Global commodity prices have recovered and agricultural commodities are doing better than industrial markets

Recently, the global commodity market, some commodity prices have shown a trend of recovery. But analysts worry that as the second wave picks up in some countries and regions, the price rise in commodity markets will be constrained by weak demand and damaged supply for the rest of 2020, with different commodity prices moving in different directions.

Commodity prices have recovered somewhat

Recently, countries have started to resume work and production, and there has been some recovery in commodity prices. The need for central Banks to release more liquidity in response to the COVID-19 outbreak, pushing up prices, has also led to some recovery in commodity prices.

Commodity prices bottomed out in the second quarter as a result of the COVID-19 outbreak, and have since rebounded to oversold levels, rising close to pre-coVID-19 levels amid tight supply and loose money. In the third quarter of 2020, commodity prices continued to rebound in shock, but at the end of the quarter by the drag of oil prices appeared a small correction. Overall commodity prices are still about 15-20% lower than before the outbreak.

Global mining supply has recovered somewhat since June, the price of extractive commodities other than thermal coal has largely rebounded, and high-cost industries such as copper, aluminum, steel and coking coal have largely resumed production, according to a citigroup research note. Nonferrous metals prices rose, but copper prices due to weak demand drive slow.

Relatively speaking, the market for agricultural products is better than the market for industrial products. In Chicago, corn futures have continued to rise, up about 30 percent in the two months since August.

Supply and demand for corn have tightened this year due to the expected reduction in production due to the abnormal weather and increased feed demand due to the increase in pig Numbers. In addition, La Nina appears during September of this year and has a probability (about a 75% chance) of persisting throughout the northern hemisphere winter. When this happens, crops such as beans tend to be less productive, which is why they tend to perform better. La Nina is already threatening grain planting in South America, which is vulnerable to natural disasters and may struggle to cope.

The price of Brent crude rose as high as $46 from $40 at the beginning of the third quarter. However, due to insufficient fundamental support, it fell back and fluctuated around $40.

Market demand is being tested by the epidemic

Global commodity markets slumped in September amid fears of a brewing outbreak. In the fourth quarter, expectations of the epidemic are expected to be the most important factor in shaping global commodity markets.

The outbreak has caused a partial shutdown of the world economy, and the economic stall has had the greatest impact on aggregate demand for industrial products. The outlook for the performance of crude oil and energy chemicals during the year remains poor due to the impact of demand.

"Early signs of economic recovery in parts of the world have been overshadowed by fragile conditions and growing scepticism about the pace of recovery," according to the Opec committee's document from its October meeting.

The basic scenario forecast in the document is for an average 1.9m b/d shortage in 2021, down from 2.7m b/d in the previous month's base scenario. But under the worst-case scenario forecast, the market could have a surplus of 200,000 b/d by 2021, the document said.

Under the worst-case scenario, OECD commercial oil inventories, OPEC+ 's measure of the market, would remain above their five-year average in 2021, rather than starting to fall below that level. This suggests that basic improvement in oil demand is unlikely in the near term.

In the gold market, the price of gold hit a record high above $2,000 a Troy ounce in August. The world's central Banks sold net gold in August for the first time in about a year and a half. In this context, the cessation of gold buying and conversion to selling has increased, centred on central Banks in emerging market countries that have seen their foreign exchange earnings fall as a result of the COVID-19 outbreak. According to the analysis, for the emerging market countries with foreign exchange liquidity concerns, the rise in the price of gold in dollar terms is also a likely factor to sell gold.

In fact, in the first half of 2020, when the COVID-19 epidemic was spreading, gold purchases were already down 40 percent from the previous year to 233 tons, showing a tendency to slow down. Market analysts believe it will take a long time for the COVID-19 epidemic to fully end, and the slowdown in gold buying is likely to last for some time.

Future price movements are at risk

In terms of crude oil, due to the increased resistance of Opec production cuts, the effect of production cuts is reduced, the subsequent trend mainly depends on the change of the demand side, the oil price is expected to fluctuate around $35- $40. In the medium to long term, a recovery in oil demand is still some way off.

In terms of metals, the price trend is mainly influenced by the supply-demand relationship trend under the influence of COVID-19 epidemic as well as macro policies. Nonferrous metals fourth quarter cautious bullish, the increase will be lower than the third quarter. International steel prices are also likely to rise slightly with the impact of the recovery in international economic activity.

It is not just demand that is having an impact on commodity price volatility, but also supply. It is now widely believed that the coVID-19 epidemic will spread more rapidly in the winter, and a rise in infection rates in some countries or regions will cause mines and other mines to be shut down again. In the mining sector, the biggest pressure is on nickel sulfate and palladium production, with Russia, a major producer, now the fourth most infected country in the world. For now, some analysts believe that expectations of a cut in production are fully priced in and there is little chance of further price gains.

In terms of agricultural prices, changes in the supply and demand pattern will have an impact on prices. In addition, worries about the food crisis in some regions and the influence of climate factors will also bring uncertain disturbances. Soybean and corn prices are expected to rise, while wheat prices are likely to come under pressure. In general, continued food crisis concerns in international markets and the La Nina weather phenomenon are likely to support strong agricultural prices.

At present, there are institutions strongly optimistic about the end of the commodity bull market. But some analysts warn that uncertainties, such as the epidemic in Europe and the US, still need to be kept in mind. The global macro economy is in the middle of a rising cycle, and commodities have limited downside space, but are not in a position for a big rally.