Article: The Pandemic’s Impact on Commodity Markets
The World Bank’s April 2020 Commodity Markets Outlook predicts a considerable decline in most commodity prices this year due to the impact of Covid-19. The report highlights that these forecasts are “exceptionally uncertain” as they hinge on the severity and duration of the pandemic, as well as when mitigation measures are implemented.
Commodities Most Affected
Energy and metals commodities have taken the biggest hit due to the sudden halt in economic activity and the serious global economic downturn that’s predicted. Commodities tied to transportation, such as oil, have undergone the most drastic reductions.
While agricultural prices might remain largely stable this year owing to relatively consistent demand and record-high levels of staple production and reserves, some risks still lurk. Supply chain disruptions and government moves to limit exports or hoard commodities raise concerns about potential food security issues in certain areas.
Gold prices have been an outlier in this scenario, seeing a 6.9% increase in the first quarter of 2020 — marking its sixth consecutive quarterly rise. This surge was primarily driven by investor demand, which outweighed the weak jewelry demand in China and India.
Oil Prices
Oil prices are forecasted to average at $35 per barrel in 2020. Uncertainty surrounding production agreements among the Organization of the Petroleum Exporting Countries (OPEC) and other oil producers has compounded the dip in crude oil prices.
Impact on Importers and Exporters
Importers and exporters could face long-term market alterations resulting from the pandemic. Increased transport expenses due to intensified border checks could strain supply chains. Additionally, companies might resort to sourcing locally-produced goods instead of imports as a risk mitigation strategy.
Changing Consumer Behavior
The pandemic may usher in changes to consumer behavior that could have lasting impacts on commodity markets. For instance, if people opt to continue working remotely and reduce their travel, demand for oil could see a permanent decrease. This trend could potentially benefit oil importers’ accounts.
Reduced emission of harmful gases due to these restrictions may also heighten public pressure for greener transport options and reduced reliance on fossil fuels.
Commodity Markets Outlook: An Overview
The Commodity Markets Outlook provides market analysis for major commodity groups such as energy, metals, agriculture, precious metals, and fertilizers. The report projects price trends for 46 key commodities, including oil. Published by the World Bank semi-annually in April and October, it serves as a critical source of market insight for decision-makers in this sector.
Source: The Hindu
