OVERVIEW Global commodity prices rose 1.4% over the previous month in April, down from March’s 3.0% increase. Although the reading marked th...

Global Commodity Outlook (May 2021)

Global commodity prices rose 1.4% over the previous month in April, down from March’s 3.0% increase. Although the reading marked the seventh consecutive month of rising prices, the increase was the weakest since October 2020, suggesting that the commodity price rally is losing steam. April’s overall increase came on the back of sustained growth in base metal prices and a rebound in precious metal and agricultural prices. Looking at base metals, copper and steel prices continued to increase robustly due to upbeat demand and ongoing supply concerns, while prices for nickel and lead rebounded strongly. Similarly, gold prices also grew in April—contrasting March’s fall— predominately driven by higher demand from a weaker USD and stronger inflationary pressures, particularly in the U.S. and other developed economies. Furthermore, agricultural prices received a boost from sustained demand and downbeat supply projections for wheat, corn and soybeans. 

On the other hand, energy prices fell modestly and for the first time since September 2020 in April, on the back of weaker crude oil prices. FocusEconomics panelists expect global commodity prices to rise 28.5% year-on-year in Q4 2021 (previous edition: +25.1% yoy). A strong rebound in energy prices should spearhead the upturn, chiefly thanks to improving demand conditions as the global vaccine rollout and the subsequent easing of travel restrictions bode well for oil consumption. Moreover, base metal prices are expected to increase robustly relative to 2020, as fiscal spending sprees prop up industrial demand amid supply disruptions. That said, precious metal prices are forecast to dive this year, mostly on the back of softer safe-haven demand. Lastly, agricultural prices are projected to rise notably this year compared to 2020. Further ahead, our panelists forecast a 3.5% year-on-year decrease in prices in Q4 2022 amid a flattening economic recovery.

Energy prices decrease in April for the first time since September 2020 Energy prices ticked down 0.3% in April, contrasting March’s 4.3% increase and marking the worst result in seven months, predominately due to lower Brent and WTI crude oil prices. Crude oil prices averaged slightly lower than in the previous month in April, which was likely the result of OPEC+’s decision to ease its production curtailments for May–July. Moreover, despite solid progress on the global vaccine rollout, travel demand remained relatively subdued as most major economies kept some lockdown measures in place to curb the spread of Covid-19, which should have weighed on demand prospects and kept a lid on prices. That being said, prices for natural gas rebounded in April as a result of resilient demand, while prices for uranium also grew robustly in the month after falling in March. Energy prices are expected to trend markedly higher this year, largely due to a low base effect after the fallout from Covid-19 hammered the global economy and oil demand last year. The likely ongoing pickup in the vaccination drive, recovering global economic activity and rebounding travel demand should underpin price growth ahead. That said, while constrained global crude production allowed demand to catch up with supply at the beginning of this year, boosting oil prices in turn, prices are likely to stay close to their current levels through year-end as output cuts are gradually eased. New Covid-19 strains, a quicker-than-expected easing of OPEC+ production curtailments and geopolitical tensions are key risks to the outlook. FocusEconomics panelists forecast a 39.0% year-on-year increase in Q4 2021 (previous edition: +38.7 yoy). Our panelists see annual energy prices dipping 1.5% in Q4 2022.

Base metal price growth accelerates in April Prices for base metals climbed 4.2% on a monthly basis in April, following a 3.7% rise in March. April’s increase marked the 12th consecutive monthly increase in prices. Base metal price growth gained some momentum in April, as China’s industrial recovery remained relatively upbeat at the beginning of Q2, while a weaker greenback and lower U.S. bond yields likely added further upward price pressure. Notably, lead and nickel prices rebounded in April, while copper and steel prices continued to increase on the back of robust demand and concerns over supply disruptions, as inventory levels fell sharply in the second half of the month. More broadly, demand for base metals for their use in industry was likely supported by the ongoing economic recovery as the JPM global composite PMI suggested economic activity increased at the quickest pace in 11 years in April. Nevertheless, alumina and cobalt prices fell sharply in April relative to March, limiting the overall upturn in base metal prices. Base metal prices are expected to post a strong increase this year compared to 2020, against the backdrop of gradually recovering demand amid strong global fiscal stimulus. While the Chinese economy continues to grow robustly, boosting prices for industrial metals in turn, a quickening economic recovery in Japan, Europe and the U.S. should provide additional support in the remainder of the year. On the supply side, the fading effect of the pandemic will likely drive a rebuild in mining capacity, keeping a lid on prices in turn. Overall, supply chain volatility, new Covid-19 strains and uncertain U.S.-China trade relations pose risks to the outlook. FocusEconomics panelists project prices to rise 16.3% annually in Q4 2021 (previous edition: +10.4% yoy). Our panelists project prices to fall 5.5% in Q4 2022.

Precious metal prices rebound robustly in April Precious metal prices were up 3.1% month-on-month in April after falling 3.8% in March, which had marked the sharpest decline since March 2020. Gold prices increased over the previous month, predominately due to a weaker USD and stronger U.S. inflationary pressures, which supported demand for holding non-interest bearing assets such as gold. Moreover, palladium and platinum prices rose notably in April as supply chain disruptions in the semiconductor market led to a stark fall in automobile inventories. This raised production estimates for H2 2021, and supported demand for palladium and platinum in turn for their use in energy efficient vehicles. Furthermore, ongoing complications at two major Russian palladium mines also pushed palladium prices further up in recent weeks. However, silver prices were flat in April relative to the previous month. The 2021 outlook for precious metal prices improved slightly in April, with FocusEconomics panelists projecting prices to fall 2.4% in Q4 2021 (previous edition: -3.7% yoy). The estimate chiefly reflects the anticipation of weaker safe-haven demand, and while expectations are that stronger inflation amid ultra-low interest rates will support demand for gold as a non-yielding asset, uncertainty around the future direction of the U.S. 10-year yield rate will likely weigh on price prospects. Moreover, silver and palladium prices should moderate as supply disruptions ease. Our panelists see precious metal prices losing further ground ahead, projecting a 4.4% decrease in annual terms in Q4 2022. 

Agricultural prices rebound robustly in April Agricultural prices increased 5.5% month-on-month in April after falling 0.4% in March, which had marked the first drop in prices in seven months. April’s rebound was predominately due to a strong increase in prices for corn, soybeans and wheat. That said, rice, cotton and cocoa prices fell notably in the month, capping the overall upturn. Stronger corn and wheat prices in April were likely the result of still-solid demand prospects and the continued decline in supply projections. Meanwhile, sugar and palm oil prices likely benefited from stronger economic activity more broadly for their use as biofuels. FocusEconomics panelists project agricultural prices to rise 19.6% year-on-year in Q4 2021 (previous edition: +7.7% yoy). Prices should benefit from stronger demand this year as containment measures to control the spread of the virus are eased, particularly supporting prices for coffee and cotton. Moreover, relatively downbeat global supply outlooks for corn and wheat should add some upward price pressure. That said, more stable global supply levels overall will likely limit the upturn somewhat. Our panel projects annual prices to fall 8.6% in Q4 2022.

This report is from content partner FocusEconomics and is titled FocusEconomics Consensus Forecast - Commodities. The next report will be released after 15 June 2021.

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