Commerzbank Commodities Radar July 2020

Source: Bloomberg data

Premature recovery of base metals prices

Metals prices have recovered swiftly from their coronavirus-related crash in March, and since then have risen strongly. The LME Index, which tracks base metals traded on the LME, has gained 17%. Despite the coronavirus continuing to dominate our lives and new infections being globally on the rise, sentiment has improved significantly. Market participants seem to consider the crisis as overcome, no longer giving it any thought. Yet we believe that it is too early for such optimism.

The Chinese economy seems to have bottomed out, following the government's drastic measures to contain the virus – at least that is what recently published economic data suggests. Furthermore, many sectors within the country have returned to pre-crisis levels. Nevertheless, China is not immune, being highly dependent on the global economy, which is still showing weakness – as seen in the collapse of Chinese export orders. In addition, a second wave of infection poses the risk of stifling economic recovery. Since lockdown measures in the EU and the US were only introduced in mid- and late March – and thus later than in China – we are still lacking 'hard' data to prove that the economy has actually bottomed out. In the meantime, however, numerous signs seem to point towards recovery.

Whilst market participants previously feared a slump in demand, they are now hoping for a recovery, focusing too little on the demand side. With mines and smelters being forced to close temporarily as a result of the lockdown measures, demand concerns turned into supply concerns, which we do not consider justified. We see demand being impacted far more by the coronavirus pandemic than supply, a fact evidenced by the supply and demand development of many metals as early as in the first quarter. In our opinion, oversupply – which had, by the way, already been expected for 2020 in many metals markets even before the coronavirus crisis unfolded – cannot be prevented by temporarily shutting down production plants. Industry associations, data providers, and manufacturers reported partly high supply surpluses for nearly all metals markets in the first quarter. For example, the global copper market was oversupplied by 188,000 tons, and on the global aluminium market supply exceeded demand by a significant 1.7 million tons. In most cases even larger surpluses are expected for the full year 2020: close to 300,000 tons for copper, and 3-5 million tons for aluminium.

Given the – to some extent – still-negative economic data and the high oversupply on most metals markets, we are surprised that prices have shown such robust development over the past months. We believe that metals prices should be lower; therefore, we expect a corresponding decline which would create an attractive hedging opportunity for buyers against mid- to long-term price increases. The better the crisis is handled and the coronavirus is contained, the faster and stronger metals prices should climb at a later point in time.

Source: Commerzbank Research, as of: 30/06/2020

in EUR per unit in EUR per unit
Precious metals Agricultural products
Gold per troy ounce High
Low
1,613.47
1,225.60
Cocoa per mt High
Low
2,403.27
1,781.95
Palladium per troy ounce High
Low
2,610.38
1,263.33
Cotton per pound High
Low
0.64
0.44
Platinum per troy ounce High
Low
933.75
553.36
Maize per mt High
Low
180.75
155.00
Silver per troy ounce High
Low
17.77
11.04
Rapeseed per mt High
Low
421.50
355.50
Sugar per pound High
Low
0.15
0.09
Wheat per mt High
Low
206.25
153.00
Industrial metals Energy
Aluminium per mt High
Low
1,652.25
1,312.45
Brent Crude Oil per barrel
High
Low
62.73
17.83
Copper per mt
High
Low
5,632.92
4,301.93
Coal per mt
High
Low
56.12
34.69
Iron Ore per mt High
Low
110.19
71.09
Diesel per mt High
Low
576.62
164.38
Lead per mt High
Low
2,058.20
1,455.56
Electricity per MWh
High
Low
43.98
15.89
Nickel per mt High
Low
16,509.93
10,051.16
EUA per tonne High
Low
30.20
15.30
Tin per mt High
Low
16,778.14
12,403.50
Gasoil per mt High
Low
579.16
176.28
Zinc per mt High
Low
2,340.49
1,675.89
Jet Fuel per mt High
Low
609.88
115.63

* Source: Bloomberg data, period: 24/06/2019 - 23/06/2020

** From the perspective of German companies, the listed commodities are generally priced in a foreign currency. For this reason, currency risks need to be considered in addition to commodity price risks.

LinkedIn Twitter YouTube