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A shock like no other:

Coronavirus rattles commodity markets

As countries around the world to fall by an Figure 1: Drop in commodity prices as coronavirus
contend with the health unprecedented pandemic worsened. (Source: World Bank)
9,3 million barrels
emergency of the COVID-19 per day this year
pandemic, the economic effects from the 2019
of suspending almost all activity level of 100 million
barrels per day. Oil
have immediately impacted the prices are expected
world’s commodity markets and to average $35 per
are likely to continue to affect barrel in 2020, a
sharp downward
them for months to come. revision from
the October
The pandemic has affected both the forecast and a
demand for and supply of commodities, 43% drop from
the April edition of the Commodity Markets the 2019 average
Outlook reports. Those effects are direct, of $61 per barrel.
resulting from shutdowns to mitigate Prices for natural rubber and platinum, also include natural gas and coal, are
the spread of the virus and disruptions both heavily used by the transportation expected to be 40% lower in 2020 than
to supply chains, and also indirect, as industry, have also tumbled. in 2019, although a sizeable rebound is
the global response slows growth and Recent efforts by the Organization of anticipated next year. Natural gas prices
leads to what is anticipated to be the the Petroleum Exporting Countries (OPEC) have fallen substantially this year, but
deepest global recession in decades. and other oil producers to cut production coal prices have been less affected since
The full impact of the pandemic in response to the plunge in demand, the demand for electricity has been
on commodity markets will depend will ease some of the pressure on oil less affected by mitigation measures.
on how severe it is, how long it lasts, markets. However, over the longer run,
and how countries and the world the current arrangement, to the extent Industrial commodities
community choose to respond to it. that it supports prices, will be subjected The halt in economic activity has
The pandemic has the potential to to the same forces – the emergence of taken a toll on industrial commodities
lead to permanent changes in the new producers, as well as substitution such as copper and zinc, and metal
demand and supply of commodities, and efficiency
and especially to the supply chains that gains – that led Figure 2: Drop in oil demand outpacing previous global
move those commodities from producers to the collapse recessions. (Source: BP Statistical Review, IEA and World Bank)
to consumers around the world. of previous OPEC
arrangements
Oil market and energy prices and other
The effects have already been dramatic, commodity pacts.
particularly for commodities related A section of
to transportation. Oil prices have the report looks
plunged since January, and prices at OPEC in the
reached a historic low in April with context of the
some benchmarks trading at negative history of previous
levels. Declines reflect a sharp drop in co-ordinated
demand and have been exacerbated efforts to manage
by uncertainty around production the prices of certain
levels among major oil producers. commodities.
Due to mitigation efforts that have Energy prices
limited most travel, oil demand is expected overall, which

26 June 2020