Coronavirus recovery will not be good for all commodities

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    By Clyde Russell

    LAUNCESTON, Australia- If 2020 has taught us one thing it should be the near-futility of making year-ahead predictions.

    Nonetheless, crystal ball-gazing is likely to once again be a popular year-end pursuit for analysts.

    While the spread of the coronavirus disease led to lockdowns and economic devastation across the world, the story for commodities was far more nuanced, reflecting that the pandemic was not your run-of-the-mill global recession.

    The story for 2021 is likely to be dominated by the recovery from the coronavirus, especially since it now seems likely that viable vaccines will be widely distributed over the year.

    But much as the coronavirus didn’t affect all commodities negatively, the recovery will likely lift some, and leave others languishing.

    Perhaps the best example of a commodity that had a stellar coronavirus year is iron ore, with the spot price of the steelmaking ingredient surging to the highest in nearly eight years on Dec. 9.

    Benchmark 62 percent iron ore for delivery to north China MT reached $150.15 a ton, as assessed by commodity price reporting agency Argus, taking its surge since the lowest price this year – $79.60 in March – to 89 percent.

    Iron ore has benefited from both supply issues in number two exporter Brazil and strong demand from China, which buys more than two-thirds of seaborne cargoes.

    The commodity is the most obvious beneficiary of Beijing’s massive stimulus spending as it sought to boost the economy in the wake of the coronavirus lockdowns, with construction and infrastructure projects keeping steel demand red-hot.

    But for 2021, iron ore may see the froth come out of the rally, as it’s likely Brazil’s supply woes will be resolved.

    For the rally to continue on a demand-led basis, China’s stimulus spending would need to continue at more or less the same pace that has been in place in the second half of 2020.

    It’s unlikely that it will be wound back dramatically, but it’s probably a fair assumption that Beijing will seek to take its foot off the stimulus accelerator somewhat.

    If this does happen, it may be the case that copper will also lose some steam from its coronavirusrecovery rally.

    London copper futures have jumped 67 percent since their low on March 23 to end at $7,723 a ton on Dec. 9, near their eight-year high of $7,760.50 on Dec. 4.

    Similar to iron ore, copper is effectively a China story in 2020, with imports of the unwrought industrial metal up 38.7 percent in the first 11 months of the year from the same period in 2019.

    While iron ore and copper are the heavyweights of the metal world, China’s influence has also been felt in aluminum and nickel, both of which have had positive years on the back of buying from the world’s biggest consumer of commodities.