18th June 2020
Hugues Chevalier, Economist
While the commodity markets were already in decline before the start of the health crisis due to the slowdown of industrial production in China and in the industrialised countries (prices down by almost 10% in 2019), the halt of industrial activity with the Covid19 crisis has caused a real turmoil there. Indeed, commodity prices fell by more than 40% between January and the end of April. Energy prices (oil, gas, coal) plummeted (-40% for the Brent) with the halt of air and car traffic. And this has led to the collapse of all the values of agricultural commodities linked to the fuel sector: the prices of palm oil, soybeans, corn and sugar have lost between 30% and 20% since the beginning of the year. The prices of industrial materials (aluminium, nickel, tin, copper, etc.) have contracted so far between 10% and 20%. Only iron ore has limited its fall with prices down by less than 10% ‘lifted’ by Chinese demand. But some agricultural commodities, such as rice or wheat, have seen their prices risen in line with the strong global demand for basic food during containment. It is obviously difficult to forecast prices for these materials in the upcoming coming months, as everything will depend on the speed of the recovery of the post-containment activity and the resilience of the Chinese economy. However, we are already seeing a slight rebound in oil and sugar prices. In any case, the collapse of the prices of agricultural and industrial raw materials will have a very strong impact on exporting emerging countries which are already hardly hit by the pandemic, such as Brazil, Argentina, Indonesia and Malaysia.