In 2019, commodity markets were buffeted by a host of uncertainties and risks, including the US-China trade dispute, competitive monetary policy easing by various central bankers, a fairly resilient US dollar, a leashed crude oil market, largely benign weather, and looming growth concerns.

Rising from the year’s lows, some commodities like crude oil (Brent $67 a barrel), gold ($1,512 a troy ounce) and crude palm oil ($770 a tonne) ended 2019 on a positive note. Industrial metals have had mixed fortune.

It is in this background that one must see where major commodities — crude oil, gold, palm oil, cotton, and base metals like copper and nickel — are headed in 2020.

Crude oil : Global growth is expected to show an uptick in performance in 2020, as the effects of monetary policy easing begin to kick in. Together with the possibility of a US- China trade truce, growth prospects should help boost energy consumption modestly. Supply will remain plentiful, especially in H1. The US will continue to pump out shale oil at record levels and stay as an exporter. The OPEC+ will continue to maintain their agreed production levels, possibly extending the agreement till the end of 2020. Hence, the supply-demand fundamentals should be fairly balanced. The role of speculative capital needs to be watched.

Under the circumstances, Brent will be able to defend the $60 a barrel floor fairly well. But the market will continue to face volatility. In H1, Brent may trade between $60-65, notwithstanding that the recent geopolitical conflict actually pushed Brent above $68 a barrel. The market will correct when tensions de-escalate.

Gold : Gold enjoyed a stellar performance in 2019, having risen from the low of $1,270/oz to the highest level of $1,550/oz during 2019, and ending the year at around $1,512/oz in the wake of some geopolitical developments. The US Federal Reserve’s rate cut, the ongoing US-China trade war and global growth concerns propped the metal up as a safe haven during the year. At the same time, enervated physical demand in two of the world’s largest consuming markets – China and India – capped the metal’s upside.

In 2020, gold is likely to benefit from a slew of supportive factors including geopolitical risks, an accommodative monetary policy and a slightly weaker dollar. These should boost the precious metal. But subdued demand conditions are likely to persist through 2020. There is little to suggest any marked uptick in demand as high prices result in demand compression.

Both China and India are going through a severe economic slowdown. Weaker local currencies are pushing up domestic prices. Gold will have to brave these challenges. As always, the gold market will stay volatile. Most likely, the precious metal will trade between a low of $1,450-1,550 an ounce in 2020.

Base metals : After a year of subdued performance in 2019 in the aftermath of US-China trade war and growth concerns, base metals such as copper, nickel, zinc and aluminium should brace for improved market conditions in 2020. ‘Phase one’ of the US-China trade deal has already sent out some positive signals. Global growth is forecast to pick up in 2020.

Copper is likely to return to surplus in 2020. Demand growth will be modest. The metal should trade around $6,000 a tonne with +/- 5 per cent movement. The aluminium market will continue to be well supplied. Expect the metal to stay below $ ,800/tonne, and trade on an average at $1750/tonne.

Nickel will be a supply side story. The market will be in deficit; and any mine supply restrictions in Indonesia can worsen the situation. The metal should trade around $15,000/tonne. Zinc in 2020 will swing into surplus after four years of deficit. Demand for galvanised steel is expected to be muted for the construction market as well as automotive industry. The metal will be range bound at $2,150-2,350/tonne.

Palm Oil : Prices have rallied above Malaysian ringgit 3,000 a tonne (over $720/tonne) in the last two months thanks to a combination of higher demand from China, Indonesia’s ambitious biodiesel programme and slowing supply growth. Prices will remain firm until March 2020.

In Q2, one can expect a sharp correction (12-15 per cent) in the palm oil market as the peak production season starts, and palm oil is possibly replaced by soyabean in the US-China trade deal. Indonesia’s blending programme must be watched closely.

Cotton : The market has been at the receiving end of the US-China trade war since 2018. After the intended phase one deal, hopes of further de-escalation have revived the commodity. In 2020, if the trade tension further subsides, cotton is sure to get a boost as output in major origins fall. However, demand conditions too are likely to be quite subdued. China’s inventory policy is the key to unravel the cotton market outlook. On current reckoning, prices will stay range-bound. For 2019-20, India’s harvest is less than anticipated and quality compromised. Domestic prices are likely to rise in Q1 after harvest pressure eases and the US’ planting intentions become clear.

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

Related Topics
comment COMMENT NOW