Industrial commodities recover from recent lows as lockdown eases

Prices surge 3.5-12% from recent lows about a month ago with silver futures topping recovery chart among metals; crude futures for near-month delivery surged by as much as 41.7%

Commodity prices fell sharply in early trading on fears of a second wave of covid-19 spread, only to recover on hopes of another stimulus coming. In morning trade today, base metals, bullion and energy futures started with a sharp decline of up to 4 per cent on the MCX but recovered later in the day amid high volatility.

Most prices have improved smartly over the past month, with those of industrial commodities jumping by 3.5-12 per cent from their recent lows about a month ago. The upsurge was driven by hopes of a revival in demand with the gradual opening up of the global economy from months of a Covid-19-induced lockdown. 

Silver futures for near-month delivery reported the sharpest 12 per cent surge the past one month to trade at Rs 48,213 a kg on the Multi Commodity Exchange of India (MCX) today, followed by copper, which added 10.5 per cent (to Rs 444 a kg) and lead, 8.1 per cent (to Rs 141 a kg). Above all, crude oil futures for near-month delivery surged by as much as 41.7 per cent the past one month to trade at Rs 2,750 a barrel today.

Manufacturing activity in factories across the world came to standstill due to a sequential lockdown which caused a slump in the demand of industrial commodities like base metals, energy and bullion, taking it to ‘nil’ in February and March. In April, however, global economies led by China opened in phases, bringing manufacturing, distribution and retail businesses gradually back on track. With customers starting to come back to the stores, manufacturers also bumped up their purchases of raw materials like copper, zinc, aluminium, gold and silver.

“The current rally in base metals, energy and precious metals can be attributed to the stimulus announced by major global economy. Additional money pumped into the system raised indications for commencement of work on stalled projects which eventually bring a resurgence in their consumer demand,” said Gnanasekar Thiagarajan, Director, Commtrendz.

Countries like the United States, China, Japan, European Union and India have already announced massive stimulus to prevent economies from steep contraction. Now, experts are forecasting second round of economic stimulus which would probably give a fillip to consumer demand and eventually the global economy.

Meanwhile, the Covid-19 pandemic has caused contractions in global economy with developed countries like United State and Europe are facing huge pressure on growth. At least, increasing unemployment rate in the United States has posed a threat to the US economy. With the presidential election in the US is scheduled towards the end of calendar 2020, controlling unemployment is gradually becoming a big challenge for the president Donald Trump.

The case is no different in India. Economists estimate around 120 million people have been rendered jobless due to the Covid-19 pandemic which forced closure of factories in the nationwide shutdown for 70 days. Experts say that the economic stimulus would help people buy necessities and thus, work on stalled projects or commencement of new ones would be difficult.

“The current rally in base metals and energy, therefore, is unlikely to sustain,” said Priyanka Jhaveri, Assistant Vice President, Kotak Security,

Meanwhile, base metals on the benchmark London Metal Exchange (LME) recorded a jump in the last one month. While copper price 11 per cent to trade at $5801.5 a tonne, aluminium prices shot up by 8.8 per cent to $1582 a tonne. Silver and gold in spot London market shot up by 14.2 per cent and 2 per cent to trade today at $17.6 an oz and $1737.2 an oz respectively. Crude oil in the international markets moved up by 40.5 per cent to trade currently at $38.19 a barrel. Most of gains across industrial commodities were reported in June.