Even as the world is slowly unlocking itself, renewed demand concerns following fears of recurrence of the Covid-19 are seen spooking commodity markets, globally, including energy products and many industrial metals.

The deterioration in investor sentiment is palpable as equities too have fallen in recent days. In other words, the earlier optimism was short-lived and possibly the market shot too much to the upside, as is its wont. Of course, a stronger dollar and profit-taking, too, contributed to the price correction.

Oil plunges

Crude oil market has taken a good beating. After a spectacular rally that took it well past the psychological $40 to about $42 a barrel on June 5, Brent declined to $39 on June 12 and has now fallen further. It was seen trading at $37.5 on Monday. WTI was not far behind at $34.5 a barrel. In other words, oil prices have plunged by almost 15 per cent from the highs seen earlier this month.

The market participants have been focusing more on the supply side — production cuts by OPEC+ as well as steady fall in the US shale output which is increasingly becoming a major market driver. Reports suggest the rig count in the US has now fallen to less than 200, the lowest since June 2009.

Despite this price-supportive supply side development, demand has re-emerged as a matter of concern. China appears to be the only beacon of hope for the energy market at the moment. Outside of the Asian major, demand is still weak.

Metals drift

Base metals market, too, has not been an exception to this price slide. Late last week, there was a noticeable correction in metals prices. Now, copper, nickel and aluminium prices have dropped. As it is well known, China is the mover and shaker of the global industrial metals market, and reports of new cases of infections in capital Beijing have spooked the sentiment.

In other countries too Covid-19 is taking a heavy toll; the US being no exception where the scale is worrisome. Among emerging markets, Brazil, Russia, India and South Africa are struggling to contain the damage inflicted by the pandemic. It is in this context that economic data from China are keenly awaited.

Slow comeback in demand

Two recent reports — World Bank and OECD — paint a scary picture of the world economy and world trade. The global economy is set for a contraction in 2020, notwithstanding the stimulus package announced by various countries. While fiscal and monetary stimulus packages are sure to support economic activity, they may not be able to infuse confidence as the current emergency is not just economic but more medical and human health-related.

Of course, it is no one’s case that Covid-19 is here to stay. As lockdowns are lifted and pandemic comes under reasonable control, demand will inexorably bounce back. But it is going to take a fairly long time for business and consumer confidence to return to pre-Covid levels.

Even in India, the lockdown is gradually easing. But for businesses to get back to the revival mode, commercial banks will have to be forthcoming in their lending. Banks are seen as risk-averse and reluctant which is not a good sign for accelerated revival of economic activities.

The writer is a policy commentator and commodities market specialist. Views are personal.

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