precious metal prices decline in September Precious metal prices fell 1.9% month-on-month in September, contrasting August’s 8.7% upturn and marking the first fall in prices since March. The plethora of factors sent shivers throughout markets over the past month, as hopes of another U.S. stimulus package faded rapidly, following the Fed’s call for further fiscal stimulus amid economic headwinds. Moreover, a more dovish ECB and a resurgence in Covid-19 cases in Europe also raised economic uncertainty. Consequently, investors sought safety in the USD and away from precious metals as prices tend to fall in times of heightened uncertainty. Gold, silver and platinum prices all tumbled in September, although palladium prices remained upbeat due to still-strong demand from the automotive sector. The outlook for precious metal prices remains robust, with FocusEconomics panelists projecting prices to jump 30.7% annually in Q4 2020 (previous edition: +26.9% yoy). The bullish outlook chiefly reflects sufficient safe-haven demand for gold due to the pandemic and geopolitical tensions, and widespread interest rate cuts by major central banks. Next year, silver and platinum prices are seen rising further on a recovery in industrial demand. 

AGRICULTURAL | Agricultural prices surge in September Agricultural prices rose 6.8% month-on-month in September after falling 0.2% in August, marking the strongest increase since June 2019. Septmeber’s price jump was largely driven by higher prices for corn, soybeans and wheat, likely due to solid demand conditions and downbeat supply outlooks. Moreover, cocoa, coffee and cotton prices also received a boost thanks to stronger demand, partly due to the ongoing recovery in economic activity. That said, wool prices continued to fall amid still-subdued demand from Chinese buyers. FocusEconomics panelists project agricultural prices to decline 2.0% year-on-year in Q4 2020 (previous edition: -4.2% yoy). Tepid demand for wool, sugar and palm oil, amid weaker global retail sales and a softer appetite for biofuels, will likely drive the overall fall. Next year, prices should rise due to stronger economic output, although uncertainty regarding U.S.–China trade tensions remains a key risk to the outlook. Our panelists forecast agricultural prices to rise 2.8% in annual terms in Q4 2021.

FocusEconomics - Commodities - October 2020

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