Goldman Sachs – Vaccines, stimulus set tone for 2021 as year ends on bullish note
SINGAPORE (Reuters) – Global commodity markets are poised to end 2020 on a strong note, with recovering demand and widespread stimulus packages buoying prices after a roller coaster ride caused by the global coronavirus pandemic.
Roll-outs of vaccines to combat the virus and trillions of dollars’ worth of fiscal support are expected to boost investment and spending in 2021.
“It’s been a tumultuous year for the commodity market, as the oil meltdown in March changed how we measure and gauge risk in the entire commodity sphere,” Stephen Innes, chief global market strategist at brokerage Axi, told Reuters.
Graphic: price chart of key commodities markets in 2020
“But thanks to the Fed’s unwavering support to dig the U.S. and global economy out of a hole,” commodity markets have flourished, he added.
Dalian iron ore futures and silver are up around 50% in 2020, leading the gains in commodity futures.
Overall, spot Asian LNG led the energy complex, gaining more than 140% this year on booming demand and outages in key suppliers.
Global oil futures have more than doubled from their decade lows hit in April, closing out a historic year that marked the first-ever negative prices for WTI.
Graphic: price chart of key global energy markets in 2020
“The recovery from the pandemic will accelerate once a vaccine is widely available, further supported by ongoing fiscal and monetary stimulus from governments around the world,” ANZ said in a note. “A strong global growth pulse will likely see the U.S. dollar weaken, which is normally a prerequisite for a rally in commodity markets.”
Oil prices plunged in March and April when China and other countries went under lockdown to curb the spread of COVID-19, choking off global fuel demand.
Graphic: 2-year price chart of key global energy markets
Vaccine rollouts have raised hopes for a demand recovery in 2021, brightening the outlook for all energy products, with Goldman Sachs forecasting Brent to hit $65 a barrel in the next 12 months.
Dalian iron ore and Comex silver were the top performing major metals futures in 2020.
Graphic: price chart of key global metals markets in 2020
Iron ore was driven by a combination of booming demand in China and a drop in supplies from key producer Brazil.
In precious metals, Comex silver gained 47.9% and Comex gold 25% on the back of a rush of buying by investors seeking a store of value amid rampant global central bank spending.
In industrial metals, benchmark three-month copper on the London Metal Exchange rose 27% this year, becoming the sector’s best performer.
Graphic: 2-year price chart of key global metals markets
More gains in copper and other base metals are expected in 2021 as the China-led economic revival expands to other regions.
“We will see an overall price surge across metals at least in the first half of the year (of 2021). Money is still trickling through the global economy,” said commodities broker Anna Stablum of Marex Spectron.
In agriculture, Dalian corn futures were the top performing market in 2020, followed by U.S. soymeal.
Graphic: price chart of key global agriculture markets in 2020
U.S. corn and soybeans are on track for their strongest yearly gains since 2010, while wheat is poised to be up for a fourth straight year. Cattle and hogs look set to finish down.
U.S. corn’s gains caught many traders by surprise.
“It was an absolutely unprecedented rally, right into the teeth of harvest. I think that is what we will remember the most, how this market hit the contract lows there during the second week of August, then turning it on and never looking back,” said Jeff French, analyst at Top Third Ag Marketing.
Soymeal, up 40%, and palm oil, up almost 18%, were other big gainers.
Graphic: 2-year price chart of key global agriculture markets
London cocoa dropped around 5% after rising for the last two years. Raw sugar and white sugar are up for a second year in a row.
Reporting by Naveen Thukral and Gavin Maguire; additional reporting by FMai Nguyen in HANOI, Emily Chow in SHANGHAI, Florence Tan in SINGAPORE, Christopher Walljasper and Karl Plume in CHICAGO. Editing by Gerry Doyle