Government abstract

The unprecedented lockdowns that now we have seen this yr weighed closely on commodities’ demand, whereas additionally seeing traders fleeing danger belongings on the peak of the pandemic. It was a yr the place we noticed many firsts, together with even detrimental oil costs. Nonetheless, because the peak lockdown interval, we have seen fairly the restoration as economies reopen.

Some commodities wanted a serving to hand to push them larger, such because the OPEC+ manufacturing cuts for oil, whereas others have been capable of get previous demand considerations, just for provide points to turn into extra urgent – one thing that was true for a lot of the metals advanced. Nonetheless, one of many key drivers behind the restoration comes from China.

The nation has boosted vitality imports, metals and agricultural commodities which, in a yr of uncertainty, has undoubtedly helped markets. China’s post-Covid-19 stimulus has led to extra infrastructure funding and growing demand for metals, and making certain meals safety by way of a worldwide pandemic has seen the nation enhance agricultural imports too. The ‘phase-one’ commerce deal has additionally performed a job in growing shopping for urge for food.

Waiting for 2021, we count on the commodities advanced to proceed to maneuver larger. An additional restoration in economies world wide ought to show supportive, whereas there’s the potential for additional stimulus. Vital development in cash provide, all-time low rates of interest and monetary stimulus have boosted inflation expectations; subsequently, we count on to see more cash flowing into commodities with speculators boosting their lengthy place, notably in metals and agricultural. Oil has additionally seen some speculative curiosity, however there’s clearly room for extra shopping for within the vitality house over 2021.

Along with these supportive elements, our FX technique staff believes the USD will proceed to weaken subsequent yr, which ought to present a serving to hand to the commodities advanced.

fundamentals, OPEC+ manufacturing cuts ought to proceed to see the oil market drawdown inventories over 2021, bringing inventories again in direction of extra regular ranges, whereas the rollout of a vaccine must also show constructive for demand and produce again some semblance of normality together with worldwide air journey. For base metals, we must always see fewer provide disruptions over 2021 and the prospect of robust development demand exterior of China ought to underpin markets. As well as, Covid-19 has led to a renewed push for a greener future – a development that’s constructive for a number of metals.

Gold managed to commerce to document highs this yr, with a transfer to security amid the uncertainty. Falling yields and a weaker USD solely supplied an extra enhance. Whereas vaccine optimism abounds, we nonetheless imagine gold costs will development larger subsequent yr amid rising inflation expectations and detrimental actual yields.

Lastly, agricultural commodities have rallied on the again of robust Chinese language shopping for this yr. There are a number of causes behind this elevated shopping for, together with the commerce deal and we predict that Chinese language demand will stay strong subsequent yr, with agreed purchases set to extend through the second yr too.

Whereas we typically maintain a constructive view on commodity markets over 2021, there are many dangers throughout these unsure occasions. Covid-19 vaccines appear to be getting approvals faster than anticipated, however the pace at which they will probably be rolled out on a big scale continues to be not sure. The important thing danger going into subsequent yr stays the potential for additional Covid-19 waves and lockdowns.