A commodity round-up | Calamatta Cuschieri

Following a turbulent year 2020, conditioned by the outbreak of the coronavirus pandemic triggering a widespread global shutdown of economic activity, negatively impacting demand and disrupting supply chains, 2021, at least to date, proved benevolent.

Energy, industrial metals, and even precious metals — those mainly reliant on industrial applications, continued to rebound, maintaining the upward trajectory witnessed at the end of last year.  

Oil

Crude oil - strongly depressed in the first half of 2020, consequent to a fall in demand due to the health crisis and breaking up of the OPEC+ agreement, registered substantial gains in the second half of the year. The re-opening of economies following a decline in coronavirus cases and steady developments on a coronavirus vaccine boosted hopes for a sustained recovery in economic activity and energy demand.

The single most important commodity in the world begun 2021, nearly how it ended – on a positive trajectory.

Crude oil – a liquid fuel source extracted through drilling and used for transportation, heating and electricity generation, varied petroleum products, and plastics, surged over 40 per cent on a year-to-date basis.

OPEC+ said in its June report that oil demand shall rise by 5.95 million barrels per day (bpd) this year, unchanged from its May forecast. Additionally, OPEC+ oil producers agreed to stick to the existing pace of gradually easing supply curbs through July, as they sought to balance expectations of a recovery in demand against a possible increase in Iranian supply.

Crude Oil has in recent days reached the highest levels in over a year, offsetting the pronounced losses that transpired in the previous year amid prospects of a stronger demand amid a post-pandemic economic recovery in the Western hemisphere.

The outlook for the said commodity in 2021 and onwards is seemingly optimistic, reflecting a stronger-than-expected demand recovery and supportive OPEC+ output policies.

Industrial Metals

Prices of industrial metals, triggered by wide-spread closures bringing activity to a stand-still, in the first half of 2020 witnessed significant declines. Although the impact initially proved to be persistent and possibly long-lasting, a rebound in metal demand, led by China, drove prices higher, while fears that misalignment of supply and demand which could have triggered an over-supply of inventories, eventually leading to further price drops, waned.

The upward trajectory was in 2021 sustained.

Iron ore – a beneficiary from increased spending particularly in infrastructure and construction, has on a year-to-date basis registered substantial gains, hovering above the $200/tonne mark amid concerns of oversupply.

Iron ore futures jumped to their highest in more than three weeks as a rebound in steel inventory in top producer China suggested that demand for the raw material remained brisk. Chinese iron ore demand shall possibly remain strong in 2021 as steel output remains high.

The improved sentiment for metal demand was also particularly profound in the recovery of Copper prices - a barometer of the health of the global economy.

The price of the said industrial metal has been boosted by; an improved economic outlook as the global vaccine rollout gathered pace and a substantial economic stimulus - further lifting hopes of a robust recovery, low inventories,  a weakening U.S. dollar, and a shift towards cleaner energy.

An industrial metal which has also been supported by the long-term goals of a green-energy transition is Lithium. Consequent to robust demand stemming from the automotive industry - driven by government incentives to reduce CO2 emissions and tight supplies, Lithium Carbonate, a critical ingredient in lithium-ion batteries for electric cars registered gains of over 90 per cent - the best performing industrial metal on a year-to-date basis.

Precious metals

Ensuing the downturn brought about by the coronavirus pandemic, investor demand for precious metals, those not solely reliant on industrial applications, significantly increased to safeguard the invested capital. The rally, particularly in Gold and Silver - the former surging to an all-time record high near $2,080/ounce and supported by unprecedented monetary stimulus, culminated towards the end of the year. The downward trajectory, albeit recently strengthening as inflationary data progressed, sustained.

The outlook for the said precious metal remains largely conditioned on inflationary data going forward. Should inflation advance beyond expectations, the yellow-metal may continue to increase in price, but if we see inflation begin to ameliorate, gold may indeed let go some of the gains we have recently witnessed.

Palladium – the star performer within the commodities market up until the coronavirus pandemic hit, edged significantly lower at the peak of the pandemic, wiping-out gains realized in the preceding months. The rebounding ensuing such uncertain period was significant, reaching new highs of $3,017 per troy ounce.

The growing value of palladium witnessed in recent years is mainly attributed to an increase in demand due to most car manufacturers shunning platinum and preferring to use palladium in vehicle catalytic converters, designed to reduce harmful emissions for engines running on petroleum.

The outlook on palladium - the best performing precious metal on a year-to-date basis, is at least in the short-term, optimistic. Tighter car pollution standards in Europe and China propping up the demand for the metal along with supply disruptions, particularly following the flooding at Norilsk Nickel PJSC’s (the world's largest producer of palladium) Arctic mine, may continue to sustain palladium prices. 
 

Disclaimer: This article was written by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

For more information visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.