Almost all commodity prices recovered in the third quarter following steep declines earlier in the year due to the COVID-19 pandemic.Metal prices recovered rapidly in response to a faster-than-expected pick up of China’s industrial activity. Some food prices have also risen. , as a slow recovery in demand is matched by an easing in supply restraint. Metal and agricultural prices are projected to see modest gains in 2021.
1. The commodity price recovery from the pandemic has been uneven
However, the recovery has stalled recently amid concerns about renewed COVID-19 infections and their impact on oil consumption. In contrast, metal and agricultural commodities have recouped their losses from the COVID-19 pandemic and are expected to make modest gains in 2021.
2. Oil production has been cut sharply in response to the fall in consumption
In response, many oil producers cut production, most notably the Organization of the Petroleum Exporting Countries and its allies who collectively agreed to production cuts of 9.7 million barrels per day—almost 10% of global output. The combination of production cuts and a pickup in consumption helped oil prices partially recover in the third quarter of 2020.
3. The pandemic is expected to have a lasting impact on oil consumption
Some industry scenarios even suggest demand may have already peaked in 2019. Air travel may see a permanent reduction, as business travel is curtailed in favor of remote meetings, reducing demand for jet fuel. A shift to working from home could reduce gasoline demand, but this may be offset by increased use of private vehicles if people remain averse to using public transport.
4. Metal prices have risen above pre-pandemic levels as global industrial activity recovered, led by China
The robust recovery of industrial activity in China has led to a surge in demand for metals—China accounts for around half of global consumption of metals.
5. Gold prices have been boosted by the pandemic and policy responses
Prices have also been boosted by the depreciation in the U.S. dollar and decline in interest rates. Mine production disruptions, most notably in Mexico, Peru, and South Africa, and reduced gold recycling due to pandemic-induced restrictions on labor movement also supported prices.
6. Food prices have remained broadly stable and increased recently
There has been some increase in prices more recently, led by lower edible oil production and a weakening of the U.S. dollar.
7. The stock-to-use ratio remains high, indicating well supplied conditions
Food price stability reflects well-supplied conditions, as evidenced by the stock-to-use ratio, a measure of supply relative to demand. The ratio remains at its recent high levels.
8. Some regions have seen significant food price inflation, however
Despite relatively modest food price inflation at the global level, some regions have seen much larger price increases.South Asia, Sub-Saharan Africa, and Latin America have been among the most affected regions. The pandemic is expected to cause a rise in food insecurity and malnutrition.