Commodities Overview
Growth in global commodity prices accelerated to 6.2% monthon-month in May, from 1.4% in April. The result, which marked the fastest rise since February, was broad-based, with 32 out of the 34 commodities we track posting a price increase in May compared to the previous month. May’s upturn came on the back of improving global demand conditions, which seemed to rekindle the commodity price rally after it lost steam at the outset of Q2. Energy prices rebounded strongly in May, as the easing of lockdown restrictions globally amid accelerating vaccination drives boosted demand for crude oil, while supply disruptions in the U.S. pushed up prices for its derivatives. Meanwhile, base metal prices soared at the quickest pace in nearly 12 years, as fast-recovering manufacturing activity globally and a somewhat constrained supply backdrop bolstered prices for industrial metals. Moreover, precious metal prices posted the strongest increase in nine months, supported by both sturdier industrial demand and their attractiveness as a hedge against inflation. Lastly, agricultural price growth picked up steam in May. FocusEconomics panelists project global commodity prices to rise 30.8% year-on-year in Q4 2021 (previous edition: +28.5% yoy). Recovering demand conditions will likely underpin the upturn, amid the global vaccine rollout and the subsequent easing of restrictions. A sturdy rebound in energy prices should lead the overall increase, thanks to increasing oil consumption owing to recovering economic activity and resuming global travel. Moreover, base metal prices are expected to increase markedly in 2021, on the back of lingering supply disruptions and booming industrial activity amid fiscal spending sprees. In contrast, precious metal prices are forecast to stay largely stable this year, as softer safe-haven demand offsets stronger industrial appetite.
Agricultural prices increased 6.9% month-on-month in May, after rising 5.5% in April. May’s overall increase was broad-based, with prices for nine out of ten agricultural commodities that we track rising compared to April. The acceleration was spearheaded by higher prices for coffee, corn, soybeans and sugar, likely due to supply concerns and stillsolid demand prospects. Recovering global economic activity likely supported agricultural prices thanks to the release of pent-up demand for goods and the rising use of biofuels. In contrast, prices for rice contracted for the third consecutive month in May, reeling from soft demand and prospects of higher supply in H2. FocusEconomics panelists expect agricultural prices to jump 19.6% year-on-year in Q4 2021 (previous edition: +19.6% yoy). Prices are seen benefiting from stronger demand this year as Covid-19 containment measures are gradually lifted. In particular, prices for corn, coffee, cotton and soybeans are projected to rise markedly in 2021.
Precious Metals
Precious metal prices were up 5.1% month-on-month in May,
accelerating from April’s 3.1% rise and marking the strongest
increase since August 2020.
Gold prices continued to climb in May, largely on the back of
falling 10-year U.S. Treasury yields, a weaker USD and stronger
U.S. inflationary pressures, which benefited the metal due to its
attractiveness as a hedge against inflation. Similarly, silver prices
jumped markedly in the same month, bolstered by rising inflation
and upbeat global industrial demand. Meanwhile, prices for
palladium rose again in May, boosted by disruptions at Nornickel’s
Russian mines that have kept global output constrained. Lastly,
platinum prices ticked up only slightly in the same month, as
healthy demand was largely offset by recovering South African
supply.
The 2021 outlook for precious metal prices improved again in May,
with FocusEconomics panelists now projecting prices to edge
down just 0.5% in Q4 2021 (previous edition: -2.4% yoy). The
overall decline should be driven by weaker safe-haven demand,
which will weigh on gold prices. That said, as a non-yielding asset,
gold is set to benefit somewhat from stronger inflation amid ultralow interest rates. Meanwhile, healthier industrial demand should
support silver, palladium and platinum prices.
Base Metals
Prices for base metals soared 8.9% on a monthly basis in May, following a 4.2% rise in April. May’s result marked the strongest increase in prices since August 2009. The base metal price rally continued to gain steam in May, boosted by a strong demand backdrop in the industrial sector: The global manufacturing PMI hit an over 11-year high in May, riding the wave of reopening economies in Europe and the U.S., driven by the vaccine rollout. On top of that, supply disruptions in China boosted prices for steels and aluminium in May, while tin and iron ore prices continued to benefit from constrained global supply. Similarly, copper prices surged to an all-time high in May, reflective of buoyant demand conditions. That said, prices for most base metals took a small hit in late May after China vowed to adopt a tougher approach to control surging commodity prices, warning of tighter regulations on both futures and spot markets. The base metal price outlook continued to improve in May, thanks to supportive demand- and supply-side fundamentals. Although the Chinese economic recovery that has underpinned the base metal price rally so far this year will likely flatten in H2, improving momentum in Europe, Japan and the U.S. should provide lift to prices through year-end. On the supply side, although the fading effects of the pandemic will likely drive a recovery in mining capacity, this should be partly offset by ongoing supply disruptions and environmental regulations. Overall, supply chain volatility, new Covid-19 strains and potential flare-ups in trade spats are key risks to the outlook.
Energy
Energy prices jumped 5.6% in May, rebounding from April’s 0.3%
dip, which had marked the first contraction in seven months.
The rebound was chiefly driven by higher prices for oil and its
derivatives amid an improving demand outlook. In May, crude
oil prices benefited from the continued reopening of economies
globally and gradually recovering international travel, all largely
thanks to accelerating vaccination efforts. Moreover, supply
worries due to a cyberattack on a U.S. pipeline further supported
fuel prices, while the easing of OPEC+ output cuts had little impact, likely as they were partially offset by falling output in Angola and
Nigeria. Lastly, natural gas prices jumped on healthier prospects
for U.S. exports and strong domestic consumption.
Energy prices are seen trading markedly higher this year, although
this will largely be due to a low base effect after prices collapsed in
2020. Recovering global economic activity and rebounding travel
demand on the back of the quickening global vaccination drive
will underpin energy price growth this year. On the supply side,
despite the planned easing of production curbs, OPEC+ appears
committed to a gradual and somewhat soft build-up of oil production
capacity, which should keep downside pressures in check in the
remainder of the year. Risks to the outlook remain elevated,
however, stemming from geopolitical uncertainty, new strains of
Covid-19 and volatile supply in some countries.
