Commodities Rally is projected to 2021: The coronavirus would mark a milestone in the cycle, potentially leaving years of weak prices behind

Uncertainty due to the electoral result in the US drags down the prices of copper and gold

Advances in the vaccine have injected energy into the rebound that industrial metals, oil and natural gas and food had been experiencing. However, the most decisive change in the long term would be given by a redefinition of the economic priorities of governments, caused precisely by the pandemic.

With the help of the promising news regarding Covid-19 and a weaker dollar, commodities are on a roll toward the final stretch of a complex 2020. Although the rebound, in view of a post-pandemic recovery, has been observed since August and September, undoubtedly the advance in the development of the vaccine injected more energy into a trend that has engines to spread in the long term.

From the lows that were touched in the middle of the strict confinements that marked the first and second quarters of the year, the rebounds are higher than 40% for sugar, soybeans and nickel, more than 56.6% in the case of copper, of 78.8% in the case of iron and an incalculable jump from the -US $ 37.68 that cost a barrel of WTI oil on March 20 to the US $ 43.04 with which the session closed yesterday (see infographic).

“Things have been going quite well for metals and bulk commodity prices in recent months, with many recovering to trade above pre-Covid levels as competition for units increases, in through a sequential improvement in demand, ”says Colis Hamilton, a commodity strategist at Bank of Montreal, in light of the data.

For her part, Tracey Allen, who holds the same position at Goldman Sachs, delves into informing her clients about the effect of the progress of the vaccines of Pfizer and BioNTech, on the one hand, and of AstraZeneca and Oxford, on the other, ensuring that “the evolution of vaccines will be more optimistic in the long term, mainly for commodity markets.”

Long-winded boost

However, beyond the conjuncture and the improvement in the outlook with which the markets operate at the moment, Goldman Sachs distinguishes a more defining turning point from the long-term challenges posed by the pandemic.

“While the vaccine has tactical advantages, the pandemic itself represents a structural change. Over the past decade, the Goldman Sachs Commodities Index (GSCI) has dropped 60%, erasing 3 decades of gains. We believe that this streak of bad returns has come to an end after the Covid crisis, “says Jeffrey Currie, global investment researcher at the aforementioned entity.

In a report, he details that the recovery in prices “will actually be the beginning of a much longer structural bull market for raw materials”, this, because the coronavirus “is ushering in a new era of policies aimed at social needs rather than financial stability ”, which would generate“ cyclically stronger and more intensive economic growth in raw materials that should generate the elusive cyclical upswing in demand ”.

Thus, 2021 looks promising for energy and industrial commodities according to Goldman Sachs projections. The WTI, the benchmark for oil in Chile, would go from an average value of US $ 38.7 a barrel in 2020 to one of US $ 52.8 next year, while in the case of copper it would go from US $ 2,752 to US $ 3,317 in the same period (check box).

“The Covid has caused a massive increase in public spending, especially in the United States, where the dollar was already facing headwinds. Although the dollar received a boost from a flight to safety at the start of the crisis, this support is likely to fade in 2021 and beyond, creating a positive feedback loop similar to what it did during the 1970s and 2000s. when oil and gold reached all-time highs ”, Curria emphasizes, when adding arguments to the positive outlook for which he is betting.

Positive scenario for copper

Although with more caution, the improvement in the outlook for the red metal in particular is repeated nationwide. Cochilco yesterday raised its expectations to an average value of US $ 2.75 a pound this year versus the US $ 2.62 forecast in August. Meanwhile, by 2021 he estimates that the price of copper will rise to US $ 2.90 a pound compared to the US $ 2.85 previously projected.

The Minister of Mining, Baldo Prokurica, explained that this increase in the projections is mainly due to the positive expectations of a higher demand for copper in China, given the recovery of its economy, the depreciation of the dollar, the fall in inventories , as well as the high probability of having a vaccine against Covid-19 during the first half of 2021.

Samuel Burman, Commodities economist at Capital Economics, although attentive to the Chinese, stresses that we must also look at the rest of the world. “We expect copper prices to decline by the end of next year as fiscal stimulus is gradually withdrawn in China, the main consumer. That said, we remain optimistic about the long-term prospects for copper, as the renewed push from European and other governments towards electric vehicles and renewables should provide a structural boost, ”he says.

Juan Carlos Guajardo, executive director of Plusmining, anticipates that “in the short term, the price of copper could continue to be sustained above US $ 3.15 per pound, as a result of temporary effects on demand and a restriction already materialized in supply. . A brief period of correction is to be expected in the following months, but which will then give way to a new upward momentum to levels around US $ 3.50 ”.

Source: La Tercera

Translated with Google Translator